As video games have become more popular and more interwoven into our life, the systems by which they’ve been distributed have evolved — and with that evolution, their basic business model. In particular, the move from distribution of games via physical media — e.g., cartridges, chips and disks — to distribution on digital channels has made possible the emergence of “free to play” games. These allow users to download and play full games at no cost, allowing them to sample the experience with no up-front expense. Once in the game, however, players are given opportunities to spend money through in-game purchases — whether to unlock new content, purchase power-ups or special tools or customize the look and feel of their avatar or environment.
Sega’s introduction of the Sega Channel in 1994 pointed the way to the digital distribution future. With the arrival of Valve’s Steam platform for PCs a decade later and the arrival of mobile app stores in 2007 and 2008, the shift to digital as a predominant means of distributing games was complete. As of 2018, 83% of all games were sold in digital form, versus 17% on physical media.
Digital downloading meant that users could purchase and play games on demand, without going to retail stores or waiting for disks to be shipped through the mail. It vastly expanded user choice and developer competition, since game stock was no longer limited to the relatively small percentage of games that could be kept in physical inventories.
For players, the shift to digital meant a significant change in their relationship to games — and to developers. Without a physical medium, games couldn’t be shared or resold, something publishers and developers often sought to limit even in the era of physical media, through DRM, online registration requirements and lobbying for legal and commercial restrictions. But the intangibility of digital downloads underscored that players don’t have ownership of the games they play, or any of the content within them: players merely have a personal license to access those games and content; a license that is rarely transferable.
In the context of free-to-play games, though the license cost for the game itself may be zero, buying virtual goods also constitutes the purchase of a license.
There are many reasons for this, with perhaps the most critical being simply that game resale marketplaces are tricky to implement, especially those with what’s known as “fiat out” — the ability to withdraw real-world cash earned through item sales. When sales are unidirectional from the developer to players, developers have a way to assure that players who properly purchase goods aren’t being scammed, and that virtual goods aren’t being used as a value store for illicit behavior, such as gambling or the hiding of profits from criminal activity.
But with no legal way to transfer purchases, spending money on virtual goods is, by intent, a one-way street. It’s not surprising that players have found ways around these restrictions, often through “gray market” transfers on social media or jury-rigged third-party marketplaces. This is, in many ways, the worst of possible outcomes. Gray-market sales open game systems up to exploitation by scammers and hackers, expose players to the risk of being robbed or having their data or identities stolen, and provide no revenue or benefit to developers.
Players clearly want to be able to buy, sell and trade digital goods. But developers have not yet had the technology required to build a truly trusted, reliable and secure system for digital asset exchange.
Want a more detailed look at how the concept of digital ownership has evolved over the years? Read our in-depth article here.