How video games earn money? Well, that’s quite an interesting concept. Let’s understand the topic one by one!
How Video Games Earn Money?
There are two different game models- Free games and Paid games.
Paid games are not freely available and require to spend money on it before playing. Thus they primarily earn money through it.
Free games work on the Freemium (Free + Premium) business model. In other words, it has some in-game items which can be purchased using real-life money. This is the primary way in which free games earn money.
It is a fact that freely available games like Pubg or Clash of Clans end up earning more money than paid games like Minecraft (Please check the FAQ section for more details and explanation).
Story to Relate:
In some free games, you might have seen banners or ads. This is the main way through which free games earn money.
On the other hand, games like Pubg, Pokémon Go, where there are no ads, the company earns money by in-game items that can be purchased using real-life money.
Let’s Find Out:
- What are the different monetization techniques in video games?
- Why Monetization is Important?
- How much Video game industry earns?
- Criticisms faced by the video game industry.
Different monetization techniques in video games:
Video games earn money in the following ways:
1. Money through In-app purchases:
In in-app purchases, some aspects of a game’s contents can be purchased to improve or enhance the game experience for a player. These aspects may range among new playable contents, in-game currencies, cosmetic options, and otherwise unavailable or restricted gameplay advantages.
These types of purchases are common free mobile games where potential customers may be hesitant to purchase a full game, but more at ease with smaller, yet more numerous payments.
Instead of real money, in-game currency is used to buy items like costumes, skins, potions, etc. from the in-game shop. Real money can be exchanged for in-game currency in the shop. The other and free way of getting in-game currency without spending money is somewhat tricky and slow.
Also Read: Pubg Vs Fortnite
For example, In Clash of Clans, it takes hours to construct something. To reduce the construction time one must spend gems and the easiest way to earn gems in Clash of Clans is by spending real-life money. Thus they convince players to spend money on games.
How They Convince Players?
Another example is about Pokemon Go, for every 10 minutes your pokémon stays in a gym, you get 1 coin and you can get a maximum of 50 Pokécoins per day. This way of getting Pokécoins is very much time-taking as it takes 500 minutes to get only 50 coins. Frustrating, isn’t it? So players spend real money to get the in-game currency.
But convincing players are not that easy. The developers must make the game addictive and challenging, ensuring that no player leaves the game. But in the last, only less than 15% of players become payers. And only a few payers become assets that pay regularly.
Moreover, they also, add exclusive events accessible only by paying a certain amount of money. These also help to convert players into payers. They are mainly upgrades but still rake in quite a lot of cash.
Also Read: How Video Games Become Famous?
2. Money through Ads driven revenues:
Free games also make money by sponsorships. Many big companies also sponsor these games. These may include showing ads of the object or other things.
Let’s take the example of Pubg: In Pubg, while playing some games or using some apps you might have seen that there are ads or pop-ups.
Though games like Pubg earn less by in-game ads, they focus on earning money through in-app purchases.
Also Read: How Pubg Became Popular?
3. Money through Targeted ads:
It is rumored that the big companies sell your data to the ad-companies for money. By listening in to the audio devices or your location they pick up keywords or know about your interest that is in-turn sold to advertisers for a large profit.
But even after adding many features, only a few players actually spend in the game. The non-paying players are also helpful. They provide reviews and feedback to the game company and they also help in improving and upgrading the app which indirectly helps them generate more revenue. The monetization in most games is, as of now, optional. In other words, players can proceed in the game without even spending a single penny.
Since we now know how video games earn money, let’s understand now why monetization is important. The ultimate purpose of developing the apps is to make money through it. One of the biggest reasons in the favor of monetization in the apps is that they give the company the reason for providing future updates and adding more features to the game. If the company doesn’t get a good return to the investment, the company does not create the next parts of the game and vice versa.
For example, The Prince of Persia franchise was stopped as it was not returning a good amount of money.
On the other hand, due to the high popularity of GTA games, its next installments are still developed and published.
How much video game industry earns?
Now that you know how video games earn money, let’s check how much they earn.
According to Wikipedia, the video game industry generated $138 billion U.S. dollars only in 2018 and the amount is increasing every year with a rate of over 15%. The smartphone game industry also plays a significant role. With over 53% of shares in 2018, the smartphone gaming industry is ruling the gaming industry now. It is expected that the video games industry will rule the future world.
In fact, the video game industry earns more than Bollywood and Hollywood combined. You must have got an idea on how video games earn money.
Also Read: Video Game Addiction
Criticisms faced by video game industry:
Due to monetization in games, it somehow affects the game design and the gameplay. Some games are so strict and greedy that they don’t allow the user the cross the level without spending money.
The company Electronic Arts (EA) is trolled worldwide for its high pricing in micro-transactions. Furthermore, some game even leads to gambling. Thus many countries are making special laws to visit this problem.
You can know more about Criticisms faced by video game industry.
Fortnite or Pubg lets you buy skins by real-life money that makes your character look different. In battle royale games, in-app purchases are the primary method. Fortnite has a good player base who regularly buy items using real money.
Some games offer subscription services. This Subscription allows members to use exclusive items like guns, quests, new levels, and others. This type of model is rare nowadays. An example of this method would be World of Warcraft. This is also an example of how video games earn money.
It is said that some video game companies sell your data like location, your history, your gender, etc to advertising companies to gain some revenue. The advertising companies use your data to show you ads and get engagement.
When a player is stuck at a certain level of the problem, the player can skip the level by using credits earned from real money. This technique is used widely for video games to earn money.
Well the answer is that it actually on the company of the game. Some games are so strict and greedy that they don’t allow the user to cross the level without spending money. While in other games, monetization is optional. So its totally your choice which game you have to play.
Ans: In a nutshell, free games earn more money.
Let us understand it by an example:
We have two games A and B. Game A is free and has 100 players whereas Game B is costly( about Rs 200) so it has 10 players. Now due to other monetization methods ( like watching ads, in-game purchases, etc), let us assume 40% of players spend money (about Rs100) in both games.
Total revenue in-game A is 40%*100*100 = 4000
Total revenue in game B is 200*10 + 40%*10*100 = 2400
Thus free games earn more money than paid games. This is how video games earn money.
Ans: It totally depends upon you. If you have no problem spending money in video games then its okay to buy items like costumes, skins, potions, gems, and other things. But if you don’t feel good enough then there is no need of spending money.
Monetization is optional and not mandatory in many games. But in the end, this is how video games earn money.
Ans: Some games also do affiliate marketing or promotions. Promotions can be in any form like costumes, banners, extra assets, etc.
For example, Pubg collaborated with Resident Evil in 2019 and added event-exclusive Zombie mode. Pubg was indirectly promoting Resident Evil through it.
Ans: Some of the most highly profitable video game companies are Ubisoft, Electronic Arts, Rockstar, Tencent, Sony, and others.
Some of the most highly profitable games are Pubg, Fortnite, GTA Franchise, Resident Evil, Far Cry Franchise, Angry Birds Franchise, etc.
So this was a blog on how video games earn money. Now you have an idea about the topic. I hope you liked it and keep visiting for more future updates.
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