The Free Future

Free-to-Play

On a worldwide basis, free-to-play is the most widely used business model. There are a large variety of different models underneath the banner of free-to-play. This business model really evolved out of Korea and China predominantly. Both of those markets are PC gaming markets. It's interesting that most Americans my age (I'm 43) grew up being console gamers first. That's not true in either of those countries. Think for a moment what a profound difference that is. We all grew up with consoles being a part of our everyday lives in addition to computers. In my house I had an Atari 2600 and an Apple II+. Many kids in the US grew up playing Madden on the PlayStation. The key thing here is that our business models came from that console frame of reference. We buy the game at the store and we play it. We got used to it because it's what we knew. In China and Korea the culture largely was built around internet gaming cafes where the games were already installed. They were used to paying the café operators for time, but not necessarily paying for the game itself. New games would just show up on the PCs in the cafes. This is largely the reason that free-to-play games first took hold in Korea and China.

As these business models have moved over to the West they first came over in games imported from these countries and in many cases the early games simply weren't very good by the standards of the games we played in the west. I find it very interesting in my trips to China to see the quality of the shooters they have for example. People in the West don't realise that the world's largest shooter (in terms of number of players) isn't Call of Duty or Battlefield or Counterstrike. It's a game called Crossfire and it gets between 2 million and 3 million concurrent users. If you look at the game it doesn't look like a modern first-person shooter by western standards. But it's got an insanely huge user base… and it is a free-to-play game. There are many other examples like it in China and Korea and many of those games have been brought over to the US - a lot of players began to associate free-to-play with lower quality import games and it began to have a stigma associated with it. There were other games early on in the free-to-play genre like Runescape as well (which has been an amazingly successful game and one that is a lot of fun to play if people take the time… it's one of the hardest core MMOs on the planet).

Over the last few years we have slowly begun to see some very high quality free-to-play games come out, and we've seen some high quality games change business models to free-to-play. Some good examples of high quality games are League of Legends and our own Free Realms. Both games are very high quality modern games with free-to-play business models. There have been a lot of games that started out life as a more traditional subscription game that moved over to free-to-play. Perhaps the best example of this is Lord of the Rings Online from Turbine, which changed over to a free-to-play business model and has been very successful. They have publicly claimed a three times increase in revenue and a big increase in users from switching over to free-to-play. At Sony Online Entertainment, we also made the switch to free-to-play when we added EverQuest II Extended to our portfolio of games. We took EverQuest II and added a free-to-play server that's been very successful. We also just announced that we're taking DC Universe Online from a subscription business model to a free-to-play model.

Free to Play encompasses a lot of different business models. Some games like League of Legends are microtransaction only games… where there is no subscription. Other games like LOTRO offer a subscription tier as well. The key idea of a free-to-play game is that the game itself doesn't cost money to purchase and you get some amount of gameplay for free. Beyond that it's different game by game. This is what we're seeing today and I expect that in the future you're going to continue to see a lot of different ideas in the free-to-play space.

The Future is Free to Play

I firmly believe that free-to-play is going to become the predominant model in online gaming for a lot of reasons:

• The upfront cost of buying a game is a large barrier to most people. Let's face it, for those of us in the gaming space seeing a company like Zynga hit amazing numbers has been a real eye opener. I would absolutely classify Facebook games as free-to-play. If Zynga required every user to pay even $10 up front they wouldn't have remotely the number of people it has got. A lot of snobs in our industry are going to stop me here and say "those aren't real gamers". They are absolutely real gamers. They pay a lot of money (as evidenced by Zynga's recent IPO filing). This is perhaps the best example there is of getting a lot of people that never gamed before to try a game. I think it applies to all areas of gaming. As the quality of free-to-play games becomes higher it's going to make going out and spending money at the store on a game a lot more of a barrier simply because they have real options that don't involve a software purchase.
• Recurring subscriptions are going to increasingly be a barrier - like I mentioned earlier, when we do exit surveys of the people that quit EverQuest II, we see an astounding 40 per cent of people specifically mention that the recurring subscription is a real barrier. A lot of people are playing multiple games now and having something hit their credit cards every month is something they don't like to see. At Sony Online Entertainment, we believe that gamers should have options here. We're going to be introducing non-recurring subscription options. If you would prefer to buy a one-off pass and not worry about that subscription hitting your credit card every month we're going to give you that option.
• Console gamers aren't used to paying subscriptions for games - at SOE we currently have two MMOs on the PlayStation 3 - DC Universe Online and Free Realms. Free Realms is already free-to-play and DCUO is moving to a free-to-play model in late October. In the surveys that we've done, we see a lot of people who say they had a problem with a subscription being a part of DCUO because they expected to play for free after they bought the box. We believe that removing that barrier is going to result in a lot more console players giving it a try.  In Free Realms on the PS3 we've already seen that work extremely well.
• It works on a worldwide basis - Over time we are seeing more and more success stories of games making the jump from the US to Asia, and vice versa. As I explained before this model is the predominant one in Asia.
• It takes retail out of the equation and it makes a level playing field for smaller indie developers. As it stands right now, retail is a big hurdle for gamers. They have to physically go into the store and they get a relatively small selection of games. This means that games from smaller publishers and developers don't get shelf space. They also need to manufacture the boxes and take inventory risk. Digital by itself fixes the inventory and the retail issue, but what it doesn't do is allow smaller publishers to experiment with new ideas for games. There are a lot of examples of games that became very successful that no one would have even looked twice at if they had to pay up front for.

Free-to-Play - Doing It Right.

Since I think free-to-play is the future here are some thoughts on some core values I think we should adhere to for future free-to-play games. Note that this doesn't mean that every game that's switching to free-to-play from a different business model can go this way - this is more about new games.

• Let players be able to get most things that you sell in the store just by playing the game.  Even if it's difficult, giving free players the chance to get things without ever paying you a dime is the right thing to do.
• Convenience items are good ways to make money - selling things like XP potions are things players like because they can speed through areas of content they've already been through with another character.
• Customisation is a key thing to sell - players like to be different. Selling them options to appear different is a good money maker and something that's non-controversial.

Free-to-play is here to stay. I really think we're going to see a lot more AAA games going with this fantastic business model. It's something SOE is taking a close look at for our existing games and certainly for our future games.