- Jesse Mulligan, moderator
- Robert Ferrari, Turbine
- Hilmar Veigar Petursson, CCP (Eve Online)
- Nicolay Nickelsen, Funcom
- Min Kim, Nexon
Is it possible to have one business model for a game for both sides of the Pacific?
- Min: It's possible, but you need to tailor it for each market. You can do microtransactions in each market. But Korea has a PC cafe market which generates a lot of revenue and we don't have that in the West, so that's one big difference.
- Hilmar: Eve Online is centrally hosted, so our busines model needs to be adaptable within the same server. We need to build a vast array of options within game so people can choose what they are comfortable with.
What changes have you had to make to attract customers?
- Hilmar: We put in place a system of in-game codes that can be bought from us and sold player to player. Customers buy the codes with in-game money.
Is Nexon in China?
- Min: We have made some changes in terms of accounts. When we took Mabinogi from S Korea to China, we had to add more PVP for that market.
- Robert: We had to build in stuff to account for that market's anti-addiction rules.
- Hilmar: We need to take more of a lead on this when governments start messing with our games. Governments have very narrow view of market.
F2P vs Subscriptions: is F2P going to take over? Will subs go away?
- Robert: F2P has a huge influence. But we have been based on subscriptions for years, with some games being around for 10+ years. Subscripitions hit a hardcore audience that is really embedded in those games. But as you expand your audience, they aren't as hardcore anymore and F2P becomes more enticing as subs only wouldn't appeal.
- Nicolay: Both models work. Hardcore gamers are comfortable with sub model and most of the games with microtransactions have been casual games. But it is possible to have more than one biz model in a game.
- Min: There is room in the market for both biz models. F2P in North America will make a large push as teenagers can't commit to $15/month, so F2P will work well with them. Nexon saw lots of success when the market went beyond core to mass market.
- Hilmar: Consumers are changing the business model of games - consumers making decisions. You can play Eve online through our trial program as a F2P program - users are able to "game" our trial system to play it as a F2P game. It's a challenge for companies to adopt the needs of the market rather than keeping their head in sand. People will play the game how they want.
- Min: We're seeing in S Korea a lot of players have a subscription-based game that is their favourite, but have a secondary game that they play f2p with microtransactions.
Which model will win?
- Robert: The demographics in LOTRO etc are a lot older: 20-35, male. F2P games tend to be younger, more females, casual, less hardcore. 30 year old males are not playing a lot of F2P and have no problem paying monthly subscription. Younger people and kids are playing lots of games and want F2P for that flexibility. However, F2P microtransaction games can pull in more ARPU than subscriptions.
- Nicolay: People used to subs have not been in a microtrans environment because those games aren't geared to them.
- Min: Demographic and psychographics drive the business model choice
- Hilmar: In China, it is illegal to have an automatic debit for sub based game - user always has to choose. For game operators, it's important to realize that most biz models will be implemented by users. Better to implement them yourself and tune appropriately.
- Min: It's also based on genre - not many ppl shell out $15/month to play FPS. There are some F2P FPSs now in Asia. Biz model based on genre as well.
- Hilmar to Min: Would you add subscription to your games?
- Min: We aim to have a sub without adding a sub - i.e. adding items to mimic a subscription model.
Is there a disconnect between designing for subscriptions versus F2P? Do you need simultaneous development tracks for each?
- Hilmar: All subscription-based MMOs are merit economies - those with most time, win. But the only thing you can't buy is social merit. To be a purely subscription-based game, you should aim for social merit as it's the only merit economy defensible against outside influences.
- Robert: There is an opportunity for subscription games to add premium services, but it is critical to look at the business model up front. You can't just switch models halfway through. You can't just migrate to F2P. Sometimes that up front thought doesn't happen though as business and development teams are often separated.
- Nicolay: Going the subscription route makes it hard to go to China. So if you go subscription route, you need to be able to change later to go to China. You need to find your market and go for that.
- Hilmar: You can't have a puritan outlook on your business model. People will use whatever business model they see fit, so design the game around that. If you are only subscription, people will use secondary markets to make your game microtransaction-based. Look at telephone services: you can choose how you pay (prepaid, subscription, etc) - we don't have this in games as the industry is not mature enough. We need to design for that mix.
Based on your experience, is an economy based on subscriptions more or less susceptible to grey market (i.e. player to player) transactions?
- Min: It depends on the game, but in the MMO market it is all about supply and demand. Most companies keep items split - so dropped items are not same thing as bought items. Those item economies are split the same way in F2P - I don't think a lot of ppl understand that.
- Hilmar: I've seen F2P games with o market challenges as well. Don't see how it is any different in F2P vs subs. If you're leaving a game, you sell your stuff for an 80% discount.
- Min: We introduced the Maple Trading System to Maple Story so players can sell items to other players for Nexon cash. For players that have time, they can sell the results of their time for money. Can't get money out though.
- Hilmar: Dual currency systems are a good inhibitor to prevent people from getting money out of the system. Players trading items within the game is not a negative, provided you keep the value within the economy. As soon as you move money out, it has a negative effect on the in-game economy.
Are there any negatives around designing your economy around F2P?
- Robert: So many more people come into a F2P game so you need to ensure you can support so many more players. With subscriptions, if I am charging $15/month I need to ensure I supply content constantly. In F2P, maybe not so much content needs to be there.
- Nicolay: F2P is more of a theme park. But items need to have value in order for people to buy them.
- Min: I don't think it is so dissimilar. In f2p, you still need to make a fun game. We aren't just developing product to sell items, we need to make the game fun first, content needs to be updated constantly. Need to earn your money every day.
What are the challenges on the subscription model?
- Nicolay: Because players are paying on monthly basis, you need to provide service. The player anticipates certain level of support that has to continue forever. Can't just say here is the game, have fun, don't ask us for help. This is the biggest challenge for developers coming from retail games.
- Robert: The game is a service... now you need to keep them entertained.
- Hilmar: If your goal is to develop a subscription game, you need to think about how you develop a merit economy that can't be turned into a microtransaction system later. I suggest designing something that accommodates both revenue models. Trying to fight against what your customers want will always be a losing war.
A number of games from China have converted from subscriptions to F2P successfully - what can you do to convert?
- Min: There is much more intense pressure in China to go to F2P. There, it is about demographics and peer set, because so many games in china are f2p, other publishers are converting to compete.
- Nicolay: It happened overnight in China... bam, it's microtransactions. Now publishers say it's the only way to complete. We've been following it, as Western devs, we need to look at that but it's difficult from Norway to understand what's good for the Chinese audience. It's important if you sublicense to listen to the partner you have... a lot of Western pubs that go to the East fail.
- Min: I've heard that games that go to F2P have done far better than as subs. Games able to get a customer base and monetize it. Maple Story was successful in States because the players it goes after couldn't do subscriptions. We get them in first, then monetize them.
- Hilmar: In China, people are used to a cash-based economy. There is not a lot of culture around subscriptions and there are also legal constraint as well around implementing a proper subscription model. Westward Journey 3 did it in an interesting way, similar to us.
What will happen to F2P when the first $200M budget game comes out? i.e. WoW goes F2P?
- Robert: What we're seeing is a shift that a lot of the f2p games are so much lighter than traditional MMOs. Heavy MMOs are beautiful, but that puts a barrier to entry based on min spec - younger demographics don't have these systems. Global expansion doesn't support those specs either. Our games are above 5gb in size, whereas Maple Story is close to 1gb now.
- Min: What would a $200m f2p game look like? I can't imagine spending that much... the game would be too big. Would a $200M game be a terrabyte game that wouldn't reach a mass market consumer?
Casual users really dislike big downloads and don't like pressing the "install" button. Does the web open that up to us? Is a web MMO as popular as WoW possible?
- Nicolay: We have it already. If you want to go into foreign markets, you need to be web-based - microtransaction or subs. A web-based game can be just as big - I think it will be even bigger than big client products.
- Min: In S Korea, people have no problem downloading big client products as the web is so fast. I often wonder if browser-based gaming is an interim step until web speeds creep up and people can return to client download.
- Hilmar: Most of the subscription games are designed for retail, even though we have no retail component. Take Conan... why not have 1 starter zone, 1 char class get it to 100mb as a download?
- Robert: Retail will always be around, but we need to design games for ease of entry - so we don't spend 6 hours downloading. Casual players need to get into game very quickly and can't spend their weekend figuring out how to get into the game.
- Nicolay: Need to be able to get into the game within minutes.
- Hilmar: Starting Runescape is bliss. You're into it in 2 minutes. That's a big part of its success.
In f2p, you have a store with microtransactions. Do you need more infrastructure than a subscription game?
- Hilmar: A store is just a market exchange that all games have.
- Robert: If you have a F2P game supported through retail cards, that's a simple transaction - clean. In a subscription-based business, you will have credit card problems as players can dispute anything on credit cards. The way credit cards are set up, you can dispute any charge. So your CSR costs can go through the roof because of this. Prepaid cards cannot be returned.
Hilmar - do you have zero issues with point cards, Min?
- Min: We don't see fraud issues at all, but we pay a higher margin on those sales. Credit cards are single digit surcharges.
In terms of distribution, are your costs higher if you are putting these cards out to retail?
- Min: Offering payment methods relevant to your target demographic is important. Over 20 years old, credit cards are viable. In the teen demographic, prepaid cards are still the dominant form of payment. Maybe SMS payments will come, but it is all about accessibility and convenience. In demographics such as Club Penguin's, credit cards are a big part of their payment methods as parents are paying.
- Nicolay: I think Habbo has 140 different payment methods. The ability to pay has to be the lowest barrier to entry, otherwise you aren't getting any money.
- Robert: SMS charges surrender so much margin to carrier, but retail cards may be more expensive just to get into channel.
- Hilmar: It's puzzling why carriers aren't lowering their surcharges. People would switch to it immediately, resolving credit card issues.
- Min: There is no access for our consumers to use credit cards. In 2006, we did $8.5M in the US in virtual item sales - in 2007 we did $29.3M in virtual items. Virtually all of that growth came from enabling people to pay.
- Robert: Companies like Turbine are looking at the console to expand their playerbase. Potentially we can use an xbox payment system, so we don't need to do it ourselves. It's about expanding access for players.
What do you see happening 5 years out?
- Hilmar: Dual currency systems. Most companies will evolve into local dual currency systems or perhaps an industry movement to have one proper currency system.
- Robert: 3-5 years out, I think we'll see cross platform online games: pc, console, hybrid models of revenue: F2P, cards, ad-based, subscription-based - there will be lots of options offered so players can choose.
- Min: 3-5 years out, PC will make a huge comeback. Online gaming will go beyond niche & core - it's going to be mass market. 5 years out there will be much more content out there - right now people are starved for content. Club Penguin fans will eventually need something new.
Will the balance of power shift from EA/Activision to more smaller players?
- Hilmar: We will see more Nexons, but they aren't a small company. I don't think core game companies are wired correctly to play in that space.. Nexon is a god example of a pure play.
- Min: You're right - it' s about the DNA of the company. Some companies are wired for online service - those people will make big impact on market.
- Robert: You hear about big companies all the time, but Club Penguin and Runescape were under the radar for so long, but makign tons of money. The press follows the big names but overlooks the stuff in the background making tons of money.
- Min: The scary thing to me are the diversified media companies that bring IPs, TV channels, etc. I'm not worred about the EAs.
- Robert: Viacom is running 7 or 8 virtual worlds... they are monetizing them, driving lots of revenue.
- Hilmar: I am not worried about diversified media companies. When I talk to them they are unable to understand our business and our direct relationship with consumers. We have lots of experience with that. Most diversified media companies just produce content for their retail channels.