Live services: Is the success of the few clouding the strategic judgement of the many?

EA are heavily committed to the live service model, with their earnings release for financial year ending March 2023 putting their share of games revenues from full game purchases at just 26%, meaning that 74% came from live services and other revenue sources. For the uninitiated – the live service model generates revenue through in-game purchases (also known as microtransactions) and, like EA, many leading games companies are focusing on this business model. Even though live services are the strategic vogue these days, recent commercial underperformance of high-budget live service titles has led to server closures and delistings (e.g., Rumbleverse). This demonstrates that microtransactions are far from a silver-bullet route to success for all. So, what is it that tends to separate success and failure here? Is it sound for all games companies to pursue this model? If not, which ones are the best positioned and why? Is there a healthy balance between live services and traditional games releases? And how much space is there in the market given live services’ dependence on time spent, which is limited by the 24 hours in a day?

MIDiA’s upcoming report “The opportunities and pitfalls of live services in the games industry” will shine light on these questions.

Has supply side excitement about live services outgrown the actual demand?

It is hard not to be swayed by the financials. For example, EA’s numbers reveal the power of their Ultimate Team in-game pack stores, and are particularly notable as EA also has some of the best-selling annual retail franchises in Madden and FIFA (soon to be EA Sports FC). These are also progress-based microtransactions – spending more money helps you build a better team. EPIC Games’ financials (from their court case with Apple) revealed that 97% of their 2019 games revenue came from Fortnite (cosmetic microtransactions). But is the success of those at the top blinding the rest of the industry?

In a hypothetical survey scenario, more gamers would prefer to spend $70 on 1 AAA game than the same amount on multiple indie games, or any number of in-game purchases (40% chose AAA, 29% chose in-game purchases, and 31% chose multiple indies – MIDiA Research Q1 2023 consumer survey).

There is an evident dynamic where gamers prefer, in theory, to spend on AAA games, yet in practice appear to be collectively spending more on microtransactions. The implication is twofold – that demand outstrips supply for quality AAA games, and that infrequent in-game purchases from the majority, alongside the purchasing power of the whales, is enough to buoy the microtransactions boat. (Whales refers to gamers who spend large amounts on microtransactions, sometimes thousands of dollars.)

Despite the earning power of microtransactions for the industry as a whole, we have recently seen the failure of a number of high profile live service games.

Live-ops let-downs

The failure of recent big-budget live service titles like Rumbleverse, Marvel’s Avengers, and Apex Legends Mobile should set alarm bells ringing for the industry – not necessarily to abandon live services efforts, but rather to go deeper in playing out the mid and long-term implications of the shift in strategic focus. Each of these games launched with multi-year roadmaps and ambitious plans for long term support, and each has been abandoned and / or shut down.

Babylon’s Fall was a full priced retail game that also heavily pushed microtransactions and a battle pass system. It launched to commercial failure and lasted less than a year before having its servers shutdown. This is similar to Marvel’s Avengers, a retail game with live service structure – in January, Crystal Dynamics announced that it would be ending support and delisting the title later this year. Both these titles faced criticism from launch around their microtransactions that were seen to detract from the game. The lesson from these two titles is clear – adding microtransactions to your retail game is not risk-free.

How much space is there in the live services market, given the saturated attention economy?

There is only so much time in a gamer’s week, and any live service model relies on recurrent spending, fuelled by a constant supply of attention and time – a hard sell in a world of attention inflation. Further, to convince players to drop real money on microtransactions, a live service title needs to be one of the core games someone is playing. This is a zero-sum game, and only a small number of titles will be able to succeed. The majority of gamers only play one or two games in a given month (MIDiA Research Q1 2023 consumer survey), so breaking into that is a big ask. Furthermore, the hard limit of 24 hours in the day will not change. Against this backdrop we are seeing an increasing number of companies pursuing the live services model. But, with each additional mover into this space, the potential upside decreases because:

1. The more live services games in the market, the harder it will be for each one to sustain vital levels of time spent. In-game buyers spend on average 12.5 hours per week playing games (read our attention inflation report to get more context on the limitations around time allocation, and how more consumption correlates with reduced focus and attention). In theory, the more live service games that are trying to share this limited time, the lower the earning potential of each title.
2. As live services games become the status quo, the less novelty there is to the potential value exchange offering (i.e., motivation to play a free game instead of paying for a AAA title)

Hedged bets

For games companies, particularly for those outside the small handful that are leading the live services charge, the core advice must be to hedge against the increasing risk associated with growing competition in the space.

The realisation looms large that there may only be so much space in the market for such games. Fortnite’s in-game revenue derives from its existing popularity – and what works for Fortnite may not work for your game. Most successful indie games in recent years do not have microtransactions, or if they do, they are strictly cosmetic and not “in-your-face”. Games like Elden Ring and the recent Legend of Zelda: Tears of the Kingdom have found major success by fully rejecting the live service model.

What was once thought of as a live service ocean may be more like a lake, with only enough room for so many big fish. Swim with caution.

If you would like to read this upcoming MIDiA report but are not yet a MIDiA client, please contact us, or comment below to register your interest.