Micropayments Promise New Game Revenue Models

Electronic Gaming Business, July 30, 2003

As far as we know, there is no law saying that downloadable demos need to be free. Moreover, why shouldn't gamers pay a small fee for an extra mod, game play map or a hint from your online support staff? And while we are befuddled about revenue models, whatever happened to the quarter-a-play idea that once drove the video arcade?

The fact is that most of the current models driving revenues for game companies are wedded to a single payment system, the credit card, which tends to favor recurring charges or larger lump sums because of their hefty processing fees. A new wave of online micropayment solutions such as Peppercoin, BitPass and PayStone have launched this year, and all of them have targeted gaming as a likely place where content makers can re-imagine their packaging and models once customers are able to spend quarters again on quality game play.

"There is a lot of game content that people have invested in, and they need a way to sell it and sell more of it. This is stuff they are giving away for free that they could be charging for," says Rob Carney, vp sales and marketing, Peppercoin. His Waltham, Mass., company takes users' credit card information once on the front end at a partnered site and then on the back end aggregates the micro-buys (some as low as a penny) from multiple sites or purchases into more efficient larger charges to the credit card company. At a games site, he envisions Peppercoin working like a roll of quarters that allows users to play a single short game online or download a cheat or a hint for a pittance.

Dan Fergusen, creative director and co-founder, Blockdot, already sells full versions of his downloadable games at his Kewlbox.com for $14.95. He thinks a viable micropayment solution will let him sell limited time access to customers who want to try before they buy or even as a way to sell additional features or levels to existing customers at very low price points. "We believe that having a smaller payment system may open up a whole new stream of people who don't want to pay $14.95," says Fergusen.

Blockdot will be using BitPass, which launched in late June with a prepay model that has users "load" funds into a central BitPass account and then debit any increment down to a penny at partnered sites. "We envision people using BitPass not only for one-off purchases but for micro-subscriptions," says Kurt Huang, CEO and co-founder, BitPass. "You try a game for a week or a day but then migrate over to a larger volume subscription."

BitPass is speaking with several game companies in addition to Blockdot, but COO Matt Graves says the company is getting deluged with inquiries especially by smaller media companies, comic artists and musicians who need a more convenient way to sell their wares by the piece. "That's where the greatest pain is. We are seeing grassroots support."

The New Models

While Canadian micropay service Paystone is in talks with major game providers, Brian Roberts, vp sales and marketing, says many of the publishers are focused on the subscription model for now, but many recognize the natural limits of this approach. "How many sites am I going to subscribe to?" he says. "For the second mode they recognize they have to go to a micropayment. The more payment options they can bring to the customer the better." Like BitPass, Paystone uses a prepay model, but customers load electronically and directly from bank accounts. The company boasts 700 content providers, including music vendors FreedontoGroove.com and American Empire Records and 800 bank and credit union partners.

"We can really offer the ability to try new business models," says Carney. Gamers could pay pennies for each play of a simple online game or a small fee for timed access. Games could be bought and played by the level or players could micropay for goods or enhancements that they bring with them into persistent multiplayer worlds.

"You can bridge the gap between virtual and real worlds," says Groves. The idea is that once gaming returns to a dime and quarter economy, a number of new revenue streams begin to trickle in.

Add to this the prospect of robust online game play and millions of new customers in the next generation of consoles, and micropayment could be leading to some serious money down the road for game companies that desperately need new and more reliable revenue streams.

The Split

Peppercoin, BitPass, and Paystone all promise much more attractive terms and convenience for content providers than typical credit card schemes. Peppercoin takes 5% to 10% of the retail price, without any additional fees or set-up costs. BitPass takes 15% on anything between a penny and $5, and 5% plus $.50 on tabs above $5. Paystone charges 10% of the transaction plus seven cents.

And of course they bicker. Peppercoin argues that consumers don't like BitPass's prepay model and only want to pay as they go. BitPass counters that PepperCoin, which uses encryption and digital rights management on downloads, is less convenient to publishers, while its own solution allows quick payment for Web-based content access. Paystone boasts even greater ease by circumventing credit cards altogether and letting anyone push funds from their own bank accounts to the system.