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Divnich Divines: Do free games make business sense?

4:00 PM on 08.07.2011 // Maurice Tan

[In Divnich Divines, EEDAR Vice President and videogame analyst Jesse Divnich traverses the bogs of sales data, hype, and good old fashioned game geekery to give you his two cents on hot topics in the game industry]

At a time when the games industry is starting to embrace free-to-play models in favor of subscription models on an increasing amount of platforms, while publishers still treat the second-hand market as a cancerous disease instead of the potential for brand-loyalty it may provide, the concept of "free" is simultaneously a hot and a touchy subject for different parties involved.

In EEDAR's July 2011 Retail Buyer Report, which focused on the success and effects of Sony's "Welcome Back" program that the company positioned to regain consumer trust in its PlayStation Network following the hacks, the research firm found that more people acquired downloadable titles on the PS3 in June compared to March this year -- even when accounting for the free games on offer.

While that might be surprising in itself, the firm also found that consumer interest for other titles within the same franchises was increased in the period these games were offered for free. When marketing budgets are bloating the cost of AAA projects more and more, just to fight for the average consumer's precious bit of conscious elaboration of content, perhaps making a certain game free might end up making (or saving) you more money than you might expect.

For this edition of Divnich Divines, the question for EEDAR's Jesse Divnich is:

"What are the benefits of offering a game for free?"

Divnich: "Unlike ten years ago, the consumer of today has a copious amount of choices when it comes to interactive entertainment and as such, traditional forms of video games must transform itself to reflect new business strategies to keep the traditional gamer engaged.
"As we noted in our July Retail Report, the PlayStation Welcome Back program produced an interesting by-product in that the free titles offered actually increased the purchase intent of their sequels, even when a sequel wasn’t available (i.e., Dead Nation 2). This has led to an idea of sequence, something that is prominent in other entertainment sectors and something missing from ours.
"Movies, one of the more mature entertainment sectors, seems to have perfected this idea of sequence.
"When a movie is first released, it stays in theatres for about a month where it generates the majority of its revenue (at the highest average price per user). Five months afterwards, the same movie is launched on Pay-Per-View, a month later it comes to DVD with some bonus features, and finally after a few years, when all possible revenue generation has been exploited, it lands on network television, which is free for anyone to watch."

"In video games, however, this idea of sequence is nearly lacking. A game goes from premium retail shelve space, to the bargain bin, and finally out the door for ever. Sure, in a lot of cases we see a digital release on XBLA or PSN, but the content is identical and generally parodies the current retail price point. In other cases, we do see a 'Game of the Year' addition that includes all previously released DLC, but that is generally reserved for the top 1% of titles and of course still holds some form of pricing barrier.
"What I believe the movie industry understands better than video games is the free sequence and its power to draw new consumers into a brand by offering no barriers of entry. A recent example is Harry Potter (or any big AAA movie series). Over the last few weeks the first two Harry Potters were made available on network television, free for anyone to watch, and while Warner Bros. received some compensation from the network, it was minimal compared to the hype and excitement it built around the new Harry Potter movie in theatres, and of course the likelihood it drew in new consumers into the Harry Potter universe, who would eventually spend  $20+ to see the newest release in theatre.
"The people at Rovio understand this 'free' concept well. In a recent statement, Rovio set a goal to get over '1 billion' fans for Angry Birds. Nowhere did Rovio mention some sort of revenue target -- for good reason. Rovio understands that regardless if someone pays for Angry Birds or they receive it for free, each new set of eyeballs adds value to the Angry Birds brand. That brand value can then generate several different revenue streams, whether it be through ancillary items (plush dolls, t-shirts, movie licenses, etc.), word of mouth that brings in new (and full paying) consumers, or through generating revenue on future releases (Angry Birds 2 or the season packs)."

"The results of the Welcome Back program are crystal clear, offering a free game for a limited period of time increases the awareness, engagement, and excitement around other products within the brand’s hierarchy (i.e., sequels) and if a publisher could plan a free limited time release about six to eight weeks prior to the next iterations release, the data would suggest that it would positively impact sales of the next iteration (at the benefit of a full price).
"I've seen arguments where such a 'standard' would only discourage the purchase of new releases because it creates an ecosystem where consumers could simply 'wait for the free release', much like some do when it comes to a movie as it sequences to network television. The truth is, however, that if someone is truly willing to wait 2+ years to play your game, they are unlikely to have ever purchased it to begin with. I simply do not foresee any type of lose-lose scenario for game publishers or consumers.
"If I had to provide an accurate but rather harsh description of the mass consumer as they relate to video games, it would be equivalent to an adult with ADD on the Las Vegas Strip, and the casino with the biggest flashing neon sign wins. Oh and I am sure there is no coincidence that aside from the word 'casino' the second most advertised word in neon on the strip is the word 'free'.
"I've been very vocal on this strategy to publishers and I can only hope one takes a leap of faith and experiments with these ideas.
"Free, it works."

How do you look at games that become free for a (short) period? Do they remind you of IPs you had completely forgotten about? Do you simply grab a game purely because it's free while would never have considered paying for it, even though you know you'll probably still never play it? Or do you sometimes find a gem of a game that you want more of in the future, realizing you never would've known it was actually that good if it hadn't been offered for free?

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Maurice Tan,
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