Game on.

Think how formidable you would need to be to go up against Spider-Man, Batman, and the X-Men all at once, and still come out on top. Imagine having enough left in the tank to take on James Bond and the Terminator, as well.

That powerhouse exists, and its name is Call of Duty. The world’s most popular shooter game series has total sales of over $30 billion¹, a sum greater than five of the largest movie franchises in history added together.^{2 3}

CoD’s success highlights the sheer scale of the gaming business. An industry that generated global revenues of $30 billion back in 19901 now is forecasted to generate closer to $200 billion a year⁴, making it bigger than the movie and music industries combined.^{5 6} 

The gaming industry’s ascent has hinged on its ability to evolve and adapt its business models over time, and this evolution is ongoing. To an arcade owner in the 1970s, new ideas such as subscription streaming or play-to-earn would have seemed incomprehensible. And as the gaming economy has transformed, it has transformed gaming itself. Innovations in how we pay for and access games have influenced game design, audiences and revenues—changing the make-up of the industry and the kinds of games we play.

Here’s how we got here, and what’s happening at the cutting edge… 

From coin slots to consoles. Gaming’s pivot from access to ownership

Until the 1980s, arcade machines dominated the video game market. Players slipped coins into the slots of large cabinet-sized boxes housing classic offerings such as Space Invaders or Pac-Man, and could play until they were defeated. At its peak in 1982, arcade gaming was generating $27 billion a year in revenue.⁷

But arcades were not the only game in town. Consoles had been in existence since the early 1970s, and as the 1980s drew to a close, a new generation of higher quality devices emerged into the limelight. Microprocessor technology had improved, so businesses could offer arcade-level experiences via a device the size of a shoebox. All the customer had to bring to the party was a television. This expanded gaming audiences significantly—not least among younger players.  

A defining feature of consoles was the ability to buy cartridges containing new games. The range of titles multiplied, and longer-form, more complicated games slowly became the norm. After all, this new era was about ownership rather than access and, particularly with the advent of save points, you could replay to your heart’s content. Arcades quickly seemed decidedly old-fashioned. By 1998, arcade revenues had fallen to  $7 billion a year, while consoles’ had soared to $11 billion.⁸

The humble cartridge engendered a new industry model. Publishers would sell copies of games that were compatible with particular hardware. That range of hardware expanded to include handheld consoles and computers—by the mid-1990s, PCs were rivaling consoles in revenues—and players continuously invested in ever more powerful devices and libraries of games to play on them. Unit sales—whether physical or digital—remain a prominent market today. Console games and hardware alone represent around $50 billion in revenues a year.⁹ 

While the business model itself may be well established, innovations in payments technology are changing how users engage with it. These stand to broaden audiences and, as a result, grow revenues.

Take “buy now, pay later” (BNPL), which has surged in recent years. This lets consumers split payment over a number of months, often with zero interest. It tends to be easier to get approved for BNPL finance compared to a credit card. This has been a boon to manufacturers of gaming devices, as it makes it easier for more consumers to get their hands on big-ticket items, such as consoles. 

Payment orchestration tools are also allowing games retailers to increase their reach. Most e-commerce games stores heavily rely on cards. Digital wallet options like PayPal are limited, as is the ability to pay by mobile app or QR code. These are popular payment methods in many countries around the world, and not harnessing them creates friction in the consumer experience. In addition, online payments are only going to become more important. By 2025, e-commerce will be the leading channel for console sales,¹⁰ while around 90 percent of games are already purchased online.¹¹ The solution potentially comes courtesy of fintech startups that allow games retailers to add hundreds of different payments options to the checkout process, without having to integrate each one individually.  

In the future, we may also see innovation in how unit sales of games are priced. “There will be more dynamic pricing based upon data on who’s playing and who’s spending,” says Duncan Bowring, a Director at Accenture Gaming. “Instead of a regional strategy, pricing could be more personalized. This will allow companies to maximize revenue without impacting engagement.” Modern consoles are internet-enabled, which means user information can easily be collected and analyzed. For a new game launch, a games company could analyze how each player interacts with their titles and what their purchase history is, and provide them with an individual price. Clearly, there are watch-outs here: Retailers will not want to confuse or irritate customers. If pricing seems exploitative or random, they may take their business elsewhere. But get it right, and it could be a way to attract buyers who otherwise wouldn’t be spending on the title at all. 

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Category: Tech