For Free-to-Play Games, Balancing Digital Markets Can Prove Challenging

As so-called “free-to-play” video games continue to gain popularity, the business models funding them are undergoing significant scrutiny. Popular games like Dota 2 and League of Legends have somewhat similar business models, largely centered around the sale of digital cosmetics, sometimes known as “skins”. These items give in-game characters a different look of some sort, and for the most part can only be acquired with “real” money.

For Dota 2, the cosmetic market is integral to the game’s existence, essentially keeping the free-to-play model a plausible way for publisher and developer Valve to make money. Artists and 3D modelers design cosmetic items on their own time, and then submit them for community voting. The cosmetics that gain a sufficient amount of popularity are then added to the game, purchasable in so-called “chests”, collections of five or so items that provide one of the five at random each time the chest is purchased.

Previously, the artists who designed these cosmetic items had been well compensated for their work, receiving enough from each chest purchase that they were able to treat designing in-game items as a full time job. But, with recent changes to the way Valve shares the revenue with artists, many are complaining that they are no longer able to make enough money from designing items to make it financially worth while.

This presents a number of problems for the artists, the player base, and the publisher/developer. The proceeds from the cosmetic purchases made by players not only fund the game servers, the developers, and the artists, but the prize pools for professional Dota 2 tournaments as well (the largest to date reaching over 20.5 million dollars). By changing their revenue sharing policies, Valve has put all that in danger.

Much of this revolves around Valve operating as a monopsony, where one buyer controls a market with many sellers (the artists). The artists who create the sets are forced to agree to Valve’s revenue sharing policy to make any money at all, as Dota 2 is the only place their work has any substantial value. The cosmetics they have designed will only work in this one game, and therefore the artists have very little leverage in this situation. It’s apparent at a glance that this does not bode well for the long term health of the game if Valve continues to provide insufficient incentive for the people that make the goods it resells for profit.

The obvious solution is that Valve needs to invest in adequately incentivizing artists to produce content for their game. If they are unwilling to hire on permanent labor to produce the goods that they sell to the community, they cannot continue to expect the community to provide items at unsustainable prices. Many games adopt a similar financial model to Dota 2’s, supporting themselves through a “free-to-play” model where players are able (and encouraged) to spend money to unlock additional features within the game. If this sort of model is to prove sustainable and profitable in the long run, publishers need to consider the health of the small scale economy they are creating within the game. If companies like Valve want to continue raking in the millions, maybe they should consult an economist.

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