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The evolution of business models in the video-game industry

Monetisation specialists from French video-game company Ubisoft, the creator of games such as Assassin’s Creed, Far Cry or Just Dance, recently talked to students on EDHEC’s MSc in Marketing Management, Entertainment & Services concentration, as part of the firm’s learning partnership with the programme.

Written on 06 Mar 2020.


 

Being profitable is every company’s goal and the video-game industry is no exception. However, the way in which the sector generates revenues has changed over the past decade. First, the way to sell games has drastically changed in less than 10 years. Indeed, retail went from 98% of Ubisoft’s sales revenues in 2010 to less than a third in 2019. Retail sales currently generate less than additional content revenues, which are becoming a vital part of business strategies in videogames.

 “The market went from paid retail to a range of options, including digital sales, free-to-play or even subscription offers” says Vincent Morel, Live Revenues Manager at Ubisoft.

Another crucial factor is that games are always more connected and with bigger scopes, resulting in bigger costs and financial risks for companies. In this context, microtransactions allow a wider range of business models in games and reduce the financial risks of releasing a new hundred-million-dollar project.

 

Monetisation, a growing stake for videogame publishers

Publishers no longer earn revenues solely from game purchases (the traditional pay-to-play, or P2P, business model), but often offer a wider range of additional content, from Season Passes to in-game microtransactions. The more a player loves a game and enjoys it, the longer he stays in it, and the more likely he is to consider monetizing in it. With that in mind, quality of games and their retention are huge stakes in gaming nowadays.

“We create a live revenues strategy, which allows the game to stay profitable over time,” says Mr Morel. “We need to keep players engaged in the game without being too aggressive with our monetisation and remain fair to our players.”

The job of the monetisation design team is to give guidance to the studios on how economic game design and monetisation must work together to assure an enjoyable experience in which players have the possibility to monetize, Mr Morel adds. The company views monetisation as the art of selling optional sources of fun, he says.

Why would players want to pay more than the initial purchase price? “For many reasons, from aesthetics to social recognition,” explains Mr Rivière, live revenue analyst. “As we have witnessed in Fortnite, games are becoming cultural phenomenon, and players might want to be fashionable and look special in the game of the moment, or just want to escape from an initial game fantasy with more absurd looks.”

These additional sources of profit come in many forms, from vanity items to gameplay items or consumables depending on the type of game they are sold in. Games can also choose to distribute monetized items through different ways, including loot boxes, battle passes or bundles.

“When monetizing gameplay items in a Player versus Player game, we have to find a good balance between the price that gamers are willing to pay and the time that gamers who do not want to pay must invest in order to get this item” says Mr Morel.

 

Ubisoft, MSc learning partner

As a learning partner of the MSc, Ubisoft contributes to course content in the form of company visits, case studies and keynote speakers.

“The gaming industry has become the most important entertainment industry and its business model and trends can be inspirational for other sectors,” says Programme Director Professor Guergana Guintcheva. “This is the main reason I chose Ubisoft as a learning partner for our programme.”

 

The student view

Xiaojie Zhang, EDHEC-2020, MSc in Marketing Management

“The thing that interested me the most was the discussion about the consumers who pay additional money and the corresponding value acquired: what to give, at what price and how to balance the satisfaction of paid customers against that of customers only buying the core game. I learned about a gaming-industry trend: that gamers are playing more but purchasing less. Consequently, monetisation has moved from paid retail (offline sales) to free digital (online) to subscription (like Spotify and Netflix). This change from offline to online has had a huge positive effect on Ubisoft’s margin. If Ubisoft sells a game at €60 the huge difference between their margin on digital and retail sales is impressive. I also gained knowledge on the core game-loop design of some mobile games: a stable starting phase to make the players familiar with the game, satisfied with their achievement, then engaged; a small monster to make the players feel challenged; then the game increases in the next level of difficulty. Each step should give consumers enough time to become interested and spend enough time there, or the option to pay extra to skip several challenges."

 

 

Additional reading on video games:

Guintcheva, G.-Sapino (2017) ‘L’impact du système de monétisation sur l’expérience de jeu des gamers. Le cas des jeux free-to-play’. Revue Française de Gestion, 43(262): 37‒50.

Guintcheva, G.,  Houriet Segard, G., Mangiatordi D.(2020) Concentration, patience, stratégie… ces compétences que les jeux vidéos permettent de développer. The Conversation, 5 February 2020. Available at: https://theconversation.com/concentration-patience-strategie-ces-compete....

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