Zoe Chew

March 30, 2022

Creator economy of Gaming & Game Monetization

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Issue #07

Video games and the creator economy

From big game studios to independent game developers making money by releasing “indie games”, the creator economy has arrived in the gaming space. Unlike video games released by major publishers with AAA titles (e.g. Grand Theft Auto, Call of Duty, Halo, Final Fantasy), indie games are created by solo game developers or smaller game studios without large marketing budgets or funding.

In 2020, there were 9,722 indie games released (up 25.6% from 2019). Hades, Among Us, Fall Guys, Spiritfarer, and Paradise Killer have gained mainstream popularity among casual gamers during the pandemic lockdown. Work-from-home has created opportunities for indie developers to work on side projects and release games.

Empower game makers to monetize

New digital distribution channels have enabled game developers to sell their new games and reach wider audiences:

  • Steam has over 47% of game publishers selling their games on the platform.
  • Roblox offers a game creation (Roblox Studio) plus publishing platform. Users can program games and play games created by other users.
  • Epic Games helps developers self-publish their games, set up their game page, and collaborate with game influencers.
  • GOG is a publisher focusing on the best classic games niche.
  • itch.io is a place to find, download and distribute indie games online.
  • GamersGate & Game Jolt helps you launch Early Access (i.e. pre-order, beta version) and get feedback from players.
  • Core helps you develop multiplayer/single-player games, provides access to thousands of free, professional art, and sound assets, and a leading monetization system.
  • PlayStation Partners provides testing systems, communities, go-to-market & self-publishing channels on PlayStation Store
  • Xbox Live Creators Program allows developers to self-publish digital games on Xbox One and Windows 10 with Xbox Live.
  • Kongregate helps developers to publish PC and mobile games

The rise of UGC and player-creators

Now there are two types of game creators. (1) People who code and sell video games which we’ve already mentioned. (2) People who play games and sell virtual goods such as avatars, skins, gifts, collectibles, virtual worlds—or monetize storytelling through audience-building and streaming. They are known as the in-game creators, game modders, or game content creators.

User-generated content (UGC) platforms allow game players to participate in the gaming creators’ economy and monetize virtual worlds. Key players include:

  • Overwolf is for creating, sharing, and monetizing in-game apps and mods.
  • Mod.io helps players create game modding, host, moderate, monetize, brand & grow a creator community.
  • Dreams is a game creation system that gives players the ability to create games or access games made by other players.
  • Rec Room has over 2 million players who created in-game content such as player-made game rooms. The company raised $100 million to extend more than $1 million in payouts for creators.
  • Streamloots helps streamers monetize through tipping from fans/viewers.
  • CREY is a code-free game creation tool.
  • Playerstate helps players to become creators, get rewarded, collaborate with other players on new projects, and socialize.
  • The Sandbox Game allows players to play, build, own, and monetize virtual worlds, powered by crypto and blockchain.

What problems do they solve?

  • Help people discover new games. Game publishers like Steam, Roblox, GOG provide a listing of popular video games, recommend new releases, and a marketplace for players to discover, download or play new games. They are the “app store” for game distribution.
  • Connect developers with players. Steam has 120 million monthly active players in 2020 (up 95 million from 2019). Roblox has 33.4 million daily users. Epic Games has 100 million players on the platforms. Developers can leverage these publishing platforms to increase game revenues.
  • Help developers create games. Roblox offers Roblox Studio, a building tool for Roblox games. Xbox offers Xbox SDK and development frameworks for deploying across consoles, PC, and mobile phones. Epic Games offers Unreal Engine for developers to build video games and launch their new games directly on the platform.
  • Help game developers to run a game business. Steam offers Steamworks where developers can manage their game business in one platform with tools such as payment integration, real-time sales data, piracy management, and distributed servers.
  • Help game players express themselves. Overwolf, Mod.io, Rec Room empower game players to express themselves, show what they care about—what they truly stand for, their personality, and identity. It forms a connection with other players and a sense of belonging.

Business models

In the past, the gaming industry monetizes through selling game copies. Newer business models known as game-as-a-service (GaaS) are thriving in the gaming space to help publishers, developers, and game creators monetize better:

  • Game subscription: Apple Arcade ($4.99/mo, access 200+ games) bundles unlimited access to a selection of games, focuses on mobile-first gaming and Apple devices. Xbox Game Pass Ultimate ($14.99/mo, access 100+ games) focuses on indie, blockbuster games, and cross-platform subscriptions on console, PC, and mobile devices
  • Free-to-play: Tencent invested $330 million in Epic Games back in 2012 to expand its free-to-play model—a more profitable business model than selling game copies (one-time model). Similar to Freemium in SaaS, players can play a fully functional game, and then pay “upgrade” fees for buying virtual goods, unlocking next levels, playing without ads, new game updates, or big releases.
  • Marketplace commission: Charges developers a fee from sales. Roblox, Steam, GOG & GamersGate is 70/30 revenue split, 30% cut goes to the platform. Epic Games take rate is 12%. itch.io takes 10%.
  • Microtransaction: A popular new model to monetize video games by selling in-game virtual goods to players. Fortnite sells virtual currency ("v-bucks") and it can be used to purchase skins and premium game features. Fortnite also sells a "battle pass" to help you access game rewards and tiers. Roblox sells “Robux” virtual currency for buying avatars or in-game experiences.

Why now?

There are massive opportunities for building in the gaming space. This section explores the key takeaways, the future of gaming tech, and the “why now” questions (most important slide in a pitch deck!) for your investors:

  • The rise of UGC and the free-to-play model will drive demand for FinTech solutions in gaming. For example, payment integration tools for microtransaction.
  • Lower marketing costs due to community-driven platforms. People find gamers friends online, join groups, play together and socialize. Natural network effects happen when players attract more players by inviting their friends.
  • As the creator economy rises, new creators platforms will emerge to help passionate players create, sell & trade virtual goods and earn side incomes. Similarly in the adjacent player-creator category, game influencers will leverage storytelling or live-streaming to help game studios distribute new games.
  • No-code development comes for gaming. Visual game development or tools that help game creators to build games using drag-and-drop like Unity, Unreal, GameMaker Studio 2, RPG Maker, Buildbox, Game Builders (Google’s prototype platform) are potential opportunities for game tech founders.
  • The future of game distribution is full-stack. That means end-to-end, full-stack platforms that enable game makers to create, publish, distribute and monetize their games in a seamless workflow.
  • eSports is becoming more popular in the gaming industry. Tools that help players to manage, host, and launch virtual tournaments will emerge.
  • The future of gaming tech is community-driven. The gaming space is well-positioned for both social and community elements. New solutions like helping people to find gaming buddies, curator-oriented game recommendations, upvoting top games, hanging out with gamers, trade virtual goods will emerge.

Business opportunities

  • Shopify for game businesses. Think direct-to-consumers (D2C) but for gaming. Build a digital commerce solution for game creators to easily set up their online storefront, cloud streaming, analytics, payment, and customer relationships through their own site. Having their own brand will be able to control the user experiences and eliminate platform fees on marketplaces like Steam, Epic Games, and GOG.
  • Downloadable ➝ Gaming on demand. Downloading video games can take hours, hard disk space, and requires optimal hardware for gaming speed. With cloud gaming, users can stream video games from cloud servers instead of downloading the games on the computer. For example, PlayStation Now, Stadia or GameFly. New streaming platforms can be built to cater to specific platforms (PC, mobile games, etc.) with enhanced technical performance and scalability.
  • Accelerators for game developers. Like Y Combinator but for game founders. Help game founders validate, build, and launch their games through game studios and accelerators. Provide an ecosystem of founders, developers, animators, investors, mentors, designers, and events like pitching, hackathons, and workshops. For example: GameFounders, Carbon Incubator, Global Top Round.
  • Product launch for gaming. Early-access development is a game funding model in the industry. Players can pay and play a game in multiple pre-release stages, provide feedback and help developers to iterate the game. If the game ends up releasing, players will be rewarded with free access, game credits, etc. Create a pre-launch “stack” where indie developers can launch landing pages, incentivize game testers, provide a sandbox environment for testing, record game footage, collect feedback and prioritize features to ship.
  • No-code game creation. Help aspiring developers to create games by choosing pre-made scenes, modules, characters, storylines, items, and sequencing them into game-play mode. Creators can sell their games on the marketplace or get hired for custom game projects. A niche category can be no-code game creation for K-12 education.