“And to think, Smithers, you laughed when I bought Ticketmaster. ‘Nobody’s going to pay a hundred percent service charge’.” – C.M. Burns
“It’s a policy that ensures a healthy mix of the rich and the ignorant, sir.” – Mr. Smithers

Back when people paid for video games with quarters, twenty-five cents bought a couple of minutes of play. When games stepped into the home, it was forty bucks or so for however many hours you wanted. Depending on how much you played, one could be a better deal than the other, but both prices were on the same basic scale. Even today, when video games have been a commercial reality for four decades, game prices are measured in tens of dollars, not hundreds or thousands.

Freemium games have shattered those common law limits. The mere fact that Tapped Out has an option to spend $100 on in game “content” is proof of that. But that hundred dollars, while more than adequate to purchase any newly released big budget game (with plenty left over to buy dozens of smaller phone or tablet games), doesn’t get you anywhere close to completing Tapped Out. As of June 2014 (version 4.9.4) there are 9,705 “donuts” worth of shit for sale (more is added with each update). Even at the cheapest possible rate, it costs four hundred dollars ($409.95!*) to get every building and character.** That much cash used to be the province of game systems, not mere games, and charging it for nothing more than a few cheap arrangements of colored pixels is greed of such unashamed scale as to make even Gordon Gekko’s boner wilt.

(*Holy fucking shit!)

(**And that’s if you only spend money on permanent things instead of speeding up any of the tasks the game makes as slow and frustrating as possible. Deliberate annoyance is the beating heart of freemium.)

The obvious counterargument to complaints about that staggering total is to point out that nobody is forced to buy the game out and get every building and character. Purchasing “donuts” isn’t necessary and people are only spending money on the things they want. That’s all true, but not only is it exactly what the gambling industry says, it completely ignores the vital question of who is spending that money.

For reasons ranging from habitual secrecy and general paranoia to reflexive aversion to anything that might bring bad publicity, EA and other freemium gaming companies are extremely secretive about the people that pump all that cash into their coffers. Games with in-app purchase ability have been sued and criticized over all kinds of practices, from toddlers who’ve rung up four figure bills for their unsuspecting parents to the sheer gall of even allowing the option to spend hundreds or thousands of dollars on simplistic games that wouldn’t go for more than a buck if they were part of a traveling carnival.

To take just one example, in 2013, an 8-year-old English boy spent $1,490 (it was £980, but you get the idea) on Tapped Out.i Apple refunded the money after the parents complained, but the fact that such a thing is even possible doesn’t speak well of EA’s products and practices (or Apple’s, for that matter). What’s more, cases like that abound (though generally for smaller sums), and it’s unlikely that everyone who gets skimmed even notices, much less is willing to put up with the bother of raising a stink.

Freemium horror stories have a silver lining, however, as they caused Apple to begin listing the top ten in-app purchases, and they are very revealing. For Tapped Out, the most purchased item is a one dollar lottery ticket.* The second most purchased item is twenty dollars ($19.99) worth of “donuts”, with the fifty ($49.99) and hundred dollar ($99.99) options at #6 and #7 respectively. If EA were selling this game under the old home game rule of “buy it, it’s yours”, twenty dollars is probably what it’d be worth. A spruced-up Simpsons city builder might even get into premium game territory of fifty dollars or so. At a price tag of $99.99, however, nobody would buy it.

(*Seriously, could I make that up? It’s a fucking lottery ticket. If you win you get more “donuts”, but you probably aren’t going to.)

But with freemium, the economic model isn’t about a fair exchange of money for a game to play, it’s about hooking a few people and milking them for everything you can get. (And if a few of them happen to be unsuspecting kids, so what?) It’s the same concept that underlies the fantastic profits of video slots and poker, and it means that EA shares the gambling industry’s open but oft overlooked dirty secret: a huge chunk of the revenue comes from just a small percentage of players. Schull’s Addiction By Design, one last time:

A report to the Montana Gambling Study Commission found that problem and pathological gamblers accounted for 36 percent of video gambling expenditures/revenues (compared to 25 percent for bingo and 11 percent for the lottery). . . .A report to the Louisiana Gambling Control Board the following year similarly indicated that problem and pathological gamblers comprised 30 percent of all spending on riverboat casinos, 42 percent of Indian casino spending, and 27 percent of expenditures on gambling machines. . . .A 1998 Nova Scotia study found that only 4 percent of net gambling machines (or video lottery) revenue came from “casual” players (although they comprised 75 percent of players), while a full 96 percent of the revenue came from under 6 percent of the population who classified as “regular gamblers”. . . .Approximately 16 percent of these regular gamblers were “problem gamblers,” generating 53 percent of machine revenues although they constituted a mere 1 percent of the total population. . . .A large-scale epidemiological report to the Australian government estimated that severe and moderate problem gamblers made up only 4.7 percent of the population but contributed 33 percent of net gambling revenues and 42.4 percent of gambling machine revenue. . . .A 2001 study similarly found that 37 percent of all commercial gambling revenue and 48.2 percent of gambling machine revenue was attributable to problem gamblers . . . and a 2005 study found that 43 percent of gambling machine revenue came from problem players. . . . A 2004 report in Ontario found that 35 percent of total gaming revenue came from moderate and severe problem gamblers, and that up to 60 percent of machine revenue came from problem gamblers.ii

Short version for those who skipped the long block quote: a tiny number of people account for a very not tiny amount of the gambling cash. And machine gambling, run by those tireless computer chips, is even more skewed. The industry tap dances around how many of them are clinically diagnosable addicts, but the stubborn fact remains that they make a lot of their money with machines that routinely bankrupt and ruin people. Tapped Out isn’t in that league, but it is playing the same sport. Like Gamblor and his neon claws, its money comes from that thin slice of the population that just can’t stop pulling levers or tapping screens.

A similarly rigorous range of studies haven’t been conducted on something as new and relatively small potatoes as Tapped Out, but there is publicly available information that allows some intelligent estimates to be made. According to EA’s deliberately vague quarterly earnings statements, in July of 2013, it “recorded its highest revenue quarter”.iii By October they were being less coy and said it had “eclipsed $100 million”.iv Just three months later, in January of 2014,v it had “generated over $130 million” in total. Based on that (admittedly) flimsy baseline, The Simpsons: Tapped Out has been earning ten million ($10,000,000) per month, and shows no signs of slowing.

How many people account for that river of cash? As near as Google can tell, the only time EA has disclosed the number of daily active users (or DAU, in acronym) was on an earnings call in May of 2013. Someone with the wonderfully absurd title of “President of Labels” declared that it was being used by 5.4 million people every single day.vi

The final and most important question is, of those millions of daily players, how many are actually spending money? When King Digital Entertainment, the company that owns Candy Crush Saga, one of the few freemium games that’s even more popular and lucrative than Tapped Out, filed for a stock offering in February of 2014, their disclosure documents revealed that a mere 4% of their users provided 100% of their revenue.vii If we take the 4% rate of people who spend money on Candy Crush and its ilk and apply it to the 5.4 million daily users of Tapped Out, you get 216,000 people. If you then divide the roughly $10,000,000 per month by those 216,000 people, you get $46.30 per spending user per month. Even if that number is twice as high as the reality, it’s still more than every “paid” game in Google Play’s top 100. And that nearly fifty bucks is an average; Jebus only knows what the median is.

To be sure, there are a lot of assumptions and inaccuracies built into that calculation, so the precise figure is certainly off. Those user and revenue numbers don’t quite match up chronologically and EA has every reason to spin both of them as far from the truth as possible. But the overall conclusion is inescapable: like video gambling, EA is making huge amounts of money, possibly even an outright majority of its revenues, from people who are spending hundreds of dollars and more on a deliberately addictive game.

Continue to Chapter 7, “Machine Gaming: Greed on a Tilted Playing Field“. 

Citations:

i“Boy racks up a £1,000 iPad bill”, 13 March 2013, http://www.belfasttelegraph.co.uk/breakingnews/offbeat/boy-racks-up-a-1000-ipad-bill-29128775.html

iiSchull, p 320

iiiElectronic Arts Reports Q1 FY14 Financial Results, http://news.ea.com/press-release/archive/electronic-arts-reports-q1-fy14-financial-results

ivElectronic Arts Reports Q2 FY14 Financial Results, http://news.ea.com/press-release/archive/electronic-arts-reports-q2-fy14-financial-results

vElectronic Arts Reports Q3 FY14 Financial Results, http://news.ea.com/press-release/archive/electronic-arts-reports-q3-fy14-financial-results

vi“EA’s ‘Simpsons: Tapped Out’ revenues approaching $50M since launch”, by Jason Ankeny, 8 May 2013, http://www.fiercemobileit.com/story/eas-simpsons-tapped-out-revenues-approaching-50m-launch/2013-05-08

vii“Candy Crush: Addictive Game, Incredible Business, Horrible Investment”, by Derek Thompson, 18 February 2014, http://www.theatlantic.com/business/archive/2014/02/candy-crush-addictive-game-incredible-business-horrible-investment/283891/


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