“There hasn’t been a hi-res free-to-play game on the console yet, and we still don’t have any definite announcements or dates, but we’re actively working on it,” Hi-Rez Studios chief operating officer Todd Harris said in a recent interview. “We are in talks with both console providers, specifically Sony and Microsoft, about how best to support free-to-play on consoles.”
Free-to-play refers to any title that is accessible at no cost and generates revenue through microtransactions and in-game advertising. The business model, commonly used in massively multiplayer online role-playing games and social games, has gained in popularity over the last few years. A study by market research firm Newzoo found consumers spent $4.9 billion on F2P MMOs in 2011, a 24 percent increase over the previous year.
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However, despite their growing popularity, F2P titles have had little-to-no presence in the console gaming market. But that could soon change.
Last year, Todd Harris told Eurogamer that F2P games supported by microtransactions on the Xbox 360 are “inevitable.” He still stands by that position, and believes the business model is better for both studios and gamers. “[A free-to-play] game succeeds on its own merits because people can just try it out for themselves. Consumers choose how much they want to pay.” He adds that it also gives developers incentive to deliver content and features that their communities want.
Wedbush Securities analyst Michael Pachter has a different opinion. He believes Microsoft is not interested in adopting the business model on the console. “The margin isn’t that good for them, and free users suck up server space,” he said. “Given that Microsoft gets only 30 percent and has to run the servers, it isn’t likely all that profitable.”
Pachter points out that Facebook, which has over 800 million users, makes about a third of its profit from sales of virtual currency for F2P games like Zynga’s FarmVille. He estimates that Xbox Live Gold, Microsoft’s paid subscription service that has around 17 million users, would make maybe $10 million a year. “I’m sure Microsoft doesn’t think it’s worth the hassle. I think Microsoft thinks about profit per user, and they don’t need to cannibalize existing traffic by offering free-to-play.”
R.W. Baird & Co. analyst Colin Sebastian disagrees. While he says the last thing publishers want is to shift gamers from buying $60 titles, he thinks F2P will become a monetization option across platforms. “One thing that companies such as Zynga have taught us is that there is no inherent risk in adopting a free-to-play model as long as the core gamers are willing to play and pay,” he said. “If Microsoft still gets their royalty and subscription fees, then it shouldn’t matter as much to them how publishers price the games.”
GamesBeat contacted Microsoft for this story and was told that the company “is always evaluating different business models, but has nothing to confirm at this time.”