Level Up: A guide to the video games industry - Level Nine

Level Up: A guide to the video games industry - Level Nine - Monetisation

Video games have been a popular form of entertainment since their creation and have played a key role in shaping pop culture across the world. In recent years, video games have dominated entertainment retail sales, with the global video games market estimated to be worth in excess of US$174 billion in 2020 and predicted to exceed US$300 billion by 2025.

With this in mind, we wanted to create an all-in-one legal guide for those that currently operate in or are considering entering the video games industry with the purpose of providing an overview of the life cycle of a video game – from the early stages of development, past the grind of regulatory compliance, through to the final stages of monetising the product.

To access the full guide, please email talkingtech@cliffordchance.com

Level 9: Monitisation

Video game sales, advertising and the licensing of rights connected with a video game (e.g. a movie franchise) can be seen as the more traditional revenue streams. However, stakeholders have become increasingly creative as they seek to find new ways in which to monetise the same IP or proprietary right. In particular, we have seen the advent of in-game purchases (e.g. loot boxes; new character skins; bonus levels etc.) essentially becoming normalised within the video games industry. However, the introduction of these new monetisation strategies have not gone unnoticed and have led to greater scrutiny by law makers. Indeed, on 15th December 2022 the European Parliament's Internal Market and Consumer Protection Committee called for a set of EU-wide rules to provide for better consumer protections, particularly in respect of loot boxes and children, but also on game content and in-game purchase policies. Video games developers will therefore need to ensure that their monetisation strategies do not fall foul of the ever-changing regulatory landscape and have appropriate policies and processes in place to mitigate against such risks.

In Levels 9 and 10 of the Guide, we look at the monetisation strategies and revenue streams available to key stakeholders, including in-game purchases and loot boxes, and the measures that should be taken to mitigate against future risks.

The video games industry is incredibly lucrative and has been successfully growing year on year. It is important to remember that video game sales are only one of several streams of potential revenue available to the rights-holder. Indeed, with careful and strategic planning, a video game can provide the rights-holder with multiple streams of revenue, subject to there being a receptive market. For instance:

Video Game Sales

Physical sales (e.g., video games; game consoles; controllers; additional hardware)
Digital sales
Streaming revenues.

License Fees & Royalties

Franchising
Book-to-game (e.g., Lord of the Rings; Harry Potter)
- Film-to-game (e.g., Star Wars; James Bond)
- Game-to-film (e.g., Mortal Kombat; Castlevania; Super Mario; Uncharted)
Licensing of music and sound rights (e.g., original soundtracks)
Licensing of IP rights in connection with merchandise, broadcasting, marketing and esports events
Exclusive licensing of a game to a console.

Downloadable Content

Revenue derived from DLC, including:

additional content/gameplay (e.g., new characters or levels)
cosmetic updates (e.g., clothes; skins; lives; weapons; power ups)
other in-game purchases (e.g., loot boxes).

In Game Advertising

Revenue from third parties paying fees to advertise their products and/or services within the video game.
Traditionally, in-game advertising is associated with free-to-play mobile phone apps that take the form of banners or adverts outside of gameplay. However, brand and product placement within gameplay have become increasingly popular and can be used to enrich the content of gameplay. For example, US food chain Subway had its products on prominent display in the blockbuster video game Uncharted 3.23

Merchandise