We now live in a society of social justice and collective outrage. It’s hard to go a day without seeing a new cause that people are rallying against. People are so keen to stamp out injustice that they are rooting through ancient tweets to bring down musicians/comedians/politicians.
With this level of dedication it should be no surprise that executive remuneration is being targeted across the board. Outrage culture is of course not the sole cause here, but there’s been an undeniable upward trend of shareholder rebellion recently. BT, WPP, AstraZeneca and even Royal Mail have all had to deal with shareholder revolts over the last few months. Discussing pay privately is already awkward enough, let alone publicly defending it.
But so what, right? This isn’t exactly a new thing we’re dealing with here. There’s always been resentment against those who out-earn the vast majority. Be it born of envy or unfairness, people tend not to like the “1%” at the top.
It’s been a consistent for as long as capitalism has been around, but has that really resulted in anything? High-end salaries and bonuses are continuing to hit new records, even in the face of wage stagnation hanging over everyone else. Will this recent bought of shareholder rebellion really be anything other than a well-meaning trend?
Here’s where I’d like to introduce a concept you may be unfamiliar with, but has huge ramifications for a behemoth industry: micro transactions.
Allow me to explain what this is to those who may not recognise the term. Utilising micro transactions is a business model in which virtual goods can be purchased within a game using real money. You may recognise them in games such as Candy Crush, which offer extra lives and boosts when you’re struggling.
In the hard-core gaming community however, they have a much bigger impact.
Gamers tend not to mind these transactions for cosmetic items such as cool outfits for their characters which are entirely optional. But in recent years there has been a big shift. Games (and in particular triple A titles) are starting to put more core content behind these paywalls. For example, a fighting game with five characters released a decade ago would likely have had all five characters available from the start, whereas today it’s likely two of those characters would only be available after a post-sale purchase.
Irritation with this business model has been steadily bubbling for years but it reached boiling point with a game released last year. EA, a company with a less than stellar reputation in the community, released Star Wars Battlefront 2 in 2017.
This game couldn’t have been more anticipated and players were extremely keen to get their hands on it for obvious reasons. It allowed players to become a soldier in the Star Wars universe and even play as their favourite characters like Luke Skywalker and Darth Vader. The problems started once they popped the disk in.
An insane amount of core gameplay such as characters and maps were locked behind micro transactions. A large amount of what was available to you was dependant on your luck with “loot boxes”, a randomised system that rewarded players who paid for extras but couldn’t choose what the rewards were. You could pay for a loot box in the hope of unlocking Han Solo but end up with a new helmet. There were so many problems with this system when it launched that it would take forever to list here, but what went wrong is brilliantly summarised and explained here.
EA has been making millions from micro transactions for years but now gamers have had enough. Gamers voiced their outrage like never before. One customer took to Reddit to complain that they had paid $80 for the deluxe edition of the game and yet Darth Vader was inaccessible for play. To use this character he would have to spend the in-game credits (which needed to be purchased with real money). The credits could be earned through gameplay but players worked out it would take around 40 hours of gameplay to earn enough credits for a single character. EA decided to respond to the post:
The intent is to provide players with a sense of pride and accomplishment for unlocking different heroes.
As for cost, we selected initial values based upon data from the Open Beta and other adjustments made to milestone rewards before launch. Among other things, we’re looking at average per-player credit earn rates on a daily basis, and we’ll be making constant adjustments to ensure that players have challenges that are compelling, rewarding, and of course attainable via gameplay.
We appreciate the candid feedback, and the passion the community has put forth around the current topics here on Reddit, our forums and across numerous social media outlets.
Our team will continue to make changes and monitor community feedback and update everyone as soon and as often as we can.
This response ended up becoming the most downvoted comment in Reddit history.
The backlash continued to be relentless, gamers were fed up of the industry’s greed. It got so severe that the day before Battlefront’s release EA disabled micro transactions completely, a move unheard of before.
This still wasn’t enough. The community made so much noise that eventually the mainstream media picked up the story. EA shareholders were forced to notice and it was reported that EA eventually lost $3 billion in stock value.
If that wasn’t painful enough, the governments of Europe were about to deliver a haymaker. They decided to take notice of these random “loot boxes” that everyone was shouting about. Across the continent, governments began examining the loot box system to determine if it actually constituted gambling. The Netherlands and more recently Belgium have declared that loot boxes are a form of illegal gambling.
The industry was forced to change (well except for EA who refused to modify an existing loot box system in another game and is now reportedly facing criminal investigations in Belgium. Good job handling the PR disaster guys!)
One could argue that not much has actually changed. Micro transactions are still prevalent in the field and players are still complaining about the pay-to-play model overall. But this backlash has finally got the industry to acknowledge that there’s a serious problem with its current business model.
Indeed, publishers are now treading very carefully. Many publishers when promoting their latest game will confirm if micro transactions will be involved – and if they are, they’re keen to stress that the system is fair. It’s one of the few instances of consumer outrage that I can think of that has had far-reaching and long-term repercussions.
You may be thinking to yourself that this still doesn’t sound like a big deal. It’s just video games right? It’s a big industry sure, but honestly it’s just a hobby to pass the time for a few hours. Well allow me to illustrate just how big and important this industry is:
- The Entertainment Retailers Association found that UK game sales in 2017 generated £3.35 billion. This is higher than both music- and video-based sales.
- The worldwide games industry generated $108.4 billion in revenues in 2017.
- Virtual reality systems in gaming could generate $10 billion in revenue by 2020.
- The eSports market is expected to surpass $1 billion by the end of 2018 and several large companies are looking into sponsoring eSports such as Coca-Cola, Red Bull and American Express.
- Fornite, a game already covered by Harry and Eoin Treacy, has over 200 million registered players.
- E3, the gaming industries largest expo, had more than 69,200 attendees in 2018. That’s more than the capacity for Stamford Bridge.
So the next time you may shrug off consumers/shareholders complaining as inconsequential, just try to remember what happened within the gaming world and poor old EA.
Eventually people just won’t have it.
All the best,
Analyst, Southbank Investment Research