Online game subscription revenue declines as sales of virtual goods rise

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Revenue from subscriptions to online games such as World of Warcraft fell in 2010 and are expected to continue declining over the next few years as consumers favor games that generate money by selling virtual goods, according to a report released Wednesday by IHS Inc., a market research firm based in El Segundo.

Games that charge players monthly or annual fees to play generated $1.58 billion in North America and Europe, down 5% from $1.66 billion in 2009, the IHS report noted, marking the sector’s first decline since the company began tracking the market in 2002. (The acronym MMOG refers to massively multi-player online games, and MOG refers to multi-player online games.)

The decline marks ‘an inflection point for the industry,’ said IHS senior analyst Piers Harding-Rolls, as game publishers shift to selling virtual items in amounts as small as $2 to $3. These so-called ‘microtransactions’ have been gaining momentum, which were $1.13 billion in 2010, up 24% from $909 million in 2009.

Eventually, IHS expects revenue from microtransactions to exceed the amount collected from subscriptions (see chart above).


Part of the shift is driven by consumers, who feel more comfortable paying a few dollars at a time rather than commit to monthly subscriptions, especially given the soft economy. Game publishers are also behind the change, believing that selling virtual goods maximizes revenue in the long run as some players end up spending a lot more each month than the amount of a typical monthly fee, which ranges from $10 to $15 a month.

Some players of social games made by up-and-coming developers such as Zynga Inc. and Kabam, for example, spend hundreds of dollars a month.

Zynga alone booked more than $830 million in revenue primarily from microtransactions in 2010, according to the San Francisco company’s documents filed with the Securities and Exchange Commission in anticipation of selling its shares on the public stock market later this year.


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-- Alex Pham