Frontline Marketing

‘Games As A Service’ Drives Video Game Growth In 2017, But Stumbles Along The Way

By | December 28, 2017 |

Both console and PC gaming saw growth this year, as video games continue to be treated as live services, bringing in revenues that rival or surpass those of the initial game purchase. However, monetization strategies for retail games, particularly related to “loot boxes,” hit some bumps, prompting controversy among the gaming community.

Other highlights include the fast growth of esports, marked by several major partnerships from traditional sports. Accompanying that is the increased emphasis on video content such as livestreaming, which helped lift games such as Rocket League and Playerunknown’s Battlegrounds to incredible heights.

Then there’s the highly successful Nintendo Switch in the spring, which was bookended by the release of the Xbox One X in the fall. The latter gaming system, which emphasized its computational power and high-end graphical capabilities, capped off the trend of “mid-cycle” consoles that began with the PlayStation 4 Pro in 2016—where more powerful game consoles came out before the lifecycles of their predecessors officially ended.

“Games As A Service” And Esports Drive Growth

According to Elena Fedina, senior analyst at SuperData Research, the console market grew by 12 percent and the PC gaming market similarly grew by 11 percent in 2017 compared to 2016. This was largely led by major franchises like FIFA and Call of Duty shifting more toward digital distribution and developers adopting the “games as a service” model by creating additional content that extends their games’ lifecycles.

Tom Wijman, market consultant at Newzoo, agrees that having games transition to live services has been the largest revenue driver for 2017, since the system makes games profitable beyond their initial purchase. But he also notes that PC gaming has had a particularly strong year, rivaling consoles with breakout hits such as Playerunknown’s Battlegrounds. The popularity of esports was one of the main drivers of growth, leading to a rise in broader competitive play.

“Looking at individual game titles on console and PC, it is clear that competitive gaming involving team play, rankings and livestreaming is claiming a growing share of overall game time,” said Wijman.

Esports had some major highlights in 2017 that will play out in 2018, including how luxury car brands such as Mercedes-Benz and McLaren entering the space. But the chief trend comes from how Blizzard Entertainment’s Overwatch and Riot Games’ League of Legends are building franchised leagues. Similarly, the NBA and Take-Two Interactive partnered to create the NBA 2K League, which puts the marketing strength of basketball teams such as the Dallas Mavericks behind esports teams, players and brands.

This kind of crossover will continue, as the NFL and MLB franchises have also begun stepping over into esports. There has even been talk about officially including esports as events in the 2024 Olympic Games.

The competitive gaming trend is also driven by the growth of livestreamed content. SuperData named Game Video Content (GVC) as a rising star when it comes to audience engagement, predicting that the number of worldwide viewers will reach 665 million this year, generating $4.6 billion in revenue. Livestreaming isn’t just critical to esports titles, but it has also benefited non-competitive single-players games such as Stardew Valley.

“Generally speaking, gaming is an active, ‘lean forward’ activity,” said Wijman, explaining the phenomenon. “A gaming session can be quite intense, even if it’s not a competitive game. Livestreaming has added a relaxing option for people to enjoy the content of a game in a ‘lean back’ manner.”

The year of gaming trends ended with a bit of controversy, as Star Wars: Battlefront II became the center of a debate regarding how systems such as loot boxes—which offer random rewards—are used to monetize games after their initial purchase. This has prompted some governing bodies to look more closely at certain games, likening them to gambling. However, both analysts agree that the issue was a natural stumbling block as developers and publishers experiment with games as a service.

“It was inevitable that there would be a clash between gamers and publishers, to say the least,” said Wijman. “We can’t say for certain that rising development costs are enough to justify adding these new monetization models, but we can say for certain that this switch to continuous monetization was always going to happen after mobile gaming paved the way.”

“Discussions of loot boxes as gambling is not new to games,” Fedina explained. “In Asia, developers were forced by law to disclose the chances of getting items from loot boxes to inform players earlier this year.”

But Fedina said not all titles that follow the games as a service path need to use loot boxes, citing League of Legends as an example. The free-to-play game makes the majority of its revenue by selling different characters and aesthetic skins, and will garner $22B in microtransaction revenue this year. Fedina also warns that developers need to be cautious with how they approach monetization.

Wijman said that it’s important to keep in mind that although the loot box controversy came from a vocal minority of gamers, it is this passionate group of gamers that publishers want to engage.

“I fully expect that we’ll see many more examples of publishers missing the mark looking for new ways to monetize the games,” he said, “but given the reported revenues, I don’t expect the overall trend to change.”

Nintendo Switch And Mid-Cycle Console Launches

This year’s big surprise came from Nintendo, which managed to turn around its years of declining revenues in just a few months with the release of the Switch. The console ended up outselling all others this year by relying almost completely on signature games such as The Legend of Zelda: Breath of the Wild, which received near universal acclaim from both players and critics.

“We estimate the console to sell 13M units by the end of 2017,” said Fedina. “Switch is skewed greatly towards physical distribution when it comes to big games like Zelda, but as more games come out on the platform we expect it to affect the digital space more.”

It’s too early to tell how well the Xbox One X has been doing in comparison, but Fedina is confident that the high-powered console will be popular this holiday season.

Wijman thinks the console has had an unremarkable release. “The potential power of the hardware is interesting for those dedicated to console gaming,” he said, “but the release missed a truly spectacular game release to accompany it that made full use of the raw power of the console.”

Whether or not players take to the Xbox One X may speak to how well they’ve accepted the mid-cycle upgrade trend. Last year’s Xbox One S console did remarkably well, but the console has a significantly lower price point, so it might not be an indicator of the Xbox One X’s potential success.

“Mid-cycle consoles are a new thing, and there are both enthusiastic supporters of this move as well as vocal opponents,” said Fedina. “However, these debates are often held on thematic gaming websites, and general consumers who are ultimately making the purchase aren’t always aware of these debates. We’ll have to wait and see how Christmas goes to be able to speak to actual numbers without speculation.”

Wijman said that enthusiasm for both the PlayStation 4 Pro and Microsoft’s new console has been limited, but maybe that was to be expected.

“By releasing an upgraded, ‘elite’ version of an existing console, Microsoft and Sony were never likely to draw a huge new crowd,” he said. “The release was mostly geared towards core console gamers looking to get the most out of their experience.”