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Submission + - The hidden profits behind free videogames (

SternisheFan writes: Chris Morris of CNBC/ USA Today writes:
    The recent announcement by Blizzard Entertainment that it would be giving its next game away for free might have startled some investors.

Blizzard, after all, is the talent behind some of the industry's biggest powerhouses, including "World of Warcraft" and "Diablo," and has generated billions of dollars for parent Activision. But the seemingly sudden burst of generosity could turn out to be one of developer's most savvy ideas to date.

Free to play games don't make a lot of sense to some investors, who are used to the $60 retail model (and its residual income from downloadable content). The concept of a small percentage of customers paying piecemeal for small items is hard to balance against the upfront revenue in their minds.

But free-to-play titles are fast becoming one of the most lucrative areas in gaming. Driven by the app revolution, where small developers are making hundreds of millions for giving away their games, and Asia, where the model has been flourishing for years, large U.S. publishers are finally coming around.

Electronic Arts has been one of the beneficiaries of the leap of faith to free-to-play. Last quarter, it earned $25 million on iOS devices alone with its app "The Simpsons: Tapped Out". And the model has proven to be a savior for "Star Wars: The Old Republic."

Launched as a "World of Warcraft" killer,"The Old Republic" initially had the same model as most massively multiplayer games—a base cost for the game, followed by a monthly subscription fee of about $15. Developed by one of the industry's most respected developers, it seemed destined to succeed, but developers didn't count on how voraciously fans would chew through the game's content, then leave.

Seeing income fall, EA converted the game to a free-to-play model last November. Since then, the game has seen 2 million new accounts created—with thousands more jumping in every day, according to Jeff Hickman, executive producer of the game.

There's certainly something appealing for consumers about a free game. A recent study by Visa subsidiary PlaySpan found that 77 percent of gamers are spending more time with free to play titles these days.

They're paying, too. PlaySpan found that men were three times more likely than women to make in-game purchases, with respective averages of $13.38 and $4.84 per month. And younger players are proving especially receptive to the idea. Men aged 18-24 years old have an average spend of $30.59 per month.

Those numbers help, but the initial decision to make the jump to free-to-play is a scary one for publishers.

"Sometimes you make a decision and you're like 'Oh God, let's buckle in and hope everything goes well.' That's how it was with free-to-play," says John Smedley, president of Sony Online Entertainment. "Now we look back and wonder 'How did we ever survive before this?' Living in a world where retailers control your software was horrible."

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The hidden profits behind free videogames

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