Anyone who's heard Alex St. John's views on the gaming industry would probably find him hard to forget. He declared that the wildly popular gaming consoles face an imminent demise; brazen commentary which is a counterpoint to those doomsayer claims that PC gaming is dying -- an argument that in effect debates the future of the MMO industry. "A real migration from CD games to online games would break the console business model, so you either have to make up an entirely new one, or believe that consoles as we know them are gone," St. John said in a March interview with ExtremeTech. St. John is banking on this paradigm shift, particularly as his business is predicated on giving games away for free and profiting from the flow of commerce in-game. Oh, and you might also know Alex St. John's name for that other thing he's famous for -- he created DirectX.
Sure, St. John is a bit of a firebrand. But WildTangent's success with online game distribution and in-game advertising hints that the man might just know a thing or two about earning revenue from games, in ways wholly unrelated to boxed sales or subscription models. WildTangent "has the fourth largest private game network in the U.S., and said it receives 50 percent of its revenue from ads sold on both single-player and multiplayer titles," St. John stated at ION, giving some further background about who he is and why he believes that we're entering an 'online PC gaming renaissance,' as Gamasutra puts it. While WildTangent's titles are all downloadable and free, they are not MMO clients. Still, quite a number of his business practices -- namely microtransactions, in-game currency and ad views -- are applicable to the MMO industry.
St. John believes that games are "becoming broadcast media" and that "television is 'free' because the value of the content to an advertiser is greater than the capturable value of the content to the consumer." He stated that at least 50 percent of the (monetizable) value of a game will be in advertising. More to the point, is in advertising, although these profits remain largely untapped by companies reliant on box sales. St. John said, "television is 'free' because the value of the content to an advertiser is greater than the capturable value of the content to the consumer... advertising does not cannibalize games sales when it is presented correctly, thus not designing a game to support advertising wastes 50 percent of its value."
This is not to say that in-game advertising is the way to go, either. St. John believes these ads are ineffective, largely because they're intrusive on the gaming experience; interrupting someone's gameplay with an ad is counterproductive. The solution to integrating ads without frustrating gamers is to give them a choice right from the beginning: they can either play the game right away for a small amount of virtual currency, or play for free by watching a video ad before the game can begin. Either way, the gamer can make his or her own choice, so long as ad views remain exterior to actual gameplay.
He expanded upon his experiences with this type of advertising during his speech at the recent Wedbush Morgan Securities Management Access Conference. WildTangent has seen a 400 percent growth in ad revenues, with CPM (cost per thousand views) rates of roughly $140, he stated. This favorable outcome suggests that it may be possible to abandon the idea of actively wooing large advertiser sponsorship accounts. Instead, game companies could scale this business model into a more "Google-like economy."
His evangelism of these ideas, coupled with successful practical applications of these business models, lends even more weight to the microtransaction camp's assertion that the industry's future isn't going to be in game sales or subscriptions. That it's all about the commerce within virtual spaces; what happens after the game is freely made available to the consumer. St. John told ION attendees, "The box game industry requires the money up front before they'll let you find out if it's any fun. Online, you get to try it before you put money down. And in that world, brand doesn't matter. Brand is the promise of entertainment, but now it's the experience that matters. Great games are best monetized after a consumer is hooked."
It's hard to beat free-to-play games, whether single-player or MMO, for enticing people to try out something new. Offering games on a free-to-play basis, with tradeoffs in the form of ads or integrated RMT, is fast becoming a trend in the industry, even outside of the Asian markets where this practice flourishes. But whether or not companies and gamers in the west accept these new revenue models as the norm remains to be seen.
Developers and publishers would face the risk of giving away years of development efforts and marketing costs for free. Most gamers, of course, dislike making compromises with their gameplay by viewing ads; conversely, they are also limited by the costs of either buying or subscribing to multiple titles. In the case of an MMO gamer, the standard $15 per month subscription fee limits many players to only a few titles, at most. Exposure to new titles is often through free, but limited, trials. Removing the subscription fees associated with most MMO's would eliminate a barrier -- the barrier -- to finding and actively playing new games.
If those pre-game ads remain peripheral to the actual game experience, ad views paired with virtual currency could be a win-win situation for the companies and gamers alike. Alex St. John is not the lone voice of dissent in the gaming industry calling for this sea change in business models, but what he proposes could have a drastic impact on the future. His progressive views represent a shift in thinking that the companies, and the gamers themselves, may not be ready for.