The Problem with EA's Revenue Model
In the video game industry, Electronic Arts has become infamous for its questionable behavior. Despite the gaming industry having low entry costs into the market, EA remains a huge player in the field, with a 22% market share. With hit games like FIFA 19 and Star Wars Battlefront 2, EA remains a major influence in the gaming industry. However, these two games both have the same problem that many have criticized EA for: loot boxes and microtransactions.
EA makes about 55% of its revenue from providing services. These services include subscriptions and in-game transactions, prices not covered by one time purchases of games or other merchandise. This can become a problem when people take a close look at what the in-game transactions are used for, and why this is a problem for many consumers. Loot boxes are a system in which players can purchase a reward box using in-game or real currency, and the purchased loot box then provides the player with random items, typically from a specific pool of possible rewards. Typically, more desirable items have much lower rates of being obtained, meaning players need to usually purchase a lot more loot boxes to get the exclusive items than to get common ones. This takes advantages of people with severe tendencies to get addicted to gambling, as there is not really much of a difference between gambling and loot boxes, besides the key fact that players typically cannot actually get direct monetary profit from loot boxes the same way that they can with gambling. This allows EA (along with many other gaming companies) to target minors with their loot box system. Many players have gotten mad at EA in recent years for continuing to implement the same type of loot boxes, with horribly low percentage chances of getting the items that players want. Players who want these items would find themselves having to pay out hundreds, sometimes thousands of dollars just to get a specific item.
Another issue with EA is with their paywalls. Star Wars Battlefront 2 suffered significantly from this problem. The game, already initially priced at $60, essentially locked many desirable characters like Darth Vader behind paywalls. Although the characters were obtainable through in-game play, the time it took to obtain just one of these characters was 40 hours, making it nearly impossible for casual players to obtain all the characters they wanted simply by playing the game. Instead, players were encouraged to spend money on in-game microtransactions to get the credits required to unlock these characters much faster. EA found itself facing backlash for their decision, with one of their comments on Reddit to justify their greedy decision receiving hundreds of thousands of downvotes, becoming the most disliked comment on the entire site. EA lost a lot of money through a stock price drop as well, leading the company to quickly change the transactions to be purely cosmetic to try to save their tanking stocks.
EA's revenue model today finds itself in danger as many people are trying to stop the epidemic of loot boxes to prevent children from getting gambling addictions. Countries like Belgium and the Netherlands have completely banned loot boxes in games in their countries, citing that these systems violate their gambling laws. In an industry where loot boxes are becoming heavily criticized and outright banned, EA faces a major threat to their revenue model and must make an effort to quickly change what their primary moneymaking strategy is.
Sources:
https://www.forbes.com/sites/greatspeculations/2018/07/05/what-are-electronic-arts-key-sources-of-revenue/#57ab4631fe1f
https://seekingalpha.com/article/4245743-electronic-arts-hell-high-water
https://www.businessinsider.com/loot-boxes-european-regulation-2018-9
EA makes about 55% of its revenue from providing services. These services include subscriptions and in-game transactions, prices not covered by one time purchases of games or other merchandise. This can become a problem when people take a close look at what the in-game transactions are used for, and why this is a problem for many consumers. Loot boxes are a system in which players can purchase a reward box using in-game or real currency, and the purchased loot box then provides the player with random items, typically from a specific pool of possible rewards. Typically, more desirable items have much lower rates of being obtained, meaning players need to usually purchase a lot more loot boxes to get the exclusive items than to get common ones. This takes advantages of people with severe tendencies to get addicted to gambling, as there is not really much of a difference between gambling and loot boxes, besides the key fact that players typically cannot actually get direct monetary profit from loot boxes the same way that they can with gambling. This allows EA (along with many other gaming companies) to target minors with their loot box system. Many players have gotten mad at EA in recent years for continuing to implement the same type of loot boxes, with horribly low percentage chances of getting the items that players want. Players who want these items would find themselves having to pay out hundreds, sometimes thousands of dollars just to get a specific item.
Another issue with EA is with their paywalls. Star Wars Battlefront 2 suffered significantly from this problem. The game, already initially priced at $60, essentially locked many desirable characters like Darth Vader behind paywalls. Although the characters were obtainable through in-game play, the time it took to obtain just one of these characters was 40 hours, making it nearly impossible for casual players to obtain all the characters they wanted simply by playing the game. Instead, players were encouraged to spend money on in-game microtransactions to get the credits required to unlock these characters much faster. EA found itself facing backlash for their decision, with one of their comments on Reddit to justify their greedy decision receiving hundreds of thousands of downvotes, becoming the most disliked comment on the entire site. EA lost a lot of money through a stock price drop as well, leading the company to quickly change the transactions to be purely cosmetic to try to save their tanking stocks.
EA's revenue model today finds itself in danger as many people are trying to stop the epidemic of loot boxes to prevent children from getting gambling addictions. Countries like Belgium and the Netherlands have completely banned loot boxes in games in their countries, citing that these systems violate their gambling laws. In an industry where loot boxes are becoming heavily criticized and outright banned, EA faces a major threat to their revenue model and must make an effort to quickly change what their primary moneymaking strategy is.
Sources:
https://www.forbes.com/sites/greatspeculations/2018/07/05/what-are-electronic-arts-key-sources-of-revenue/#57ab4631fe1f
https://seekingalpha.com/article/4245743-electronic-arts-hell-high-water
https://www.businessinsider.com/loot-boxes-european-regulation-2018-9
This was a super interesting and in-depth post, good job! The analysis you do of the different revenue models of EA is really thought provoking. As a consumer, I often subconsciously tailor the preferences of the games I play based off of the revenue models of the game. I generally shy away from games that have paywalls or loot boxes like you mentioned, and prefer games that are free through and through or one time purchase. A solution that I found that actually applied to me was the revenue model for video game companies to make mobile version of their popular games. This has often attracted me to certain games, and I think that it could be an interesting way for EA to move towards if they aren't already doing so.
ReplyDeletehttps://digit.hbs.org/submission/rethinking-the-video-game-business-model/
This was a really interesting topic to explore. Being a FIFA player myself, I can resonate with how extortionate the "pack" system is, where you pay real money to get cards. Recently, news came out that in Belgium, they actually banned the sales of Fifa points, the way EA charges you real world dollars. This was seen as a major hit to EA as their major revenue stream in FIFA actually comes from fifa points and not the sale of the $60-100 game. In the future I expect to see a further crackdown on this loot gambling system. Perhaps the in game transactions will be more ike Fortnite, centered around non gameplay aspects of the game.
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