Weapons of Mass Disruption #2: Why Is (Almost) Every Video Game Suddenly Free?

There are three main gaming platforms. The PC, the mobile or ‘smart' device, and the dedicated games console. Looking worldwide, two out of three are now dominated by free-to-play.

On PC we have the world's #2 FPS by revenue. Nope, it's not Battlefield 3 but Cross Fire, a low-res free-to-play Counter-Strike clone that's so popular in China that four million people have played the game at the same time. On Steam, the trusty stats page shows us that the two most popular games on the platform are both free-to-play. Casual PC games now mostly take place in the browser, and the free-to-play model (in which starting the game is free but users may pay for cosmetic and/or gameplay-affecting add-ons) dominates there, with the vast majority of the world now playing casual browser games on Facebook.

On mobile, there's Apple's top-grossing U.S. list of 2012, where on iPad and iPhone you need to go to 13th place before you find a game that isn't free. On Android, paid games are basically non-existent—with even Angry Birds being free. In Japan in 2011, the two leading free-to-play mobile games companies alone—Gree, and my employer, DeNA—took more net revenue than the entire gross of Japanese games software retail business ....

If the game is good enough, then consumers will be faced with a choice: pay $60, or get basically the same thing, for free.

So, why is free-to-play becoming so dominant?

I wrote last week about the cost to the consumer of downloading data dropping dramatically over recent years. Well, it just so happens that the cost to businesses to send that data has also been dropping dramatically. So much so, that you could argue that the cost is essentially zero. In fact, as a developer, distributing your game on Steam or the iOS App Store or Google Play, costs literally nothing.

Compare this to the price of distributing a game in the traditional console model. You'd need to manufacture an expensive disc (or extremely expensive cartridge), store it in a warehouse, transport it to a distributor's warehouse in planes, boats, trains and trucks and then transport it to and keep it in the retail store.

In economics, there is a concept called "Marginal Cost Pricing"—selling something for exactly how much it cost to make and distribute it. The famous quote on this subject is from a French mathematician Joseph Bertrand in 1883: "In a competitive market, price falls to the marginal cost."

I think we are only a few years away from a free-to-play Skyrim equivalent.

In the old retail model the marginal cost of distributing that game to a user was high: several dollars. The minimum therefore you could charge the users was exactly that: $5 or so. In the new world of online distribution that marginal cost is the same as the cost of distribution. Precisely zero dollars.

This creates a situation where in any given genre, there is a good chance a risk-taking or desperate developer will start offering their game as free-to-play. If the game is good enough, then consumers will be faced with a choice: pay $60, or get basically the same thing, for free.

People like free stuff, and generally when making decisions they balance three factors: cost, quality and convenience. When basically the same thing is offered for free, research shows they will generally take that option. This means when one developer offers the same game for free, competitors have no choice but to eventually follow, and soon enough (like we see on mobile), everything is free.

‘Hang on a minute!' You might say. "There's no free to play competitor to Skyrim, Bioshock or a bunch of other genres!"

Correct.

This hasn't happened yet, but it will. Two things will enable it. First, the talent and the investment needs to exist. I've lost count of the number of amazing AAA devs I know who've moved into free-to-play. Look at a game like Hawken, an incredible looking, Unreal-powered free-to-play shooter developed by ex-AAA developers and bankrolled to the tune of 10 million dollars by venture capital. Secondly, free-to-play game design needs to start to work with single-player-games. This is already happening, particularly on mobile, where a single-player focused game like CSR Racing topped the charts earlier in the year. I think we are only a few years away from a free-to-play Skyrim equivalent.

Weapons of Mass Disruption #2: Why Is (Almost) Every Video Game Suddenly Free?

Remember: consumers are proven to balance cost, convenience and quality. So something radically cheaper and more convenient than the other options doesn't have to match perfectly on quality.

There's one genre where we've already seen this mechanic in full effect: MOBA. An L.A.-based startup with its first game, has been able to push quality so high that its forced the two biggest players in PC gaming to give away their games for free. Riot Games and League of Legends has taken the PC gaming world by storm in recent years; recently it was revealed there are more people playing it than World of Warcraft. But LoL is free-to-play and this has forced the hand of anyone who wants to compete in this space, even companies like Valve and Blizzard who have no previous problems getting people (me included) to spend $60. In this marginal-cost-pricing environment, where the upstart Riot have taken the risk of dropping to a free price point, both Dota 2 and Blizzard All-Stars have been forced to go free. That is testimony to the power of marginal cost pricing.

Weapons of Mass Disruption #2: Why Is (Almost) Every Video Game Suddenly Free?

If console platform holders continue to be nervous and slow re: free-to-play, they could find that a significant proportion of their loyal fans is unconsciously spending more time on PC and mobile.

Console is the only place where free-to-play hasn't really taken off. There are a few smaller titles like Happy Wars on Xbox 360 and DC Universe Online, Free Realms and the upcoming Dust 514 on PS3. Nothing on Nintendo platforms at the moment. Why is this the case?

Insider information gives me a simple explanation: Sony, Nintendo and Microsoft are either absolutely terrified of free-to-play, they don't understand it, or they are simply slow to respond. Given every piece of content on console platforms is carefully curated, a policy from a nervous platform holder is all that is needed to constrain any new business model. This is very dangerous behavior. Consoles don't exist in a vacuum. Players chose console gaming over other competitive platforms. If console platform holders continue to be nervous and slow re: free-to-play, they could find that a significant proportion of their loyal fans is unconsciously spending more time on PC and mobile.

You might not be a fan of free-to-play, but as I've argued, as we move towards 100% digital distribution for all games, free-to-play is an inevitability in most cases, and any platform that doesn't embrace it could find themselves the Encyclopedia Britannica, to free-to-play's Wikipedia.

Ben Cousins (@benjamincousins) is a 13-year veteran of the games industry who's worked at Lionhead, Sony and EA among others. He currently runs Scattered Entertainment (http://www.scatteredentertainment.com/), a studio in Stockholm owned by Japanese mobile gaming giant DeNA. where his team are working on disruptive AAA mobile FPS The Drowning