Video game industry leaders such as Activision Blizzard Inc. (ATVI), Electronic Arts Inc. (EA) and Take-Two Interactive Software Inc. (TTWO) have all gained immensely from adding on characters and stories to games after a successful title’s launch. In-app purchasing, like the ability to insert new chapters into a finished book, extends fans’ enjoyment for the same game and allows companies to capture incremental sales from a successful launch without going through the process of coming up with a completely fresh idea or plot line.
However, industry experts say the trend is a double-edged sword, diminishing users’ excitement over the next big hit as they stay on the same game for years at a time instead of the typical two to three months. (See also: Gaming Stocks to Watch in 2017.)
The Shift to ‘Games-as-a-Service’
Worldwide spending on PC and console game add-ons hit almost $5 billion in 2016, nearly doubling in just four years, reports SuperData Research. Despite the boost to top line numbers, executives say adding players and stretching out games can make it more difficult to produce new blockbuster titles. Analysts at R.W. Baird highlight that there’s not much of an incentive for players to buy the next new game if they are “actively engaged with older games.”
On the plus side, longer game life spans hedge against major game flops and perhaps demonstrate a larger shift to a “games as a service” business model, similar to the SaaS or a subscription-based software model used by IT companies. As leading game makers evolve within a disrupted industry, a SaaS-type model may provide more steady, higher-margin digital income as firms simultaneously get better about ramping up excitement for new launches. Recently, the transformed gaming model has extended beyond add-ons, to actual services such as matching users by skill level and hosting contests, leading users to spend more time playing and therefore more likely to invest in in-game purchases. (See also: Betting on the Booming eSports Industry.)