Financial Incentive and Reward in Video Games: Part Two – Disposable Income

“Creative Destruction is the essential fact about capitalism.”

Joseph A. Schumpeter

In Economic parlance there exists a term attributed to Schumpeter, the concept of Creative Destruction, one of the proposed fundamental principles of economic growth in a capitalist society. Not the only cause but certainly one of the bedrock principles, the notion that for a nation to grow and flourish it must embrace the concept of creative destruction, in basic terms embracing the destruction of traditional industries and practises with the associatory short term economic pain on the basis and to embrace new industry and technology that will grow the country beyond competing nations. Historically, the greatest and most well known example of this was instigated during the first industrial revolution which saw the destruction of traditional industry such as the cotton mills and textile industry replaced with automation and technology. As one of the first nations to adopt these practises, with the associatory creative destruction involved and the eradication of a way of working that saw short term pain, consequently Britain became the leading industrial nation of that era with a growing empire across the globe ahead of nations yet to embrace industrialization. Historically, nations that have embraced creative destruction with the associated loss of traditional industry and cost to the established labour force in that specific industry whilst investing in new industry and practise, have seen economic growth, and whilst there are other determining factors that can induce growth, it remains one of the bedrock principles. In gaming culture in discussing finances and the representation of wealth and money, as any established industry open to market forces and constraints it was inevitable the concept of creative destruction would have some form of impact upon our consumption and appreciation of these titles, none more so in how our spending habits and practises have been shaped by a country that has embraced and championed this practise over a decade ago and now, 16 years behind the curve western gaming companies are finally catching up with this next great trend.

We find ourselves in 2003, in Western gaming markets the sixth generation of gaming consoles were finding prominence with competition fierce between the award winning Playstation 2, the Gamecube, Nintendo’s first disc based games console and the original Xbox as well as the short lived Dreamcast console from Sega. With no ground breaking or acclaimed releases there were still a few notable treats, a few I personally enjoyed greatly with Beyond Good and Evil and XIII released onto the Gamecube to positive feedback if underwhelming sales figures. We previously discussed the portrayal of currency in our last discussion and the causality link between health and finance. During this interim period, the representation of money and wealth was largely unchanged, for the most part providing the means to purchase equipment and items in your various quests as a reward for completing a task or quest. A few exceptions to note, the release of Grand Theft Auto Vice City in 2002 saw the introduction of an empire building mechanic, effectively an homage in many ways to Scarface and the rise of Tony Montana from small time crook to a crime mogul with a business estate to rival any entrepreneur. As your character accumulated wealth through his various missions and challenges he had the option to invest this in the property and business market and build up his wealth to a greater level. This same mechanic was carried over into its sequel title in 2004 San Andreas having found favour with its fanbase and provided a source of income for the player and additional means to spend any generated income. Where Vice City had introduced the notion of currency and income, San Andreas expanded on the various mechanics, food, vehicles and clothing were now all viable commodities to spend your earnings, the notion of credit and debt were introduced with consequences for falling into debt a real menace to your character. Money and finance was in its infancy in Western gaming culture, a rudimentary approximation of capitalism with the notion of earned income and market economies competing for your wealth, but no market forces driving creative destruction or associatory evolution, in contrast in the East, Korea was evolving its approach to technology and finance, an impact that wouldn’t be felt for over a decade in our supposedly advanced and developed society.

We transition to the East and the prevalence of digital media over physical goods specifically the markets of Korea which for historical reasons had largely shunned Japanese physical goods as explained by Jamie McCormack:

 “For various historical reasons, Japanese goods weren’t very popular, so video games consoles weren’t there in large numbers. Instead widespread PC adoption, a culture of gathering in venues with lots of networked computers in-place, and massive investment in broadband by their government enabled new business models to emerge.”

With the concept of creative destruction taking shape, whilst Western Markets were reacting slowly, if at all to currency and finance in gaming the Eastern markets were pushing ahead, driving by technology and consumer demand with the traditional physical media largely removed as an industry and replaced with a growing, burgeoning digital industry with support from Government infrastructure development to support this market, encouraging growth. With a user base becoming accustomed to piracy via torrenting sites and returning no viable source of income to game developers a different pricing model had to be found for this entire industry to survive. Interestingly, concurrently at the same time a similar if not identical issue was facing the music industry at the same time with the prevalence of torrenting platforms decimating music sales and forcing the industry to innovate in order to survive, the advent of iPod and digital musical storage driven by Apple and to an extent Microsoft with the Zune player in the absence of established high speed internet infrastructure a functioning precursor to the industry that exists today with sufficient capacity to allow streaming services. Arguably, if internet connectivity at that period necessitated a long wait to download a song of a few minutes, only an exceptional few with faster services were in the position to benefit from downloading software, the seeds of change were on the horizon but it would be a while longer before necessity forced any great change in Western Markets. In 2003 a Korean game called Maple Story launched, to critical acclaim, a free to play MMORPG adopting a somewhat simplistic presentation and style but notable for being one of the first to adopt in-game purchases using real world currency to purchase digital goods such as avatars, pets and equipment.

By 2006, the game had reported profits of $300 million through in-app purchases with an installation base of 39 million user accounts worldwide, long before Western companies were able embrace similar methodology Korea had embraced the concept of creative destruction, the physical media market largely redundant now to companies generating a substantial amount of income through its user base using real currency to purchase digital, non tangible items. If this model seems familiar today in the West with the success of Fornite, its worth remembering this model was in use almost 16 years earlier in Korea. However, one of the observable comments of capitalism is the natural flow and web of capital and wealth, if there was scope for profit and income from using this model in one market, inevitably it would progress into the West and within a year, in 2004 saw the release of World of Warcraft, a bold departure from the simplistic real time strategy games released previously and introducing to the western market a MMORPG that, like Maple Story allowed users to collect resources in game but also through the use of real currency to allow in-game digital items to be purchased. Every subsequent expansion has looked to refine and develop the currency and finance model in World of Warcraft, indeed entire articles could be dedicated to this game alone, a succinct summary found at the Wowpedia site, to summarise, gold is accumulated through in game events, completion of missions and quests as typically experienced in RPG titles. However, with the introduction of auction sites players can trade and purchase items from one another, the aforementioned auction house taken a percentage cut on each transaction. The auctioning of items however expanded beyond the games servers and with a recognised potential for income rare commodities were openly traded on traditional market sites such as eBay for ‘real world’ currency, the notion of a digital currency having worth beyond the gaming server was born and to date, by 2015 mainstream news agencies were reporting for example through fluctuations on the market the virtual gaming currency in World of Warcraft was reportedly worth more than the real currency of Venezuela. Introducing any form of human element allows human weakness and greed to enter the equation, within the servers of World of Warcraft devaluation, deflation and inflation are a possibility with the option to undercut auction prices for example and in game events effecting currency prices for example an expansion requiring a highly valued piece of equipment causing said items to rice in cast at auction.

With capitalist ideology embraced within the Korean gaming culture and firms recognising the scope and potential to generate a vast income of revenue outside of the traditional market model it was inevitable the role and function of money within gaming titles would change, the traditional model of wealth and revenue generated in the gaming environment allowing your user to purchase equipment at a whim now replaced by a more real end model, your own money purchasing digital items with no tangible presence but with the potential to have a substantial impact on your gaming experience. This was the opening to the world of digital monetization against the traditional fiat currency, with some recognising the potential for virtual currency utilising traditional economic models such as inflation and deflation to artificially manipulate an actual currency mechanism users were actively using on a daily basis, this had a substantial impact on wealth generation in video games. Stil there seemed to be a cultural aspect to the scope and nature of the change, in the Korean gaming market with no traditional infrastructure games were willing for items to be brought with real currency, no elaborate masquerade of change, in contrast within the Western markets, for a time there was a transition of games utilising and using in world currency such as gems or just simply gold alongside the regional currency of choice. Put simply, gamers in the west had the pretence of choice to ‘earn’ the required wealth fairly through experience and attrition or alternatively opting to purchase said item immediately with real world cash. Despite the small efforts by studios such as Rockstar in Grand Theft Auto, Creative Destruction was pushing ahead with the representation of wealth and finance in gaming, MMORPG’s launching with a traditional market price either going out of business or dropping the initial entry cost and instead opting to rely on profit generation entirely through digital currency. In certain cases it works, World of Warcraft for example, even in its earliest titles had wealth generation as a fundamental aspect as you mined for gold to finance your troops, evolving this into the MMORPG arena made sense fundamentally. In contrast when Star Trek Online dropped its entry cost and fully embraced digital currencies it felt off with the spirit and nature of Star Trek which, from a lore perspective had abandoned the use of money to better themselves a long time ago.

We can see this evolution with the adoption and progression of mobile and tablet gaming, the next generation of a gaming community now fully embraced and willing to download these free to play, so called freemium gaming which charged no entry fee but instead opted to rely entirely on the Korean model of utilising either digital vs fiat currency models or instead, directly charging money instead from the user, ostensibly under the guise for certain titles as cosmetic items for the more expensive console releases which already charged a set entry fee but on the mobile market all restrictions were removed, quite simply, if you were going to download a free game whether you realised or not there would be a cost involved for your progression. On more than one occasion this would often be as a result of an artificial spike in difficulty requiring you to purchase an upgrade outset the realms of traditional attrition, your desire for the game would influence your decisions. In this sense, arguably, gaming had fully embraced the traditional capitalist model of supply and demand, the point at which users demand for the digital item in question would be met by the artificial restriction imposed by the seller, the games company. Pivoting back to the console market with the success of Fortnite, this title has generated revenue entirely from in-app purchases with users purchasing skins and cosmetic items, it appeals to the impulses of users in a way traditional advertising appealed to a generation removed. One aspect to consider with this, in the traditional sense using fiat currencies as generated by governments, which are of course subject to market forces and fluctuations, items in one geographical market may suddenly become cheaper to a visitor from another market, a Fortnite player from America may be able to afford that extra weapons skin on a vacation to Asia or any second world nation. The answer to this of course is to remove fiat currencies entirely as an option and instead move towards crypto and digital currencies that are consistent across global markets and utilise them instead, remove the requirement for software to adapt its pricing strategy based on whatever market they are based in and have them instead rely on a digital virtual currency. A concept already coming to fruition and already prolific with the mining and sale of virtual gold currency for example from World of Warcraft and sold outside the boundaries of the game through trading sites such as ebay for real money, gaming, as a pastime has moved beyond the realms of a distraction where a particular skill set and attrition to mine and work can generate income and wealth.

Is the future in digital or crypto currencies? are companies outside their traditional background now fully intent in pursuing the potential for vast wealth through launching and investing into digital currencies? both answers, seemingly are a possibility, as seen with World of Warcraft both through the use of internal auction houses in game and outside trading on traditional market sites such as ebay the potential for wealth and revenue through attrition and work is there. Equally, in allowing the user to purchase and trade in fiat currencies those whose rate and value is determined by national governments such as the dollar or pound, some form of mechanism or regional control has to be built into the game otherwise, as in the real world, the subjective value of say a horse trading for $100 would be outside the realms of possibility for users in Venezuela. A notional answer would then very much be to adopting a global digital currency standard where market fluctuations are restricted or non existent, for nationalistic reasons not possible with fiat currency but certainly on the markets one option to pursue. How will this impact gaming? perhaps to not that great an extent, feasibly you could imagine the option for purchasing goods in pounds or dollars could instead requiring registering for a digital bank account or purchasing currency directly from the company. If this is beginning to sound somewhat like market trading as opposed to a traditional gaming experience we only have economic theory and practise to blame. Perhaps then an explanation for game studios suddenly embracing the notion of a return to classical titles and consoles, the launch of various nostalgic hardware outside the interference of currencies and trading that remind the user about the pure and traditional nature of the gaming experience where your hero collecting 100 coins granted an extra life, not a pause as the modem in your smart hardware checked the valuation of your domestic currency to determine whether 100 coins was a fair exchange or indeed should be a thousand, or a million. Equally, with nation states now looking at the models and methodology used and determining whether they amount to gambling especially as the targeted demographic are often children or more susceptible individuals there is scope for the impact of the creative destruction to be channeled where the gaming industry survives in some form of recognisable shape.

An alternate perspective, looking to be adopted into Fallout ’76 is the introduction of a player trading tax, a 10% tariff being introduced to curb the prevalence of the games currency trading caps, a move purported to reduce or restrict the economic notion of inflation, the theory of a general increase in prices for a variety of reasons but here due to the abundance of currency within the digital world causing depreciation of the currency worth and therefore as a consequence an artificial increase in prices. By introducing this form of artificial sanction into the model it removes a proportion of the currency out of the gaming environment. In conjunction as reported a plan to introduce a new currency to work concurrently with the caps for users with redundant legendary care following the end game section and the means to trade the gear for a specific currency to purchase alternate items of equal measure. In contrast to World of Warcraft, which due to the length of service for this title has seem a number of approaches over the course of its existence, from the offset Bethesda had positioned the currency featured in Fallout ’76 to follow a now established approach of being for ‘cosmetic’ items, effectively not allowing users to pay to win. That in itself does continue to come across as very much a forced measure following the criticism of Battlefield 2’s disastrous launch and feedback from its fan base, interestingly a notion that does play against the notions of capitalism and leans more towards a socialistic societal approach, everyone is equal, money doesn’t buy success and life is fair. It’s a reflection of the title’s being launched and seen as a service as opposed to a game that they have to face certain real market conditions such as the concept of inflation and try to find a practical solution, often mechanisms set by central banks. The notion of price inflation in classical economic theory is to use interest rate controls to reduce monetary supply in the economy. With no central bank in Fallout 76, no mortgages, loans or credit cards the one option the makers had to reduce monetary supply is through a sales tax such as this to remove caps from the economy and reduce inflationary practise.

If games were to adopt a stricter capitalist approach, then certainly there would be constentation from those unable or unwilling to ‘win’ the game through attrition and it would favour for a time those with the means to pay for an advantage, but from a psychological perspective arguably a reflection of life, there will be those with a financial advantage gong into any endeavour, an equivalency perhaps if you were to shift perspective and launch an MMO driving simulator with the means to spend real money on upgrading a vehicle or car there would be a degree of understanding. In its most basic function when game titles existed as almost isolated organisms in a self contained state there was no real need to introduce market controls to shape the representation of wealth and finance in games, but as they evolved into service titles, principally with the influence and launch of competitive titles, where previously developers could influence and shape certain practises, with a growing and insatiable user base that has such a wide variety of options to consider and choose from the need to provide new and exciting content after launch, which in the world of shooters invariably is a new gun or armour, creates an imbalance. It creates unfairness. Whether a developer wants to be seen as the villain of the piece, or cares, and adopts full scale economic and capitalist practise by selling better guns in shooters, better car parts in a driving game, better training equipment in the latest soccer title, all very real practises in the real world is measured against the unfortunate consequence of a user base moving en masse to another title that is seen as more fair or balanced to the gaming community. As Apple have shown if you launch a well built product with an aura of quality and style you can set a charging price for whatever you wish, unfortunately at present the model is to release a game in a broken, rushed state and build up the game from there. In no other industry can you launch a sub standard product and expect your target audience to invest in faith or show commitment when introducing voluntary taxation incentives such as Fallout 76.

How finance and wealth has changed, within the last decade even has been substantial, reacting to creative destruction in the Korean market that, in the absence of traditional retail industry saw a launch of a new model that has generated substantial wealth and income for studios, and will perhaps lead to the demise of how we purchase and consume video games through the loss, within the UK for example of the gaming retail sector. As a product, with the advancement of technology and government back infrastructure streaming is now a viable alternative or digital ownership without having to pay fee’s to retail outlets, certainly in the west. As was previously discussed, as long as there is a need to get these expensive base units into homes to allow streaming to take place there will perhaps be a market for retail stores, those not willing to purchase hardware at those costs to be delivered instead opting to purchase the item themselves. Not a sustainable model into the future and one the industry will have to react to. For now, for gamers in the west at least users in the biggest games can continue to purchase goods and items using digital currency, often pegged to fiat currencies, the V-Bucks in Fortnite for instance converting from $1 = 100 v bucks, allowing you to set a rough benchmark that a new hero skin or build for 20,000 will cost the equivalent of $20. For now, the transactions themselves are balanced by the developers to share a sense of fairness with no game altering effects from buying the currency. Instead the studio opt to have timed exclusive items, one particular skin available for a short period of time, akin to the physical retail market and consumer demand enticing users as consumers to purchase currency packs if they are unable to earn the required amount through attrition in the amount of available. With the temptation to use traditional marketing methodology in the confines and context of a traditional game there is the potential for income far beyond traditional games, Fortnite’s income easily outpacing that generated by Fifa 18 from EA. The next logical step presumably is to look at where games are targeted, as an adult user who is required to work for their money, do I see benefit in buying virtual currency packs for games as opposed to a supported child who will have their hobby supplied by a loving parent? in the absence of that guardian figure does the addictive nature of timed events and cosmetics then require legislation from Government? Wealth and finance in the gaming industry existed outside the realms of traditional industry as it grew from infancy, in short, it now needs to grow up, open to the creative destructive forces of capitalism and decide where it wants to be going forward.

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