A shift to sales of game add-ons

If you’ve already paid $60 for a video game, haven’t you spent enough?

That’s the question Electronic Arts, or EA, the maker of games including the Madden NFL series, FIFA and Battlefield, has to answer after angering customers who eagerly anticipated one of its biggest holiday releases, “Star Wars: Battlefront 2.”

On top of the “Star Wars”-themed action-shooter’s $60 list price, the game included micro-transactions, which enabled players to spend real-world money on in-game items such as “loot crates” — essentially a mystery box filled with perks.

Although video games have long allowed players to spend currency on cosmetic purchases such as special costumes, “Battlefront 2” players were upset to learn that a trial version of the game let them spend money to bolster their characters. Those who opted against paying were at a disadvantage and simply had to “grind” — that is, play for many hours — to achieve similar powers or unlock

marquee characters such as Darth Vader.

Players accused EA of engaging in pay-to-win practices. Reddit threads ballooned with customer criticism and threats of boycotts. EA’s stock started falling Nov. 16, on the eve of the game’s launch. On the same day, the EA-owned studio that built “Battlefront 2,” Dice, announced that it would suspend all microtransactions.

“We’ve heard the concerns about potentially giving players unfair advantages, and we’ve heard that this is overshadowing an otherwise great game,” Oskar Gabrielson, general manager of Dice, said in a statement. “This was never our intention. Sorry we didn’t get this right.”

If players thought that was the death knell for micro-transactions, though, they’d be wrong.

Over the last year and a half, a growing number of big-name publishers have adopted the games-as-aservice model in a move that industry analysts say achieves two things: It prolongs the life of a video game, and it gets consumers to keep opening their wallets.

“Games are no longer just products that people play for 10 to 12 hours and then trade in,” said Mat Piscatella, an analyst with NPD Group. “Publishers used to have a three-to-four-month window to do the majority of their sales. Now, with the games-as-a-service model, games are continuously updated. These games are becoming longer-lasting communities.”

And the more time players spend with a game, the more likely they are to spend, Piscatella said.

The numbers don’t lie: In the first half of its current fiscal year, Ubisoft, the publisher of games such as “Rainbow Six Siege” and “Mario + Rabbids: Kingdom Battle,” reported that customers spent more than $204 million on what it calls “recurrent spending” — ingame purchases, in other words. That figure was up nearly 83% from a year earlier. Take-Two, the publisher of “Grand Theft Auto” and “NBA 2K18,” reported that recurrent spending in its fiscal 2017 second quarter was up 66% year over year, and now accounts for 48% of the company’s total net revenue.

As for EA, revenue growth from its live services category has outpaced that of traditional boxed games. During the company’s second quarter in 2016, it made $213 million from live services and $313 million from packaged games. A year later, revenue from live services grew more than 51% to $323 million, while packaged game revenue, removing the seasonal spike of holiday sales, notched $332 million.

“The shift toward live services is an irreversible industry trend, and all publishers have embraced this strategy,” said Andrew Uerkwitz, an analyst with Oppenheimer.

Each publisher calls it something different, and it’s a bucket that includes downloadable content, micro-transactions, and games that are available to play for free but charge for in-game purchases. The reasons for doing it are the same across the board, according to Uerkwitz: revenue stability, better predictability and higher margins.

Some publishers, such as Nintendo, have not been as aggressive in their implementation of in-game purchases, with some of its most popular titles selling as stand-alone games without add-ons. But as is often the case, the Japanese publisher remains the exception rather than the norm, analysts said. Aside from keeping shareholders happy, publishers are also seeking higher margins to fund the rising costs of game development.

“When I first started making games, the biggest budgets were $10 million,” said Ben Cousins, co-founder of game studio the Outsiders, who previously worked at EA on the “Battlefield” series. “Now we’re talking $100 million, $200 million.”

The increases come from many fronts. With each new console generation — from the PlayStation 3 to the PlayStation 4, for example — the machines are capable of doing more, which means developers are tasked with making more. Developers are also driven to outdo previous games, with more levels, bigger game worlds and online components.

“There’s this incredible oversupply of video and audio,” Cousins said. “These games have Hollywood actors in them, they have symphony orchestras, Dice will send a drone to Italy to photograph a particular rock face to put in the game.”

Despite rising development costs, and the fact that the base price of a game has remained $60 for more than a decade, Wall Street has remained bullish on the EAs and Take-Twos of the world because growth in live services remains strong. Uerkwitz of Oppenheimer said “Battlefront 2” remains the most important game for EA this holiday season, and his expectations for the game haven’t yet changed since the controversy.

In a note to investors on the day of the game’s launch, though, he did warn that other developers might now need to tread more carefully when they implement ingame monetization. Other analysts also said that companies such as EA are now likely to face tougher scrutiny. In Belgium, the game has already drawn the attention of the gambling authority over its use of loot crates, which have a chance component to them.

“Developers and publishers will have to figure out what balance will keep consumers happy,” said David Coles, an analyst with DFC Intelligence. “The issue for a company like EA is their model is still selling these games at $60 a pop. If you look at mobile, where the games are free and charge in-game purchases, people aren’t complaining.”

Cole said publishers should consider how disgruntled players will affect their bottom line.

“What if it affects 15% of sales?” Cole said. “Are you selling enough loot crates to make up for your loss? That’s what it comes down to.”