In the entertainment industry, the gaming sector is one of the most profitable sectors, as it generates billions in revenue across various genres and platforms. That’s because gaming companies spanning everything from video game and mobile app studios to iGaming operators use a wide range of business models to turn their games into lucrative ventures.
For anyone out there curious to know how some of these monetization models work, here’s a look at how different sectors of the gaming industry make their money.
How iGaming Makes Money
First up we have iGaming, which includes online sports betting, online casinos, and various other forms of internet-based gambling, which has seen massive growth in recent years. This growth has mostly come as a result of worldwide increases in people’s access to the internet, several technological advancements, and changing attitudes towards gambling in different parts of the world.
Although there are many games to choose from, the highest number of iGamers seem to love to play real money slots online. According to gambling expert Vlad Grindu, the best platforms that offer them usually augment their slot offerings with great features like attractive bonuses and reward programs, large jackpots, fast payouts, and fewer restrictions on things like betting limits. Beyond these, iGaming also makes money by offering a massive range of other classic gambling games like poker, roulette, and blackjack.
In these games, iGaming platforms make money through what’s called a house edge, which is a built-in mathematical advantage. House edges ensure that even if players win a lot, the platform will always be able to make a profit over time while still offering every player a fair chance of winning.
In slot games, the odds are designed to make sure that the house always makes money over time, even if their games have high Return To Player (RTP) scores. This helps these platforms maintain a steady stream of income whilst ensuring that players regularly win according to randomized spins.
Additionally, iGaming platforms usually charge small fees for deposits and withdrawals, especially when players are transferring funds internationally or using certain payment methods. Even though these fees are insignificant to users, they can add up to significant amounts due to the large volume of transactions that take place every day.
Many of these platforms offer lucrative welcome bonuses, free spins, and other promotions to attract and retain players. While this model may seem to put them at a disadvantage, they are carefully crafted to avoid that.
For example, welcome bonuses typically come with wagering requirements that need players to bet certain amounts before they can withdraw their winnings. This strategy ensures that platforms can keep more money in circulation to encourage more play.
Freemium Model in Mobile Gaming
Next, we have mobile gaming, which makes a lot of money by operating on a freemium model. What this model entails is offering a game for free but including in-app purchases that players can buy to enhance their gaming experiences. Some of these in-app purchases include cosmetic changes like skins, whilst others serve more functional purposes like power boosts.
In these games, there are usually various limited-time offers that give players an incentive to make these purchases, and infamous pay-to-win mechanics that make spending money result in the game being easier so they can level up faster. In addition, freemium mobile games often display ads as well to generate revenue.
These ads typically appear between levels, during certain parts of gameplay, or as incentives that give players in-game rewards for watching. This approach has allowed many developers to make money even when players aren’t spending any money on in-app purchases.
Some mobile games even offer subscriptions to players that let them pay a monthly fee to remove ads, get exclusive content, or access premium features. This has turned into a steady income stream for developers and is becoming a popular method of monetization.
Largely though, what has made the freemium model successful is its ability to bring in millions of players by offering them a free game and then converting a small percentage of this traffic into paying customers. Having a large player base has meant that even a small conversion rate can lead to significant profits for mobile game developers.
AAA Games and Paid Titles
Contrary to free mobile games, at the other end of the spectrum, there are AAA titles, which are high-profile, big-budget video games developed by big studios. Games in this category are usually released on consoles and PCs and have price tags ranging from $60 to $70. Whilst the revenue model of these games may seem straightforward, it has evolved a lot in recent years.
That’s because in order to extend the lifespan of their games and make more revenue, many studios release downloadable content (DLC) or expansion packs. These add-ons come with new levels, entire storylines, or characters for a price, which encourages players to spend more on a game they already have.
AAA games have also started incorporating microtransactions in their titles that work in a similar way to those offered by freemium games. This approach has been met with a lot of controversy though, especially when implemented by more expensive games, but it’s still a lucrative revenue source for many studios.
Some games in this category, particularly those with multiplayer functionalities, offer battle passes or season passes too. These passes are subscriptions that let players access exclusive content over a set period, which encourages them to play more and keep spending.
However, many AAA games still make money through direct sales that involve players buying a physical or digital copy of the game and splitting the revenue with a publisher. Unfortunately, the cost of making AAA games is huge and often runs into hundreds of millions of dollars, which is why several big studios have resorted to the strategies we’ve listed to turn a profit quicker.
The Rise of Esports
Lastly, there’s esports that even though are relatively new in the gaming scene, are already becoming a billion-dollar industry. What we mean by esports is organized competitions that allow professional gamers to compete for cash prizes, typically in front of live audiences or on online streaming platforms.
Esports events and teams make their money through big companies like tech firms and energy drink brands that sponsor them. Several of these sponsorships are usually worth millions of dollars and give the brands that fund them a lot of exposure. The revenue generated from these sponsorship deals is what organizers use to cover event costs and prizes.
As in traditional sports, esports also make money through media rights and advertising as streaming platforms like Twitch, YouTube, and even mainstream TV channels pay for rights to broadcast these tournaments. Advertisers bring in money by paying for ad spots during these broadcasts.
The popularity of live esports events has also meant that these events can turn a profit by offering fans a chance to buy tickets to attend them. Organizers and teams use this foot traffic to sell their merchandise, like branded gaming accessories, clothing, and other memorabilia, to generate more money.