Videogame Development and the need for Microtransactions

  • ShadowStrider 7

    With so many concerns for microtransactions within the forums, I thought it might be nice to clear up why it is we'll see them and why they help benefit everyone.

    Why do we see microtransactions in videogames?
    On average a AAA game developer spends roughly 12 million a year per 100-ish employees. Rare is a 'legendary' company, that employs 200-ish employees. I'm sure their pay is a bit higher, so we'll say 15 million per year per 100, which equates to 30 million a year.
    Now add that to the fact that this was announced in 2015. 3 years at 30 million a year (for just employees) equates to 90 million dollars.

    Now factor in what it might cost for utilities (electric, water). Let's say it costs 400/mo for electric and 150/mo for water (and that's probably low). That equates to 6,600/year - 19,800/3 years. So now we're up to $90,019,800. Now let's say the developer doesn't actually own the building, but leases instead. Depending on the size, we're looking at a substantial amount of money. Let's say the building lease costs $3,500/month (and that's low considering the size of Rare HQ). That's 42,000/year - 126,000/3 years.

    Now we're at 90,145,800. Assuming marketing goes well, let's say you can expect 5 million pre-orders. 5 million copies at $60 a piece is 300 million. Now taking that profit and subtracting costs, we're at 209,854,200. Let's assume Microsoft takes a 15% cut of the profits. That's 31,478,130. So now you're left with a total of 178,376,070.

    Finally, factor in the cost of server start-ups, server rentals, employee food and team-building, global distribution and marketing, I'd say we're looking at another 50-200 million (depending on a lot of factors) but for the sake of this post, let's say it's another 90 million. So you take that 90 million away from our previous total of 178,376,070 and we're left with a mere 88,376,070.

    TL:DR Everything costs money. At the end of the day that $60 game is only $25-$30 for the developer. The goal is to net as high a profit as possible, but that will only sustain the game for 1-3 years. What happens to a game that is online-only that will need to be further developed and adjusted? How is that paid for once pre-orders are done and your influx of new players ceases? Microtransactions.

    So why are microtransactions important?
    Microtransactions allow the game to keep a "free-for-all" content model. With regular updates paid for by MTs, you keep everyone playing together, without locking someone out behind a paywall and the profit gains can be considerable, thus funding the game for years to come.

    EDIT The views contained in this post are my own. I do not work for, or represent Rare in any way. Pricing/costs are estimated and are in no way representative to that of a Rare employee. I do not work in the industry, nor do I have extensive knowledge of it. This is my personal take on microtransactions.

    TL:DR
    Here's a video (for all you lazys) I found that also covers some similar aspects.
    https://youtu.be/ypZZTIOR__Q

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  • Natsu v2
    Lord
    Insider
    Founder

    @shadowstrider-7 Extra Credits got bashed hard for those videos. You really shouldn't be citing them, as they got so much stuff completely wrong. I love their channel, but they have absolutely no idea what they're talking about on this topic. AAA games are far more profitable than ever today. While microtransactions help a ton with post-launch content, they aren't necessary at all to sustain a $60 release, which was what their original video was defending.

  • ShadowStrider 7

    @natsu-v2 said in Videogame Development and the need for Microtransactions:

    @shadowstrider-7 Extra Credits got bashed hard for those videos. You really shouldn't be citing them, as they got so much stuff completely wrong. I love their channel, but they have absolutely no idea what they're talking about on this topic. AAA games are far more profitable than ever today. While microtransactions help a ton with post-launch content, they aren't necessary at all to sustain a $60 release, which was what their original video was defending.

    I only included the video for the people who don't read walls of text. Their views have nothing to do with what I have written above. My above wall of text came from about an hour of Google/Bing searches for semi-accurate pricing and information.

  • Natsu v2
    Lord
    Insider
    Founder

    @ant-heuser-kush You didn't even read what I wrote. Of course the amount of post-launch content that Rare seems to have up their sleeve is going to require post-launch monetization. I never disputed that.

  • Natsu v2
    Lord
    Insider
    Founder

    @ant-heuser-kush You're misunderstanding completely. By "sustain a $60 release" I don't mean by adding content to it. I mean having a $60 release and then not adding anymore content to it, ever. You can more than easily achieve large profit without any MTX as a AAA company.

  • ShadowStrider 7

    @natsu-v2 said in Videogame Development and the need for Microtransactions:

    @ant-heuser-kush You're misunderstanding completely. By "sustain a $60 release" I don't mean by adding content to it. I mean having a $60 release and then not adding anymore content to it, ever. You can more than easily achieve large profit without any MTX as a AAA company.

    Agreed, but the profit gains from MTs are hard to be ignored. Especially with companies like EA raking it in by the billions.

  • Natsu v2
    Lord
    Insider
    Founder

    @shadowstrider-7 And that's the heart of why they do them. But EC was going out of their way to sympathize and pretend that a AAA game model is completely unsustainable unless they jack the base price up to like $70-$80 or add lootboxes.

    For the record, I think SoT is doing MTX in the best way possible from what we've heard.

  • Musicmee
    Vanguard
    Insider
    Moderator
    Founder
    Deckhand

    @natsu-v2 Agreed, and if we want a game to last 2-3 years from one initial £60 purchase we are asking a bit too much... yes they will get tonnes up front but a year down the line of server/staff costs all that money will be gone. These kinds of microtransactions patches that hole!

  • ShadowStrider 7

    @natsu-v2 said in Videogame Development and the need for Microtransactions:

    @shadowstrider-7 And that's the heart of why they do them. But EC was going out of their way to sympathize and pretend that a AAA game model is completely unsustainable unless they jack the base price up to like $70-$80 or add lootboxes.

    For the record, I think SoT is doing MTX in the best way possible from what we've heard.

    The video is simply for the lazy people :D

    I agree that it's more than attainable to achieve profit from a 'one-and-done' launch. I also agree that Rare's approach with MTs is one of the smartest models I have seen. Cheers to them.

  • Dr rock68
    Master
    Insider
    Founder

    Nice post and a good read+1.

  • IvoryDoll

    I'm cool with MicroTranactions in the method that Rare is implementing - cosmetic only. If it was a pay to win/pay to play concept then...just say no.

  • LaughsManiacaly
    Master
    Founder

    Ok so let me chip in here,
    The video gaming industry is one of the most profitable industries around and has only grown over the past 10 years. It's current turnover greatly exceeds that of the film industry and it's growth is clearly on a steeper curve over the same time period.

    The cost of games has indeed increased as more and more technical requirements are implemented to keep with the trends, this is the same with all industries. These costs are subsidised as that tech develops and more developers learn to adapt it. This keeps software costs down. You are right that maintaing building, utilities and staff isn't cheep but the fixed price for £60 is either expecting a high early dropoff for buyers or is intended for profiteering.
    Neither of these are aided by MTs as the extra content needs be purchased and is thus not part of intended gameplay as in my second point OR as in the prior point, they seperate already sparse content behind additional cost because they know the content is sparse.

    Honestly if you want to see MTs done right look at rockstar, every dlc is free, there is no direct advantage past the cash you earn (gta is pay to unlock in that regard) which could be earned through continued grinding of task.

    Why not MT some secret loot or inheritance that bolsters your in game currency (like R*) no rep bonus or anything but just cash. Clearly the market is there if content is still coming out for gta online.

  • LaughsManiacaly
    Master
    Founder

    @ant-heuser-kush i know they do, but free dlc doesn't need to be financed from MT as in this situation, it is a ruse that many developers are using to further milk the gaming industry.
    It is one that will inevitably (eventually) damage the industry.

    My only relief here is that it is at least not power paid MTs.

  • Kruqnut

    league of legends is the most succesful implimentation of microtransactions, they raked in 22 billion in 2016 on a free to play game with no pay to win. all cosmetic. and the game has been out a decade

  • ShadowStrider 7

    @laughsmaniacaly said in Videogame Development and the need for Microtransactions:

    Ok so let me chip in here,
    The video gaming industry is one of the most profitable industries around and has only grown over the past 10 years. It's current turnover greatly exceeds that of the film industry and it's growth is clearly on a steeper curve over the same time period.

    The cost of games has indeed increased as more and more technical requirements are implemented to keep with the trends, this is the same with all industries. These costs are subsidised as that tech develops and more developers learn to adapt it. This keeps software costs down. You are right that maintaing building, utilities and staff isn't cheep but the fixed price for £60 is either expecting a high early dropoff for buyers or is intended for profiteering.
    Neither of these are aided by MTs as the extra content needs be purchased and is thus not part of intended gameplay as in my second point OR as in the prior point, they seperate already sparse content behind additional cost because they know the content is sparse.

    Honestly if you want to see MTs done right look at rockstar, every dlc is free, there is no direct advantage past the cash you earn (gta is pay to unlock in that regard) which could be earned through continued grinding of task.

    Why not MT some secret loot or inheritance that bolsters your in game currency (like R*) no rep bonus or anything but just cash. Clearly the market is there if content is still coming out for gta online.

    I should have been more specific. MTs are important for an online-only title, post-launch, as a source of sustainable revenue. Games like GTA do so well with MTs because the majority of the players, in my experience, are children and children get 'the gimmes'. The community is terrifyingly toxic and the demand to own the newest, flashiest thing exists due to the age of the players. Regardless of all that, keeping a game accessible to all, while being supported by MTs, is a good plan.

    Fair to note that Rare has stepped it up a notch further. Their MTs (specifically pets) are not only in high demand (and thus will net a substantial profit) but also accessible to everyone regardless of purchase, which in turn will drive sales. It's a brilliant model.

  • Lucid Stew
    Founder

    There are different ways to monetize a game. If you're looking to continue development after release like SoT will, you'll need to either build that in to the release price or find another revenue stream to sustain continued development costs. First and foremost, game development companies are companies and must turn a profit to continue existing in the long term. Video games are a profitable industry, but their margins aren't outrageous. I'm looking at the financials for Activision-Blizzard and EA. Their profit margin is about 20%. Could they lower prices a bit? Yeah, probably, but not much, and keep in mind, that's a 20% margin when times are good. Despite decent profits lately, neither of those companies has a tremendous amount of cash, which tends to indicate that both of them were doing less well in the not-too-distant past.

  • ShadowStrider 7

    @lucid-stew Agree. With the leftover profits from my hypothetical figures above, there's enough to sustain SoT for roughly 1-3 years, depending on the kind of content we see. It's a better idea to sink in the MT meat hooks now, to gurantee sustainability (and better profit) in the long run.

  • Lucid Stew
    Founder

    I know a lot of people despise microtransactions, but it really is just a different way to monetize a game. I think the reason they've gotten a bad rap is because they've often been deployed in pay-to-win ways. With SoT utilizing them for vanity items, at least that concern is out of the way. At the same time, I think it's up to us as a community to emphatically say no to ptw schemes if there's mission creep.

  • LaughsManiacaly
    Master
    Founder

    For all arguments so far i have seen no counter persuasion to the R* approach of MR soley for in game currency growth. The market of MTs for exclusive content is nothing more than a cash cow prime for milking. It is and always will be the biggest turn off for gamers. Why pay for a game and then have to pay to keep up with trends.

    Granted nothing here has said that you must buy things and it is in fact all optional but it still feels wrong to release a high value game with further content requiring further payments.

  • LaughsManiacaly
    Master
    Founder

    @ant-heuser-kush again the same profit profile could have been achieved via a net increase in ingame prices followed by MTs for additional gold infusion rather than exclusive content.

  • Zulkai X
    Ship Mate
    Founder

    If I'm invested in a game I'm more than happy to throw a few quid at tarting up my character. Happily it looks like Rare are following the same path as Frontier have done with Elite Dangerous. Micro transactions for cosmetics are fine by me.

  • ShadowStrider 7

    @originalzulkai said in Videogame Development and the need for Microtransactions:

    If I'm invested in a game I'm more than happy to throw a few quid at tarting up my character. Happily it looks like Rare are following the same path as Frontier have done with Elite Dangerous. Micro transactions for cosmetics are fine by me.

    FD has a brilliant MT model. I have consistently supported them for years with purchases.

  • Hotel Actual
    Founder

    If your business isn't sustainable then you're in the wrong line of work. Stop white knighting bad business practices.

  • Hotel Actual
    Founder

    @ant-heuser-kush said in Videogame Development and the need for Microtransactions:

    @laughsmaniacaly said in Videogame Development and the need for Microtransactions:

    For all arguments so far i have seen no counter persuasion to the R* approach of MR soley for in game currency growth. The market of MTs for exclusive content is nothing more than a cash cow prime for milking. It is and always will be the biggest turn off for gamers. Why pay for a game and then have to pay to keep up with trends.

    Granted nothing here has said that you must buy things and it is in fact all optional but it still feels wrong to release a high value game with further content requiring further payments.

    You don't have to pay for any future content. Everything is free. The MTs are helping fund that free future content that everyone is getting. They could have easily gone the season pass route and forced you to buy the DLC to keep up with the game.

    You realise developers don't do DLC packs anymore because it splits the player base and kills a game faster not because they're doing you a favour right?

  • Feuerkrahe
    Captain
    Founder

    @hotel-actual It's not that they are in the wrong line of work, it because they want to keep the game alive for a while, at least 5 years (I have heard people say they want to sustain it for at least 10, but I'm not sure how true this is.). The money has to come from somewhere, and after money from the initial sales dries up, they need another way to get money.

    On another note, how is it that games like Overwatch and CoD games are still being developed and updated. Microtransactions. Different games but same principal.

  • Hotel Actual
    Founder

    @ant-heuser-kush said in Videogame Development and the need for Microtransactions:

    @hotel-actual said in Videogame Development and the need for Microtransactions:

    @ant-heuser-kush said in Videogame Development and the need for Microtransactions:

    @laughsmaniacaly said in Videogame Development and the need for Microtransactions:

    For all arguments so far i have seen no counter persuasion to the R* approach of MR soley for in game currency growth. The market of MTs for exclusive content is nothing more than a cash cow prime for milking. It is and always will be the biggest turn off for gamers. Why pay for a game and then have to pay to keep up with trends.

    Granted nothing here has said that you must buy things and it is in fact all optional but it still feels wrong to release a high value game with further content requiring further payments.

    You don't have to pay for any future content. Everything is free. The MTs are helping fund that free future content that everyone is getting. They could have easily gone the season pass route and forced you to buy the DLC to keep up with the game.

    You realise developers don't do DLC packs anymore because it splits the player base and kills a game faster not because they're doing you a favour right?

    And? I don't have to pay for it.

    MTS aren't to fund development they're to turn a profit. Don't be naive.

  • Hotel Actual
    Founder

    @firetadpole7469 said in Videogame Development and the need for Microtransactions:

    @hotel-actual It's not that they are in the wrong line of work, it because they want to keep the game alive for a while, at least 5 years (I have heard people say they want to sustain it for at least 10, but I'm not sure how true this is.). The money has to come from somewhere, and after money from the initial sales dries up, they need another way to get money.

    On another note, how is it that games like Overwatch and CoD games are still being developed and updated. Microtransactions. Different games but same principal.

    CoD releases a new addition every year, they don't sustain development. Not microtransactions holding them up.

    Overwatch has 30 million and rising players, base game sales is more than enough to support development.

    Not microtransactions. They're for profit.

  • Feuerkrahe
    Captain
    Founder

    @laughsmaniacaly What's so bad about letting a video game company make extra money anyway? If it isn't hurting you, or anyone for that matter, then it should be fine.

  • Feuerkrahe
    Captain
    Founder

    @hotel-actual What's so bad about making a profit from something that doesn't hurt anybody?

  • Discord 96
    Captain
    Insider
    Founder

    @firetadpole7469 Because it allows them to get away with whatever moneymaking scheme they can... It does not make them better for not using lootboxes... but they are still below the bar... Microtransactions should be for F2P only

  • Feuerkrahe
    Captain
    Founder

    @hotel-actual Yes but Sea of Thieves isn't going to be a franchise, thus if they want to sustain themselves for 5 years, they need microtransactions.

  • Discord 96
    Captain
    Insider
    Founder

    @firetadpole7469 No they do not... PC version does not need Gold to have the right to play online...

  • Feuerkrahe
    Captain
    Founder

    @discord-96 If they end up adding loot boxes, then I'm with you, and so is the rest of the gaming community. As long as their "money making schemes" are legal and don't hurt the players of the game, there's nothing wrong with it.

  • KnifeLife
    Commander
    Insider
    Founder

    Microtransacations are just greed, this game could easily survive without them, its just about turning more profit and making the fat cats at microsoft happy.

    I personally think its a big middle finger to your consumer base to add them when you are already spending £50-80 on the base game. Especially when the majority of things people are working towards are cosmetic and thats how you get to make your legend.

    I also have to say shame of Rare for taking an extremely popular and highly sought after feature and slapping a paywall on it. Lost respect for them for that one and the only reason they done it is because it was always being asked for on the forums.

    Cant say they didnt listen to our feedback on that one, they heard we wanted it and manipulated the demand to there advantage.

    Geez, i gotta stop reading these threads always get me of ranting lol

  • Feuerkrahe
    Captain
    Founder

    @knifelife Do you know how money works? Especially if the initial sales are smaller than expected they still need MT's to sustain a game for 5+ years because money, even in the gaming industry, can run out fast when continually supporting and updating a game.

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