China and the US at Odds in Online Games

Globally, online games is forecast a gain of more than US$4.7 billion in absolute terms over 2012-2017, making it one of the fastest growing categories in video games. However, not all markets will contribute to this growth. In the US, online games sales have shifted from a subscription payment model to a free-to-play system, hence the country’s weaker forecast. China, however, is anticipated strong growth globally in absolute sales over the coming years as online games there have witnessed a move in the opposite direction, from free-to-play to a subscription model.

Absolute Sales of Online Games in the US and China, 2012-2017

Source: Euromonitor International

Free-to-Play Model Becoming a Dominant Force in the US

Online games have long been subscription-based in the US. However, in 2012, many consumers began to see this cost as being far too high due to there being numerous free-to-play mobile games and other alternatives. One of the largest online gaming launches of 2011, Star Wars: The Old Republic, was forced to switch to a free-to-play model in November 2012. The game was initially launched as an aggressive competitor to World of Warcraft. Although World of Warcraft is still a dominant player in the online gaming world in the US, it has been rapidly losing subscribers over the past few years, falling from 12 million in October 2010 to 7.7 million in July 2013. In addition, Square Enix released Final Fantasy XIV: A Realm Reborn in August 2013, a re-launch of sorts of its ill-received Final Fantasy XIV via a subscription pricing model. However, it is very likely that subscription games will face a strong downward trajectory in the foreseeable future.

It also seems very likely that nearly all online games may adopt a free-to-play model at some point in the US. While Activision Blizzard’s World of Warcraft still generates a large amount of revenue globally, that has been steadily declining of late. The company has even started to experiment with in-game purchases for real currency in the game, although it has yet to give any indication that it will lift the subscription cost.

Subscription Payment Model to Stage a Revival in China

In China, the subscription model was the predominant method of payment for online games up until around 2005, when most online games adopted free-to-play models, led by local companies including Shanda Interactive Entertainment Ltd and Giant Interactive Group Inc. However, players need to pay if they are to achieve a stronger gaming presence, with this leading to the creation of VIP members paying hefty membership fees in the form of subscriptions.

In China, more online games turning to the subscription payment model can be expected over the forecast period, driven by more gamers willing to pay a premium price for VIP membership. In 2013, Shanda Interactive Entertainment Ltd’s new version of The Legend of Mir 3, which was previously free to play, will be offered via both free-to-play and subscription payment simultaneously.

Considering its influence among players and digital gaming companies, Shanda’s move could lead to a change in the existing payment model in China. The return of subscription payments is expected to boost the size of the online games market in the years to come.