Video game monetization

Overview

Video game monetization is a type of process that a video game publisher can use to generate revenue from a video game product. The methods of monetization may vary between games, especially when they come from different genres or platforms, but they all serve the same purpose to return money to the game developers, copyright owners, and other stakeholders. As the monetization methods continue to diversify, they also affect the game design in a way that sometimes leads to criticism.

Methods

Although there are several business models to monetize video games, they can be categorized into six major models. A video game may use more than one of these models at once.

Retail

Retail purchase is the traditional method by which games are sold from brick and mortar stores or online retailers. Customers pay for a physical copy of the game and any other game related peripheral devices required for play in-store. Retail purchasing has previously made up the bulk of game-related transactions, but it has been on the decline since the 2010s due to the rise of digital distribution and mobile gaming. However, the importance of brick and mortar game stores as a place for gamers to gather and show their passion still remains. Furthermore, some retail purchases may come with collectible boxes and possible in-game items to attract customers over digital download. The retail market also incorporates the second-hand market, the trading-in and resale of used games, such as through GameStop.

Digital distribution

Digital distribution or digital download is similar in practice to retail purchasing, but is different in venue. Instead of acquiring a game through a physical store, customers buy their games online and download the game's data directly to their devices. Many games sold through digital download are distributed by means of a third-party service that functions in the same way as a physical store, selling a variety of games from many different developers in one location. Valve's Steam is an example of digital distribution platforms for PC gaming.

Subscription

A subscription model is a business model where a game requires continuous, ongoing payments from customers in order to play the game. Games that utilize subscription often sell access in blocks of one-month increments or in multiples thereof. Once a subscription runs out or is canceled by a customer, their access to the game ceases or is reduced until they re-subscribe. This method is most often associated with games that require an online connection or services that require capital to operate on the part of the publisher or developer. An example of games that use subscription model is World of Warcraft.

Subscription service is, on the other hand, not a direct subscription to a game but a subscription to gaming-related services. These services may include, but not limited to, monthly games such as Humble Bundle, temporary access to game library such as Origin Access, and access to multiplayer online session such as PlayStation Plus.

Microtransaction

Microtransaction (MTX) is a business model where aspects of a game's contents can be purchased to enhance the game experience for the player. These aspects may range among new playable contents, in-game currencies, cosmetic options, and otherwise unavailable or restricted gameplay advantages. Traditionally, these purchases tend to be relatively inexpensive but numerous in variety. Microtransactions are often common in social and mobile games where potential customers may be hesitant to purchase a full game, but more at ease with smaller, yet more numerous payments.

Downloadable content (DLC) is a kind of microtransaction that expands the base game by providing additional contents. Depending on the game and publisher, a downloadable content may be a large expansion that greatly impacts the game, or a series of smaller expansions. These expansions can be either skins, maps, story, or even a new game mode based on the main game.

Premium currency is a type of virtual currency used by many free-to-play games to support microtransactions, such as V-bucks used for Fortnite or Robux for Roblox. While many games have a virtual currency that is gained while playing the game and can be used to buy items and equipment, premium currency generally is acquired by exchanging real-world money for a fixed quantity of virtual currency, when then is used to purchase in-game items. Developers can opt to reward premium currency for playing the game, such as the ability to recoup the cost of a Fortnite battle pass by completing it, and can discount in-game store items. Most often, premium currency cannot be redeemed for real-world money, with one notable exception being Second Life. Because of this limitation, premium currencies can be seen as predatory: these currencies are often only provided in packs of specific sizes, so that players cannot purchase the exact amount needed to acquire an in-game item, and thus some of the purchased premium currency will remain unspent.

Loot box is a variation of microtransaction of which the rewards are random. The player has no control over the rewards they receive for paying in-game or real world currencies although the game often shows a list of possible loots that the player may get from the loot box. The content of the loot box may range from purely cosmetic items with no effect on gameplay, such as skins in Overwatch, to powerful items with a gameplay advantage that otherwise the player has to grind to achieve. Some games may require the players to rely on loot box system to obtain characters and items more heavily than other games. They are sometimes referred to as a Gacha game.

Season passes allow players to buy multiple pieces of downloadable content for a game as a single purchase, usually at a discount compared to purchasing each piece of content individually. Season passes may be offered before all piece of DLC that would be included are announced, though consumers are usually told of the general type of content they will get and how many pieces of content they will get. Season passes may be offered on annual or more frequent schedules, and later releases of the game may include all season pass material as part of the package offered at a discounted. A related concept is the battle pass which provides access to a number of in-game cosmetics and other items for players as they either complete challenges for it or gain experience within the game.

Player trading

Player trading is a business model where in-game items and digital currencies can be traded between players on the game marketplace that allows the publisher to get a cut on transactions that players made. Most of the times, The publisher can get a percentage from every transactions, like Steam community market, or from a difference between buying and selling price of the in-game currency, like World of Warcraft. However, player trading can lead to a gray market where through third-party websites, these virtual items can be bought and sold with real-world currency, which, for games that use gambling-like mechanisms, can violate regional laws. In one specific case, Valve took steps to shut down extensive use of Counter-Strike: Global Offensive items that were being used for skin gambling after it was discovered that these items were being used to wager on games of chance by younger players. Related to player trading is the incorporation of blockchain technology, which purports to provide an encrypted record of ownership and transfer for a digital item. This can be used to trade digital items by treating them as non-fungible tokens (NFTs). These blockchain transactions can also be set up to require that a percentage of the payments in a player-to-player transaction are diverted to the publisher. One of the first examples of a blockchain game was Cryptokitties in 2017, a virtual pet game where unique cartoon cats backed by blockchain (effectively NFTs) could be bred to make new ones that could be traded with others. Cryptokitties made headlines when one of these virtual cats sold for more than US$100,000 via Ethereum cryptocurrency. As of 2021, the use of blockchain and NFT for monetization is limited. Some publishers have expressed interest in increasing their use of blockchain and NFT technology. The intersection of video games and blockchain financing is sometimes referred to as "GameFi". Because players can earn money from these sales, such games can also be called "play-to-earn", with limited cases reported of players earning a living salary from participating in these games.

Advertising

Advertising is a form of indirect monetization. Apart from aforementioned methods of monetization, indirect monetization generate revenue from other sources that does not directly come from the player. Most frequently, this is the placement of advertisements within a game; these may take the form of banner advertisements, commercial breaks in play, or product placement in the game. Games that rely on advertisement for returns usually are free-to-play or are cheaper than other games as their production cost has already been subsidized. Undesirable advertising monetization is when the advertisements are designed to look like something the user might click without realizing it is an advertisement.

Types

The above methods of monetization can be combined in multiple ways to produce various types of monetization schemes. As a result, games may be classified by the overall scheme used by consumers to pay for content in the game.

Upfront-based revenue models

These models are based on where the publisher and developer anticipates the bulk of the revenue to be acquired from upfront purchases of the game's title.

Premium Premium games are those where the consumer buys the game once through retail or digital distribution, and may purchase additional downloadable content for the game, but the game itself has limited content. This typically describes the bulk of games sold at retail prior to the availability of digital distribution or online functionality, and remains a key sales area for console and computer games, but less common for mobile games. Freeware Games that are provided free of charge by their developer or publisher. These should not be confused with open-source games, which are games developed and released under open-source or free-software licenses, regardless of whether the user is charged for playing them. Freeware games, on the other hand, are provided free of charge, but might be released under a proprietary license. Shareware Games that typically follow the freemium model, offering a demo of the game and the ability to unlock the rest of the game with purchase of a code or similar unlocking mechanics. The intended use was for the game's files to be shared with other users, a means to distribute games prior to digital distribution.

Ongoing-based revenue model

In these ongoing revenue models, the publisher and developer may offer the game for free with the expectation that they will earn ongoing revenues from various transactions far along the lifetime of the game. This model is very common for many online games and in the mobile game marketplace.

Buy-to-play Like premium games, the consumer buys the game once to play, but here, the game generally continues to be supported by the developer or publisher by maintaining online servers or producing new content regularly for the title. The player may need to buy access to this new content at times, such as through a season pass. Depending on the game, this type of model may ultimately be nearly indistinguishable from that of traditional premium games. Free-to-play Free-to-play games do not require the player to purchase the title to play, though access to some features and content may require purchase of a subscription or via microtransactions. Freemium Games that are free to play to start, but limit how far the player can progress before they must purchase the game. Subscription model (Pay-to-play) Games that require the player to pay a regular subscription fee to maintain access to all parts of a game. The game is typically free-to-play to allow new users to try the game but full access requires the subscription to be paid. Advertising-based Games which are typically free-to-play but require the player to periodically see advertising before they can continue, with the developer or publisher earning revenue from the advertising. Play-to-earn or Pay-to-earn Games that typically incorporate blockchain elements such as NFTs. Players are incentivized to use NFTs to improve their value or create new NFTs, with their sale managed by the video game publisher or developer. The player then is paid by the company for their work towards the new and/or upgraded NFT. There is usually an upfront payment required by the player to get started, typically in the purchase of either cryptocurrency used by the game or in-game currency that they can later trade out, thus making these games "pay-to-earn", and have been considered the equivalent of Ponzi schemes.

Ownership versus licensing

Games delivered on physical media which do not install content on a user's console or computer, such as most cartridge-based systems as well as earlier optical media games that simply read content directly from the disc, are generally considered to be products owned by the person that bought the game, and thus gives them the ability to give away or sell that game under principles like the first-sale doctrine of U.S. law; once the person has given away their copy, they generally have no legal means to play it. As video game grew popular and the second-hand market for video games became popular, the industry began to introduce methods to limit second-hand sales of games that were delivered on installation media. Such methods included labelling games with "Not for Resale" stickers to simply discourage resale, and using product keys that could only be used once (through an online confirmation system), making the installation media valueless without a fresh product key. The industry has generally settled on using a software license that grants them the ability to install and play the game but restricts them from selling the game again. These licenses typically include end user license agreements (EULA) that limit what the user can do with the game, such as unlicensed modifications. License transfers may be possible under the EULA, but typically require the original owner to fully divest themselves of all copies of the game and related materials along with the installation media, and assure that the second-hand recipient agrees to the same EULA terms. Coupled with increased use of digital distribution, the license approach significantly limited the used game market. Within the United States, the use of software licenses is considered upheld by case law under the Ninth Circuit decision of Vernor v. Autodesk, Inc., which ruled that consumers of software products with licenses are licensees and bound by the EULA and are not owners of the software, invalidating any first-sale rights. A subsequent Ninth Circuit case, MDY Industries, LLC v. Blizzard Entertainment, Inc., affirmed the Vernor decision to video games. The situation is more complicated in Europe; in UFC Que Choisir v. Valve Corporation in 2015, a French court ruled against Valve for failing to offer the means for users to freely transfer game licenses between users, a requirement of European law. In September 2024, California enacted AB 2426, effective January 1, 2025, which requires sellers of digital goods, including video games, to clearly disclose when consumers are acquiring a revocable license rather than unrestricted ownership, and restricts the use of terms such as "buy" or "purchase" without such disclosures. By 2026, the law had given rise to class action lawsuits against video game sellers over their digital storefront purchase flows.