EA’s “loot crate” controversy
What happened?
Electronic Arts has recently announced their new game Battlefront II, which included a “loot crate system” that requires real money to purchase. The loot crates grant players the chance of getting popular characters like Darth Vadar without having to spend hours earning points in game. The community was outraged when they found out the difficulty of unlocking in-game characters; some rare characters will take more than 40hours of gameplay, indirectly forcing players to have to spend real money to buy loot crates.
What are the consequences?
When the game developer announced the changes on Reddit (an online forum), the announcement took the website by storm, becoming the most downvoted comment in the history of the site, showing how outraged the gaming community was. The backlash significantly affected EA’s stock price; the stock is down 8.5 percent month to date through Tuesday compared with the S&P 500's 2 percent gain, wiping out $3.1 billion in value. Its competitors Take-Two and Activision Blizzard shares are up 5 percent and 0.7 percent respectively during the same time period.
Your reactions?
What do you think about EA’s move to generate extra profit by encouraging players to make purchases in-game? Do you see other potential ways for game developers to generate revenue (such as in-game embedded advertisements)?
With E-sports being more and more prominent-having various televised leagues and a loyal fan base, what does the future hold for the video games industry? What do you think game developers like EA can do to get the most out of the E-sports economy?
This has been an industry practice for years. EA just got unlucky that it blew up so badly on a AAA title and brought actual attention (i.e., the money) to the issue. Every gaming blog/user has been complaining about micro-transactions for years.
The real question is what % of EA/ATVI EBITDA comes from these micro-transactions. You'd need to break it down by pre-orders/full game purchases, micro-transactions, and DLC (different from micro-transactions as its actual content rather than loot boxes, extra lives, in-game currency/experience, etc.) purchases.
I think enough data exists to back into these figures, but at the end of the day if you think micro-transaction prevalence will be curtailed in the future, and its not a big % of earnings then does it really matter?
A better question would be what is going to happen to full-game/pre-order pricing going forward. I personally think its ridiculous that video game titles are $60-70 at retail when basically every other form of media has seen their retail pricing contract over the years.
Either the publishers will respond by slashing retail price and continue with micro-transactions (making these "freemium" type games), or cut back micro-transaction content on big AAA titles.
My bet is that it'll be more of the latter because the AAA titles are really more like movie productions and super expensive. Battlefront 2 has over 2 hours of CGI cut scene content!
In any case, the video game publishers have definitely been put on notice, but the relatively low leverage of EA/ATVI/TTWO really gives them some breathing room in figuring out their options. None of them will be cutting dividends/repurchases because maturities are coming up and they just lost 25% of EBITDA by this problem, for example.
It is fascinating to watch, though!
Also, at the end of the day the big three developers have monopolies on the most popular titles. The reason this practice has existed for so long is because no matter how much players bitch and whine they will always buy the latest edition of Call of Duty, Battlefield, FIFA, etc because thats what all of their friends play, and the multiplayer retention for Game X vs. Game X+1 is awful.
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