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Console microtransactions: the best of both worlds

There are currently about 23 million console gamers in the US who use microtransactions, totaling $352 million in annual sales. Slowly, but surely, console games are adopting what has been a popular method to spend money on games in other digital sectors, like MOBAs, social and mobile games. As we find ourselves at the beginning of a new console cycle, we expect publishers to be willing to take bigger risks and experiment with recently emerged publishing models.

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Wait, what? First, here’s how we define microtransactions: small in-game purchases of economy-based downloadable content, such as in-game currency, vanity items, weapons, songs, vehicles and class unlocks. This excludes full game downloads or additional game content like expansion packs and maps.

Obviously, certain genres lend themselves better for this type of monetization than others: almost half of the gamers who use microtransactions play either shooter or action-adventure games. This also means that this audience has a preference for the Xbox One and PS4 over the Wii U, in terms of current generation consoles.

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At this year’s Game Developer Conference, Sony revealed that its revenue from free-to-play titles on the PS3 and PS4 had doubled since last year. For the US market, conversion rates were 7.1% last month—in line with Sony’s stated “3-15%”. Today, Sony offers just 12 titles that feature microtransactions, including Blacklight RetributionWarframe, and DC Universe Online.

The digital console is growing up

Until now, several barriers contributed to the slow adoption of microtransactions on console: audience expectations, payment preferences and available options, game inventory. The retail model of shelling out $60 for a game has long been the dominant monetization method for consoles. Likewise, the system of first having to convert real money into, for example, Xbox Live points outside the game and then spending those points on an in-game item made for too many steps. But the Xbox One and PS4 suggest that the platform manufacturers are trying to streamline the purchasing process.

At the same time, major publishers are also getting wind of this new market. A growing number of console-based games are experimenting with microtransactions: blockbuster titles like Grand Theft Auto V (Rockstar), Assassin’s Creed III (Ubisoft) and Borderlands (2K Games) have started offering virtual currencies. Today this amounts to only a secondary source of income, compared to their retail sales, but we expect this to continue to grow.

We got a small taste of this when Grand Theft Auto V opened its online component to microtransactions. Late last year we reported that the in-game currency would net Take-Two $41 million in the game’s first year. It was an early-stage learning experience, as the mechanics of the game neither required major spending, nor did the existing consoles make it an easy process.

Of course, the expensive cost structure behind a traditional console title makes it difficult to offer the games up for free and follow a production cycle of ongoing iterations. In the foreseeable future we anticipate that console microtransactions will provide gamers additional content without infringing on the console game experience and offer publishers a healthy secondary source of income.

“It is difficult to overstate the importance of a solid relationship with a platform holder.”

Informing console game design

As microtransactions become a standard feature to many game genres, so, too, will console games start to incorporate them. Hardware manufacturers will be receptive to developers and publishers with a focus on microtransactions and, in return, offer better visibility among console gamers. As we already know from mobile gaming, it is difficult to overstate the importance of a solid relationship with a platform holder. Many industry execs are currently following the release of World of Tanks (Wargaming.net) on the Xbox 360. Its outcome serves as a barometer for other free-to-play titles and a new generation of microtransaction-enabled console games. Offering up content that suits their gamers presents a major strategy opportunity.

Contact us to learn more about our digital console research.