We certainly have no problem getting caught up in the fun of playing games, but the people who create them have their pocketbooks to worry about, too. In this column, finance expert and GameSpy contributor Chris Morris guides you through the tricky corridors the gaming industry's financial side, touching on big-time business decisions and how they matter to the common gamer.
Top Dollar
It wasn't that long ago that the idea of paying real-world money for an in-game item was crazy talk. Games, after all, were expected to ship complete. Any extras would come via patches or bonus items -- or, more often, via the mod community. The rise of massively multiplayer online games and the move to digital distribution methods have changed that, though. And according to a recent study of over 1,000 gamers -- conducted by PlaySpan and VG Market -- one in three of today's gamers has purchased virtual goods.
You don't have to look too far to see proof of that, either. When Blizzard put the Celestial Steed mount up for sale in World of Warcraft last year, the wait to buy one was more than seven hours long at one point -- earning the company $3.4 million in the first day. Earlier this year, the company raised more than $1.9 million over three months to help victims of Japan's earthquakes and tsunamis by selling a Cenarion Hatchling pet.
World of Warcraft's Cenarion Hatchling.
What's shocking is not the fact that some 31% of today's gamers buy these virtual items -- it's what they're paying for them. Men who play MMOs spent an average of $77 with first-party publishers over the last 12 months on items, virtual currency, or additional content. And the amount spent with third-party websites on these items hit $74.
Women were even more free-spending, handing over $86 to first-parties and $111 to third-parties. Women, in fact, were nearly twice as likely to buy a virtual item to decorate their page, persona, or avatar.
Of course, this is hardly a trend that's exclusive to the core gaming world. MMOs, in fact, were just the third most popular venue for virtual item purchases. Console games led the pack, making up 51% of all virtual purchases. That's kind of a gimme, given how streamlined Xbox Live and the PlayStation Store are. And if multiplayer gaming fans want to keep up with their friends, they really have no choice but to buy downloadable add-ons for popular games when they come out. Prime example: Activision has sold 14 million map packs for Call of Duty: Black Ops (at $15 a pop, that works out to $210 million, by the way).
Ka-ching!
Free-to-play titles came in second, cornering 30% of the market. Again, it's a result that makes sense, since those companies rely on people to buy virtual items to survive. And, boy have those companies seen the rewards.
Zynga, of course, is the 400 ob. gorilla in the social network gaming space; it boasts a valuation of over $11 billion, and saw profits in 2010 of $90.6 million -- with revenue hitting $597.5 million. In the first three months of 2011, it earned $11.8 million and had sales of $235.4 million. That's a lot of virtual seeds and pesticide.
Even EA, which has just started to explore the free-to-play space and social games, says it has been overjoyed with the results.
"If you look at the way people play in Asia, PC is the model," Frank Gibeau, president of EA Labels, told me earlier this year. "I think that the free-to-play model is coming to the West in a big way."
For social games, it's women who are doing the buying. Females are three times more likely than men to use Facebook credits to buy a virtual item, according to PlaySpan. That math makes sense, since the average social gamer is a 43-year-old woman. In fact, a 2010 study by PopCap found that 55% of all social gamers in the U.S. are women. In the U.K., that number is nearly 60%.
Social gamers sure love their FarmBux.
The buyers aren't just one-time shoppers, either. Among the people who purchase virtual items, 58% do so at least once a month -- with 2% saying they buy something every day. And it's likely to keep increasing: 72% of the people PlaySpan spoke with said they plan to spend as much or more on virtual goods this year versus last year.
In-game currency is the most popular purchase, with 48% of the PlaySpan survey respondents saying that's what they've bought. Maps and additional levels were a close second at 47%. Armor, equipment and weapons came next.
Consoles may be making the most from virtual item sales right now, but it's far from a sure thing that they'll hold that lead. With Google+ introducing social games last week, and major MMO launches looming from EA (and, at some point down the road, Blizzard), the PC could soon be the virtual item leader.
"PC retail may be a big problem, but PC downloads are awesome," said Gibeau. "The margins are much better and we don't have any rules in terms of first-party approvals. From our perspective, it's an extremely healthy platform. ... It's totally conceivable that it will become our biggest platform."
Chris Morris has covered the video game industry since 1996, offering analysis of news and trends, and breaking several major stories, including the existence of the Game Boy Advance and the first details on Half-Life 2.