We can sell content or services; but trying to do both will repel consumers
Much attention has been paid this week to Activision's decision to turn Call of Duty Elite in to a free service - a somewhat embarrassing climb-down for the company, which only a year ago was making a great deal of noise around the launch of this much-vaunted subscription service for the game.
The problem, of course, is that Call of Duty Elite was really designed to solve a business problem, not any issue with the game itself. Activision has two major cash cows - World of Warcraft and Call of Duty. The former has a recurring subscription base, pulling in steady revenue month after month, as well as providing tidy spikes of income around the launch of expansion packs. The latter, however, is a seasonal product - it has one (absolutely huge) launch each year, and then trails off rapidly. In fact, it's been trailing off more rapidly of late, with the game's sales curve looking more and more front-loaded - big opening weekends, weaker long-term demand.
Activision's thinking with Call of Duty Elite was pretty transparent. Call of Duty would be an even more appealing product from a financial perspective if it had an element of subscription revenue - another steady month-to-month earner, just like World of Warcraft. It was from that thinking that Elite was born, I suspect - the company asked "how can we add a subscription service element to CoD?", rather than coming up with something cool, asking "how can we make this into a business?" and arriving at the subscription model as being the best option.
"The problem, of course, is that Call of Duty Elite was really designed to solve a business problem, not any issue with the game itself."
What hasn't really been addressed in the talk about Elite's demise as a subscription service, however, is that one aspect of the service will continue to be paid-for - the content which it provided. I have a deep suspicion that hardly anyone subscribed to Elite for access to the Elite service itself, but quite a few people probably subscribed for the guaranteed access to all of CoD's DLC packs which a subscription included. These DLC packs will still exist, of course; players will even still have the option of buying them individually, or purchasing a "season pass" - effectively a subscription - that covers all of them. In other words, on a financial level, Activision will still have some recurring income from CoD - but it'll come from players paying for DLC, not paying for access to a service.
That, perhaps, highlights the real difference that Activision would have wished to make to the CoD business. Right now, CoD is about as traditional a games business as you can imagine. Activision's developers build content and sell it - in a box once a year, as supplementary downloads a few more times a year. The revenue Activision can make from CoD can grow according to how many customers it reaches, but it is limited by how much content its developers can create (and how much the market wants).
The holy grail here is something quite different - a transplantation of ideas from the subscription MMO business, whereby consumers aren't paying for content, they're paying for a service, and (potentially, although Elite didn't go down this path) for cheap to create and free to duplicate virtual items. In other words, a model where you're not really selling access to content any more - instead, you have a business that's vastly more scaleable (and far less subject to piracy). Tempting - yet only a year later, Activision is retreating from Elite already. Why?
The answer, I think, is that the company has been burned - and forced to realise that when it comes to choosing what you sell and how you sell it in today's games industry, "pick a lane and stick with it" is an extremely important lesson. Activision tried to be greedy, mixing and matching the best of all possible worlds. It wanted to sell you content, at a premium price no less, but it also wanted to sell you a service. Consumers are willing to buy content (mostly, and there's some debate over whether that'll last forever, but it's certainly true now).
They're also willing to pay for subscriptions, and they're willing to buy virtual goods. However, I don't think they're willing to do all of those things at once - in fact, they resent it deeply. The root cause of most discontent with modern business methods in the games industry, in my view, comes from companies attempting this kind of "bait and switch"; selling you content, and then having the temerity to ask for money for virtual goods afterwards, or for a subscription.
"Games that don't charge up-front for content have free license to charge for other stuff later on. Not everyone likes it, but it's fairly clear that it's not unfair, or exploitative, or anything like that."
Here's an example. I recently, finally, got around to playing Mass Effect 3 properly. I happily paid for two large packs of DLC (From Ashes and Leviathan), an investment of about $20 in buying content. However, I gradually realised that I was also going to have to buy an online pass for the game - not for the multiplayer aspect particularly, but because part of the singleplayer experience (the Galaxy at War component, which encompasses multiplayer and a host of other stuff) wasn't accessible without an online pass, and my copy was borrowed from a friend.
I resented that, deeply, on a very instinctive level. Sure, I hadn't paid for the game, and I accepted that if I wanted multiplayer (a service offering, fundamentally) I'd need an online pass. However, by buying two expensive packs of DLC, I'd firmly slotted this game, in my thinking, into the "paid-for content" pigeonhole. When it then became apparent that I'd also have to pay for something that wasn't content - a service payment - that seemed grasping and unpleasant on EA's part.
Games that don't charge up-front for content have free license to charge for other stuff later on. Not everyone likes it, but it's fairly clear that it's not unfair, or exploitative, or anything like that. It's simply a different way of doing business. However, games which do charge for content have established a clear relationship with their users - you've bought this. Its yours. Enjoy it how you please. Then turning around and saying "oh, now pay us for a service offering, and for virtual goods" genuinely is exploitative, and consumers are quite right to resent it.
In short, if Activision wants to try to transition Call of Duty to a different business model - fine. I'd applaud that, actually - I think that if incumbent market leaders aren't willing to disrupt their own cash cows, they invite someone else to come along and do the disruption for them. So launch a new Call of Duty, make it free, monetise it with subscriptions or virtual goods, launch it on unexpected new platforms - whatever. Be brave and bold, and see what the market wants and what it'll support.
"Elite, however, was the over-cautious and underwhelming attempt at "evolution" of a franchise that you'd expect to be cooked up by a room full of career accountants"
Elite, however, was the over-cautious and underwhelming attempt at "evolution" of a franchise that you'd expect to be cooked up by a room full of career accountants - and it was pretty disrespectful of the player base in the process. It was an attempt to clutch on firmly to the money Activision already makes by selling Call of Duty as a piece of content, while also trying to make extra money from new business models - despite the fact that those business models were developed to work for games that don't sell their content, at least not at the kind of premium price Activision demands for CoD.
Selling games and DLC packs isn't a bad business - and while I'd be fascinated to see Activision experiment wildly and bravely, I'd also be happy to see them stick with what works. Selling subscriptions and virtual goods is a good business too. But the two of them simply don't mix, and Elite is a pretty good example of why. Pick a lane and stick with it. If you're selling content, sell content - because once users have bought that content, coming back with a begging bowl for more money is just bad business.