At What Price, Free?

Tuesday, June 30th, 2009
By Anita Frazier, Entertainment Industry Analyst Toys & Video Games

We frequently meet with clients to take a look at changes in the industry and consumer behavior, and provide analysis and insights into how the changes will impact things to come. This spring, it was clear that last year was one of the most transformative years in the video games industry: audience expansion, the accelerating adoption of digital distribution, increases in mobile and social gaming, and the influence of the Wii were all topics on the minds of industry followers. But I get a little uneasy when I see how all these factors are influencing the plethora of free game options available, and while it’s great to have more ways to expose gaming to a broader audience, the industry struggles with how to best monetize that gaming activity.

A case in point: NPD recently conducted a study of iPhone/iPod Touch applications using its panel of pre-identified iPhone/iPod Touch owners. Some of the gaming industry questions pertained to the impact that the greater availability of gaming apps for those devices has had on the time those folks spend playing games on other platforms. But what was striking, and a bit disconcerting, was the reported downloads of free vs. paid gaming applications. On average, respondents indicated they had downloaded nearly 10 games, but the paid for only 18% of them. Taking it a step further, of the Lite game apps. they downloaded (nearly 5 on average), only 18% then upgraded to a paid app. So did the Lite app. satisfy their gaming need enough? Or was the Lite app. so unsatisfying that the respondent didn’t bother to upgrade? Either way, it’s not a great scenario, but what could be more harmful to paid gaming overall is if the free app. is satisfying the gaming need for the respondent.

I was contemplating all of this when I read our latest study on Gamer Segmentation, which was recently released. Probably because this free gaming issue was on my mind, I took special note of one particular section of the report that addressed the willingness on the part of the various gamer segments to pay for micro-transactions. Across the types of potential micro-transactions, the amount the gamers were willing to pay decreased over the last year. I can’t help but think that the explosion of free gaming options is exercising at least a slight downward pressure on pricing for gaming. Grappling with the monetization of these new avenues for gaming and assessing the impact it has on the more traditional channels for gaming will be an important issue for the industry to address in the coming year.

Regardless, the Gamer Segmentation 2009 study found a very promising sign for the games industry: that participants in gaming increased by 4.3 million over the last year. So, while free gaming may be a source of concern, surely it is also one of the reasons more have come into gaming as a form of entertainment. The challenge remains: making these consumers more invested participants who contribute to the expansion of industry revenues over time.

2 Comments

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  By Joseph Young, June 30, 2009 @ 2:05 pm

  Hi Anita,

  Thank you for sharing some of the findings from your recent Gamer Segmentation study. I think the game industry should look at how other products on the web are monetizing for ideas. Though I don’t think advertising is the solution, there are many other forms of monetization that developers and publishers can use to remain sustainable.

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  By Justin Cooper, June 30, 2009 @ 8:48 pm

  I agree that Apple would best serve itself and its development community if it looked at the marketing and monetization models that work best in the downloadable casual games business, namely time- or level-limited free games that upsell to paid versions of the game. Another popular model is to release a game for free and then monetize through microtransactions. Apple’s rules explicitly prevent both of these models. If they want developers to build sustainable businesses on their devices, they’re going to have to give them the business/marketing tools that they need to succeed.

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