From the developers and designers who create the games to the esports athletes who compete on grand stages during tournaments, the global gaming economy is a major industry with over $150 billion in gaming revenue and an 11 percent annual revenue growth, according to Newzoo.
As gaming forms its own economy, seamless payment experiences at every level are critical for the ecosystem to thrive. The world of payments can be complex. Game industry leaders and investors are often concerned with one aspect of payments — in-game monetization — but there are many other ways that payments add or reduce friction. To achieve the ideal outcome for long term success and competitiveness, it can help to take a step back and look at how payments affect the entire operation.
Payments today are not as simple as buying a ticket or paying a paycheck. Microtransactions, global banking friction, risk and fraud management, content monetization, a complex freelance creator community, and performance-based incentives mean the industry needs to be attuned to who they’re paying and how to reduce friction in the ecosystem. To illustrate this, we want to look at three main areas: game development, game promotion, and post-release monetization and gaming culture.
Let’s start with the game development process. Beyond coders and testers (many of whom may be freelance contractors at a game studio), there may also be a slew of contract voiceover artists, illustrators, animators, and musicians aiding in the look and feel of the game. In order for games to be released on time, creators have to come together—relying on the studio to compensate them on time for their work. For the use of images and music, royalties and licensing rights may be needed, which could include disbursement payments to artists. Translators may be employed to localize in-game content. This can continue beyond the initial release of the game through DLC and enhancements.
If any of these contributors are outside the country, paying them can be more complicated than simply sending a check. There are tax reporting implications with the IRS, banking regulations and formalities, and transaction fees that may make wiring funds the least cost-efficient option. As in the movie industry, design teams are now more dispersed. Contributors exist across international borders and require varied payment methods and conversion to local currencies. And how the studio communicates payment status and execution with their freelance talent are all points of friction that can hinder game development when payment issues arise.
The marketing machine
Once the game is released, a heap of promotional activities is required to help the game get exposure. The “in vogue” best practice is to get the games into the hands of popular influencers who can review and promote the game on their Twitch, YouTube, and social media channels. Influencer content is often heavily monetized through digital ads, as they’re consistently the top subscribed channels. With millions of loyal viewers, they garner a lot of attention.
Yet even the most prolific influencers often only put out one video a day — they have limited messaging real estate to push content. And, when it’s a paid engagement, an influencer who isn’t compensated as promised could negatively impact the game company with bad word-of-mouth or a damaged relationship that hinders future efforts. In order to get the most out of an influencer, gaming companies need to manage the relationship proactively (i.e. pay them on time as promised).
For smaller developers, they may look to advertise in other similar games (for example, puzzle players of another puzzle game, or real-time strategy players on other RTS games). This strategy is heavily employed in mobile games due to the immediacy of downloads as a conversion point and their relatively low cost. Likewise, developers may have room in their in-game experience to feature advertising for others. The simplest way to monetize is through a network or system that pays a developer for advertising within its content. These include Tapjoy, Chartboost, StartApp, Vungle, ironSource and many others.
Another popular way to market games, game content, and hardware (e.g. controllers, headsets, VR gear) is through affiliate networks. Paying affiliates to link from their content sites is another form of influencer marketing, but it’s often tied to a point of conversion (e.g. someone downloads the game, buys the game, buys accessories, etc.). This has an added benefit of improved SEO, but those affiliates likewise have to be paid for their contributions to onboarding new players or enticing existing players with other actions.
With games in the hands of players, it’s not the end of monetization. DLC and virtual currency deliver an extended and enhanced gaming experience. Because this is a “pay in” area of the business, gaming companies have given plenty of attention to streamlining the process through stored credit cards, PayPal, and integration with on-device payment technologies. There may be some challenges collecting global payments, but it’s not rocket science, and generally not a trouble-spot. The science is psychological in how the game appeals to the player to commit a new round of funds and not so much of a payment technology problem.
Instead, let’s examine payments in the post-release gaming culture.
With the advent of Twitch, gaming is no longer just a solitary exercise. It’s a virtual community mixing entertainment and influencer activities. Streamers are tipped by viewers through “Bits” exchangeable for real money while providing fun commentary during play as well as teaching skills to get around games. Viewers get a secondary endorphin hit just by being in the same virtual room. And the more subscribers they earn, the more money and ad revenue they can make from Twitch.
One company, GawkBox, takes streamer revenue to the next level. They work with game companies and other cultural brand tie-ins to advertise on streamers’ feeds by providing viewers with free Bits, which they can direct to their favorite streamers. The streamer gets the money, brands get the exposure from both the viewer and the streamer, and the viewer gets exposure to the brand and joy around participating in the community without fronting their own money.
This spectator gaming phenomenon has also aided in the rise of esports. Newzoo estimates that 2019 will see esports revenues reaching $1.1 billion with a 26.7 percent annual growth rate. The global esports audience will total 450 million this year. Entire stadiums are being built to host tournaments.
This is a global wave as well, with many athletes emerging from Asia and Europe. Here’s a sobering comparison: an Olympic Gold Medalist earns $25,000 for their win (and they wait four years for each opportunity). The top prize for Activision Blizzard’s Hearthstone championship tournament? $250,000. And these tournaments and many others are happening throughout the year. On top of that, e-athletes, their teams, and leagues are earning sponsorships, media rights, and advertising, and merchandising residuals. The payables implications for esports hits at multiple levels across the business.
What does this all mean? Payments and gaming are inexplicably tied. They fuel each other—now more than ever—as transactions occur at every point in the ecosystem and are increasingly global and expectedly digital. Closely watching how they impact each other is the secret to holistically understanding gaming’s future. If you are a company in the gaming space, you need to make it a priority to ensure you are delivering a best-in-class payments experience to your partners in order to remain competitive and thrive. It’s no longer child’s play. It’s the digital life realized.
(Full disclosure: Companies mentioned in this article are all Tipalti customers. Tipalti also provides an in-depth look at international payment challenges from real-world, first-party data in our report on Demystifying Cross-Border Payments.)