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GDC 2006: "Free to Play! Pay for Stuff: The Digital Content Sales Frontier"

Free to Play! Pay for Stuff: The Digital Content Sales Frontier
Matt Mihaly, Iron Realms Entertainment
Daniel James, Three Rings

This was a roundtable on economic models for games where the primary (or sole) source of revenue is paying for objects, as opposed to purchasing the game or paying subscription fees.

Most of the session was concerned with liability. What liabilites do game companies incur when they issue virtual currencies, or when they sell digital objects?

I asked the question whether anyone at previous sessions of the roundtable had brought up frequent flier miles as a model, and it turned out they had not. My hunch is that when users start suing game companies over issues related to virtual currencies, the judges involved will first look to see if there's any existing case law -- and when they do, frequent flier miles will be the closest parallel they can find. This brought up the question of what the case law is when it comes to frequent flier miles. I'm not an expert, but as far as I know, courts have ruled, generally, that airlines have tremendous latitude in terms of setting and then changing the terms of their frequent flier programs, especially when their terms of service clearly state that they can change the terms at will.

It was asked whether anyone thought that allowing users to convert virtual currencies back out to real-world currencies was a good idea. I said that I thought it was a tremendously bad idea, because looking at PayPal as an example, state and national regulators took the position that PayPal was a bank and should be regulated as such -- and the last thing any entrepreneur should want would be to suffer bank-like regulation. PayPal had to devote a substantial amount of effort to avoid bank-style regulation. I suspect that at least some regulators and politicians would look at any MMOs offering fully exchangable virtual currencies as being banks, and would attempt to regulate them as such, whether out of legitimate concern or in an attempt to score political points.

Some dramatic statistics were discussed. ARPUs (Average Revenue Per User, typically per month) across 'free to play, pay for stuff' games in Korea are approximately $25. The moderators reported that ARPUs across their various games are $20. This includes not only the users who pay for items, but the 'freeloaders' who don't buy anything. That's substantially more than most subscription-based MMOs of which I'm aware.

The moderators' MMOs suffer about 3 percent in bad transactions (any transaction where they end up not getting paid or having to refund the user's money). My impression is that this is fairly low, and is a good sign. Fraud within games is a problem -- a participant stated that 40 percent of all customer service calls to Ultima Online are due to player-to-player fraud caused by a secondary market in items.


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