Opinion: The Future Is Online Passes, Subscriptions, DLC And Mobile

Financial reports are, typically, dry and a little confusing if you’re not an analyst or an accountant. Despite this, there’s a few things of interest from last night’s first quarter from Take-Two and EA. In particular, EA have put out these handy slides that show exactly where they’re making their money and just what the trends are.

Whilst Take-Two talk about sales of their back catalog contributing heavily to their income, they also mention the fact that digital sales now make up about 14% of their revenue, representing a 33% year-on-year growth for the first quarter.

For EA digital was an even bigger story, with it making up over two-thirds of their non-GAAP revenue, and showing a remarkable 55% year-on-year growth for the quarter.

[drop2]The interesting part with EA is when you get to the breakdown of those digital sales (pages 8 and 9 if you’re following along in the slides). You see, whilst EA may still have a lot of focus on selling you a physical product, their digital sales of full games account for just 10% of their digital sales. Selling you the game isn’t where they’re having much success, it’s what comes after that.

The sales of what the financials term “extra content” account for about 40% of their digital revenue, and have shown a startling increase of 87%. People may say they don’t like DLC and the like but their wallets tell a different story.

As long as that number continues to trend upwards, and it has in the three years shown, then EA are going to push more and more resources into the after-sales market, it’s where the big money in digital seems to be for them.

The other place it looks like they’ll be focussing is with services like Battlefield Premium. The service made them an additional $37 million that isn’t even included in this set of financial results, they’ve deferred the revenue until Q4.

This is where the paradox seems to lie in gaming at the moment, or at least in what’s said on the internet. Every time a company unveils a DLC plan for a game, or a service like Battlefield Premium, there’s an almost immediate backlash. Certainly it doesn’t come from every quarter, but it is there. In spite of this, these business models are helping them rake in the cash. Hell FIFA Ultimate is just a digital trading card but that managed to net them another $30 million; there’s simply no good reason not to increase the focus on these types of projects.

That’s not to say physical content is going anywhere soon, it’s probably not, but it’s worth noting that, for the first quarter at least, physical products are way down. They’ve shown a 25% drop, compared to that impressive 55% increase for digital revenue.

Of course, the problem that EA face is that 40% of their digital revenue is extra content for those physical products, physical products that people don’t seem all that interested in this year. If EA shift their focus too much they could start destroying a significant chunk of their own revenue; it’s a precarious situation.

[drop]The other area worth a mention is their biggest growth platform in terms of digital revenue, the smart phone and tablet market.

Whilst this area only makes up about 16% of digital sales right now, they’ve shown a remarkable 86% year-on-year increase.

Will we see EA making big in-roads here?

Personally I’m not so sure, there’s only so much you can make from games that sell at the price of smart phone apps, but they’re almost certainly going to try.

No for me, it’s going to be all about the after-sales money for EA, and likely for other publishers as well; that tantalising “extra content” that seems to be doing pretty well for them at the moment.

We may well scoff at things like Project $10, but those tactics seem to be working and it doesn’t look like they’ll be going anywhere anytime soon.

As for services like Battlefield Premium? Well that initial $37 million influx will certainly have them looking at it in depth, although there is the question of whether frontloading all that cash is the best strategy. Yes, it’s guaranteed revenue but there’s always the chance they could make more by making everyone buy the DLC separately. Irregardless of that, $37 million is a pretty good pay off on their pricing experiment.

Bottom line on all of this? Take-Two did pretty well with their digital sales, but EA made an absolute shedload. Will they both try and build out their digital businesses? You bet they will, although EA’s figures suggest that full game downloads aren’t the way to go. Oh, and EA’s growth with mobile gaming probably outperformed their wildest dreams, I’d expect them to push more resources there very, very soon.

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22 Comments

  1. “Online Passes, Subscriptions, DLC And Mobile” – my 4 worst things assosiated with gaming today. DLC would be the only thing I don’t mind, however it seems to be less and less about what is offered to prolong or add to the experience, and more about what can be stripped back and sold to you additionally.
    Several years ago FIFA’s Ultimate Team would have been a great addition and the card packs could have been earned in-game for winning games or completing challenges, but now we’re just in a micro-transaction culture where they want to charge us extra for everything. How long will it be until they make it too hard to sign Messi, unless you pay £0.40 signing fee? Character skins used to be earned for completing games, but now they’re purchased or used as manipulation tool from retailers. Although extreme, it’s possible the rich will eventually be the best players since they will have been able to buy the best players/item(s) – such as that $50,000 MMO item (if my memory serves). I guess new and younger gamers won’t remember what it’s like to buy a game – the whole game – off the shelf, take it home and play it without an internet connection, and even be able to sell it or trade it against a new game.

    • “I guess new and younger gamers won’t remember what it’s like to buy a game – the whole game – off the shelf, take it home and play it without an internet connection, and even be able to sell it or trade it against a new game.”

      Also, ironically how the majority of said games were virtually bug free {:’O

      • Yes, good point mate. I guess as games get bigger they are more awkward to test – however the revenues these larger companies (such as EA) make should allow for extra testing, and not forgetting how we do their testing for them through Betas.

      • Gone of the days where customer satisfaction actually mattered, now it’s all about the money.

      • agreed freezebug2, I miss this very much. A major reason I don’t buy many games anymore.

    • I agree with a lot of what you say, but the thing is those tactics (though not consumer friendly) seem to be working pretty well right now.

      • Indeed, the model seems to be working for these big games. As someone who enjoys playing lots of different games I fear these Battlefield and FIFA tactics (not 4-4-2) may be introduced into lots of games, where it just wouldn’t work. I guess it’s expected for these games, which are often the only games some gamers buy each year. For me personally, I like to have everything in a game so I’m more likely to buy 2 different £40 games where I get all the content, than 1 £40 game where I then need to spend a further £40 if I want all the content. I could isolate players further if they don’t have the money to spend or if ther Premium members get Premium in-game items.

    • Bang on Youles. This industry has lost its way, massively.

  2. God help us.

    • In addition to this, I don’t think Ultimate Team can really be put in the same category as subscriptions and Online passes etc. Ultimate Team is gambling, nobody can deny this, you have absolutely no Guarantee which player you will get and this lures thousand of people to throw money at EA in the hope they will get Messi, Ronaldo, Gerrard etc. I myself, have bought a few packs. Other DLC is completely different to this as you know exactly what your getting, but Ultimate Team isn’t like that. Your paying for chance. I’ve no doubts this is why it brings home $30 million, we all know gambling is an addictive activity and one that is extremely popular i our culture.

      I agree with this article, it is true that this is most likely how the future will be but I don’t like this change. I certainly don’t like the fact that EA are benefitting from it the most at the moment.

  3. The one I hate the most is that when a new game is launched. The DLC is already on the store 2 days before launch. And in these DLCs are unlock everything. You can unlock everything buy completing career etc…. But I always go online first to get some of the trophies quickly before everyone is really good or higher rank….. Too late I just went like Rank 1 against a Rank 20 with better car even though it just came out today!!!
    It spoils everything. Once I completed the career to rank up and get the fastest car that he had. They will still dominate as they know the tracks etc…..
    So to sum up I do not want the buy everything as a DLC that should be off, gone in the bin…. argh…… I am rambling on…..

    • I don’t mind them selling those “lazy bastard” DLC packs for people that want to jump into an even playing field some time in the future a while after the games release. But to allow it on Day 1 of a games release is just moronic, and makes absolutely no sense, it’s only possible purpose being for financial profit!!

  4. Cracking article. Modern gaming is basically dead to me (aside from XBLA titles)

    • This. Since about a year ago, my interest in gaming has nose dived. Mainly because of too many samey games, and secondly because of the poorly designed games that come out. Thirdly due to those games not being patched up quick enough or at all.
      Fourthly because those games that charge lots of money and don’t patch up poorly designed games, already (before the game comes out) have DLC for more money. Some (EA/DICE for BF3) even sell DLC and say it will fix an on going problem (lag input) in the DLC but not the original game.

      Thats just an example but it seems more and more that publishers/devs just don’t care about the customer anymore. The public try to help out in forums with issues etc but they don’t care. They are more interested in selling DLC. They will advertise trailers for future DLC but not answer questions from the community.

      In all I just think the industry is turning into something I’m not willing to spend my money on, especially DLC for broken games. Subscription, ha ha, I don’t think so, premium, I don’t think so. I’m not paying for stuff that could be broken before I even play it.

      It just seems like a crazy time in the industry at the moment, and its something I’m not really interested in.

      • Couldn’t agree more, which is sad as I’ve loved gaming since I about 10 years old. The only games I find myself playing now are XBLA games (where developers aren’t afraid to break the mould and try something different), games I can pick up second-hand for about a fiver or games made by Valve/CD Projekt Red, simply because I get the impression they actually give a stuff about their customers.

  5. Online passes are pathetic.

  6. If the future of gaming is online passes, subscriptions and DLC, i will just quit gaming as i don’t want to pay £40 for a brand new game only for there to be 20% of it missing due to the publisher forcing the developer to cut out that 20% in order to sell as DLC. I have no problem with DLC, in fact it is an excellent way of continuing a story but i despise DLC that is content that has been ripped out of the game. The developers of the Witcher 2 know how to do DLC correctly and i believe more publishers should learn from them.

    I understand that Online Passes are required in order to help with the server costs but that reason seems to be no longer valid due to certain publishers putting a fecking online pass in a single player only game or forcing the developer to put in a tacked on MP just for the online pass. I believe a large majority of the people in the gaming industry have lost their passion and will willingly allow their game to be dumbed down in order to make a lot of cash. I think Hideo Kojima said that if he were to release MGS1 now instead of 1997, he wouldn’t bother due to the likelyhood of it being buried in generic games.

    • I don’t even think online passes are to cover costs of servers – servers were always funded without online passes before, and companies like EA aren’t exactly struggling. I think they are purely for the companies to get some kind of revenue from the second-hand market.

      • No you are right, that was just the bullsh*t excuse they gave for them was all.

        They were always an attempt to kill off the pre-owned market.

  7. One day we will all be old and the young gamers will think this is the standard and accept it :(

    • … or the market crashes from greed.

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