Video Game Industry Embraces Internet And New Business Models: Others Should Pay Attention

We talk a great deal around these parts about new business models at both the macro and micro level. Individual experiments and successes, as well as failures, are both interesting and instructive, but a good macro-level look at how entire industries can function in a digital marketplace should be equally useful. With that in mind, Chris Dixon has an absolute must-read post on Medium on the lessons other industries can learn from the PC gaming industry's success in recent times. It's worth noting before we start here that the past five years or so have been chock-full of hand-wringing over every potential danger to the PC gaming industry you could imagine, from casual mobile games to piracy. And, to some extent, I can understand that fear. After all, PC gaming has perhaps lower barriers to entry than other entertainment mediums, making competition more heavy, while the average consumer of PC games is likely going to be more familiar with the ways of piracy and the technical workarounds to DRM than the average music or movie consumer. Too bad for all that fear that, as Dixon's article notes, the PC gaming industry has enjoyed healthy growth over these past several years (something like 50% revenue growth since 2012). Much of that has to do with the innovative ways gaming companies have found to do business.

Even if you have no interest in video games, if you are interested in media, you should be interested in PC gaming. Over the past decade, PC gaming has, for a variety of reasons, become a hotbed of experimentation. These experiments have resulted in a new practices and business models — some of them surprising and counterintuitive — that provide valuable lessons for the rest of the media industry.

Those experiments will sound quite familiar to the Techdirt reader. They include free-to-play models, with game extras being sold to gamers. They also include the development of strong and convenient selling platforms, like Steam and GOG.com. The so-called "freemium" model is particularly well done in PC games, in part because many of those games respect gamers enough not to use the model to break the integrity of the game itself.

The PC gaming world has taken the freemium model to the extreme. In contrast to smartphone games like Candy Crush that are “free-to-play,” PC games like Dota 2 are “free-to-win.” You can’t spend money to get better at the game — that would be seen as corrupting the spirit of fair competition. (PC gamers, like South Park, generally view the smartphone gaming business model as cynical and manipulative). The things you can buy are mostly cosmetic, like new outfits for your characters or new background soundtracks. League of Legends (the most popular PC game not on Steam) is estimated to have made over $1B last year selling these kinds of cosmetic items.

Medium also goes on to point out PC gaming's latest foray into money-making in the form of live events. In what will sound familiar to anyone who has read our posts about the music industry, live gaming events are fantastic revenue generators, especially as they've become massively popular in the past few years. Add to all of this the relatively permissive attitude in PC gaming circles that companies have towards mods of their games and you have a recipe for violent adoption and the willingness to buy by the gaming public. Mods make games more attractive to wider audiences, increasing purchases. Some mods indeed become their own games, increasing purchases. Most game companies encourage this modding culture, generating good-will within the consumer-base. No other industry does this as well.

Contrast this to the music industry, which relies on litigation to aggressively stifle remixing and experimentation. Large music labels have effectively become law firms devoted to protecting their back catalog. Sometimes this means suing their peers, and sometimes this means suing communities of users. The end result is a strong chilling effect on new experiments. Almost all new music-related tech products are minor variations of preceding products. It’s too risky and expensive to try something genuinely new.

And finally, there is the embrace of crowd-funding. Crowd-funding has been adopted in virtually all entertainment mediums, but I struggle to see any of them doing crowd-funding as well as the PC gaming industry. From experiments done by household PC gaming names like