Up First from NPR - The Sunday Story: Video Game Economics (It's Not Play Money)

Episode Date: June 9, 2024

Can you get a college scholarship for playing video games? Are they becoming more accessible? Will forever games really last... forever? Wailin Wong, co-host of The Indicator from Planet Money, joins us to discuss the economics of gaming and efforts to make the industry sustainable in the wake of mass layoffs.Learn more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy

This is the Sunday Story. I'm Aisha Roscoe. And I'm going to be honest with y'all. When I'm not working, I do like to try to relax and zone out and just game. Okay, wait, wait. I do it on the weekends with my kids. Oh, my! Oh, yes! Yes! I won! I won! I won! I won! That's pretty cool.

And at night, after I put the kids to bed, I fire up the Nintendo Switch. And it's just me and Princess Peach. Oh, my goodness. In the game, we're in this theater that's been taken over by these bad, dark entities. And she's using her power, the power of sparkle, to fight the bad guys and make the world a little bit brighter. I don't know about that one. That was tough. I love it. And I'm not alone. By one estimate, the video game industry made about $262 billion last year. That's more than revenue from the global box office and music industry combined. And it's not just a money-making machine, but it's something of a national pastime. A 2023 report estimated that about 65% of Americans play video games.

But despite all this, making these games, it's very expensive, and the costs are often felt in human terms. Since the beginning of 2023, over 20,000 video game workers have been laid off. Recently, our colleagues at The Indicator looked into the economics of gaming and what's at play in trying to make the industry sustainable. To talk about it, we're joined today by The Indicator co-host, Waylon Wong. Welcome to the podcast. Thank you so much. Have you gotten to Sherlock, Princess Peeta? Oh, so cute. Yeah, no, I love the, you know, the ninja where she hides behind a wall to blend in and it's like camouflaged. it's so cute. Yeah, no, I love the, you know, the ninja where she hides behind a wall to blend in

and it's like camouflaged. It's really cute. They put a lot of work into that. Yeah, they did. So, Waylon, you know, gaming is this massive industry now. Were there some big things that happened that caused the industry to explode? Or like, has the growth been more gradual? Has it just been gamers growing up and continuing to game? Yeah, I mean, I think video games have been

part of our culture for a long time. Now, you and I both play video games as a kid, you know, in the early days, it might have been arcades and gaming consoles. But then you think about everyone starting to carry a mobile phone in their pocket, and now that opened up casual gaming like Angry Birds or Candy Crush. And then during the pandemic, we saw video gaming skyrocket with people at home looking for entertainment. So video gaming, you could say, is now an entrenched part of mainstream culture. Yeah, I mean, that's when I got that into no switch was during the pandemic because we, we definitely needed some entertainment. Oh, good for you. So you and your colleagues on the indicator really dug into the economics of this industry and focused on four big trends. Let's start with the first trend, live service games. Now that sounds very wonky, but it's been transformational. Explain to us

what are live service games? Yeah. So you'll probably remember this from the Mario games you and I grew up playing, that you'd purchase a video game cartridge, slide it into your player. You know, maybe you had to blow on it. Remember blowing on it if it didn't work right? And the thing was, the game was static, right? You would go back again and again, and it was always the same game. But things started to shift in the early 2010s. This is when companies started prioritizing games that were often free to download.

So they're not on these physical cartridges anymore. They're free to download, but they are supported by optional in-game purchases. I'd buy them for my son and they cost real money, not play video game money, real dollars out of my pocket. Yeah, no, it's not funny money. It is real money, IRL. And in exchange for that payment, the players like your son can get rewarded with things like special costumes or exclusive perks, right? It really runs the gamut. So this is a typical live service game model idea in a nutshell. It's created some really

interesting opportunities to collaborate with players and, of course, to make money. So we talked to Rebecca Ford. She is a creative director at the games developer Digital Extremes. And back in 2012, she helped develop a game called Warframe, which she describes like this. You're standing at the front of a spaceship. In front of you is Venus, a planet you know, but it looks a little wrong, like maybe you're in the far future. Your character, you can't see his face. They're helmets, they're muscular. And then you pull out a katana that is glowing and you start slicing through robots. And that's Warframe. And Warframe is one of the early modern examples of this idea. So for example, in the game, maybe you could pay real dollars for a virtual sword

that gives strange new powers. Or you could buy a special character who controls fire. But this didn't always make players happy. And Rebecca thinks back to this one particular option they tried that backfired. A player could spend a dollar, let's say, to double the strength of their character. And then players got really mad. You're just kind of paying to win instead of playing to win, right? Like that's what upset people, right? Yeah, it feels kind of unsportsmanlike, like a cheat code that's gone too far or something, right? So in the case of Warframe,

they changed course and they gave players a way to do the same thing, but for free after completing a bunch of tasks. And this ability to tweak things to change paths is the advantage of a live service model game. Like you don't need to spend years working on an update and hoping players will like it. You can be always tweaking, always iterating. And you know, one of the big things that Rebecca's team and a lot of game developers have found is that players really like cosmetics. Things like scarves or alternate helmets or a total reskin. So your character that looks like a fire wizard now looks like a phoenix. Those are the types of things that really do impact our ability to be a stable, stable, stable place that can have a payroll department. And this revenue really helps stabilize companies because sustaining

a large ongoing production team is expensive. We are talking hundreds of millions of dollars to make these games. That's one of the upsides to the live service games is that money comes in more consistently, or at least in theory it does. So are there any downsides to this model for the industry? Yeah. So it used to be that games had a clear ending, right? You'd reach the end of the game and that was that. You could finish a game, see how it wrapped up. Now you have these kind of forever games. You can basically play a live service game in perpetuity because it's always evolving and updating. And this can make it harder for new games to capture people's attention. That's according to Jason Schreier, who's a gaming reporter at Bloomberg News. The problem is that each time a game comes out and it's kind of existing on the market forever, it's just more competition that never goes away.

And so you get to this point that we're at now where the market is totally oversaturated with these live service games. Another downside is that users have complained that at times they feel taken advantage of or they see these gaming companies as in it only for the money. So like a player gets lured into a game and then they start spending and spending. And Rebecca Ford, who helped develop the live service game Warframe, she does acknowledge this critique. So if you're a business person, and if you only care about the bottom line, you're going to try and figure out a way to raise the ceiling on how much a single person can spend on your game. And I believe a lot of gamers can smell when that is happening.

And the Federal Trade Commission is also sniffing out when that monetization becomes outright predatory. In 2022, the FTC accused Epic Games, the maker of the hit live service game Fortnite, of tricking users into paying money inside the game. Epic Games ended up agreeing to pay $245 million in refunds. That's a lot of money. I wonder how much people got individually, though. Once you divide it up by how many people play Fortnite. Yeah, Fortnite, which is a lot of people. But that is a lot of money. So the users are pushing back and correcting a bit. Yeah, I mean, gamers, this is a community that will let you know what they're thinking and feeling.

You also explored another possible correction or tightening that's happening in the gaming industry. And this is trend number two, esports. Tell me about that. Yeah, so esports stands for electronic sports, and it's competitive video gaming. So not exactly sports per se, but it's where players compete inside a video game against each other. Some colleges even have varsity esports teams now. And some students, they might be majoring in something else, but they can graduate and become professional gamers like Dominic McLean or, as many people know them, Sonic Fox.

When they were just 13, 14 years old, Sonic Fox started bringing home thousands of dollars in winnings. My mom didn't want us playing video games all the time, but then when she saw, like, I was bringing home money from these kind of things, she was like, no, no, go do more events, right? Like, it was a complete, right? It was a complete total shift. It was pretty cute. I do want my son, if he can, especially if he can get a scholarship or pay for college, I'm okay with that then. Yeah. I mean, look at Sonic Fox. They're now 26 years old and one of the most successful gamers in the world. They've made over $700,000 from esports tournament earnings alone. So where's all this money coming from?

Yeah, so investors can sponsor esports tournaments, they can sponsor individual players, and they can put money into these big prize pools. And this money really adds up. The consulting firm Deloitte says that in 2018, investors pumped $4.5 billion into esports, and that was 10 times the amount from the previous year. And so there was this thinking in the industry that esports could be the next NBA or the next NFL. And for a time, gaming publishers that make some of the industry's biggest games like Activision and Riot Games, they established these city-based esports leagues centered around their games. Like a sports franchise. Yeah, exactly. And so there was a Call of Duty league, an Overwatch league, and so on.

And viewership for some of these leagues reached over 1.3 million unique viewers for some events. And then on top of that, Activision and Riot Games also charged these leagues expensive franchise fees for competing using their games. So leagues are paying fees as high as 20 plus million dollars. Did these franchises, did they end up like, you know, trying to build arenas to play their video games in like a traditional sports team? Yeah, it's not just like a couch in someone's living room, right? You had arenas that were getting built up solely for the purpose of hosting esports. And players are getting paid, some in the hundreds of thousands of dollars. So celebrities like Drake and Steph Curry got involved with the business. We talked to a reporter from Bloomberg News, Cecilia D'Anastasio. She follows the gaming industry, and she says ecosystems have grown to support all of this. There are professional masseuses. There are professional makeup artists who deal with esports stars.

It's in a lot of ways been created in the shadow of the sports industry. And I think a lot of people would argue at this point that that's been one of the esports industry's greatest downfalls. Right. So here comes the correction. Cecilia says investors expected esports to generate the same revenue as traditional sports leagues, but that did not happen. What we've seen since then is that, unfortunately, esports is very expensive to run, like professional sports. And there just wasn't the same business model that could support operations at this international level.

So if you think about the NFL, the NBA, they have broadcast rights and tickets and sponsorship all driving revenue. Esports, on the other hand, it's still pretty young and tickets to events are cheaper. Sponsorship hasn't been as reliable or consistent. And this is a problem because esports leagues really rely on sponsorship for income, about 60 to 70 percent by some estimates. Investors expected a faster return on their money, and that didn't happen. There was a huge bump in gaming viewership during COVID, but that didn't translate to lucrative broadcast deals. Esports fans were happy watching on Twitch and YouTube for free. Cecilia from Bloomberg News

says fans also weren't interested in paying a ton of money for esports merch. The average esports enthusiast will spend $5.30 on their esports fandom every year. That's it. Money's tight for a lot of people, and esports is just not high on their list of stuff to spend on. Well, they have to spend so much money on getting these new costumes in the games and getting the new characters. So where does that leave esports now? Yeah, we're in this corrective period where that kind of growth just isn't happening. And the gaming companies have been laying off staff. I will say there's a little bit of a bright side here. Some investors are bullish and here for the long haul.

Advertisers are cautiously returning. Viewership numbers are still high. And get this, Saudi Arabia's sovereign wealth fund is planning to spend some $40 billion on making the country an esports and gaming hub. Wow. How are gamers reacting to this? You know, it's been a little controversial because of Saudi Arabia's record on human rights,

so some gamers aren't happy about that. But the country is still hosting the Esports World Cup this summer and planning more stuff. Okay, well, I'm definitely not going to be going pro. I have too much anxiety for that. But I'm still competing against my 10-year-old, and he's usually winning. Maybe he can go pro. Yeah, that's what I'm hoping. After the break, how the gaming industry is trying to make things better for the players and for themselves. Now, our change will honor 100 years of the Royal Canadian Air Force and their

dedicated service to communities at home and abroad. From the skies to our change, this $2 commemorative circulation coin marks their storied past and promising future. Find the limited edition Royal Canadian Air Force $2 coin today. Welcome back. We're with Waylon Wong, co-host of the Indicator podcast, talking about the economics of gaming. So, Waylon, one of the things you all looked at was the untapped market of the disabled community. And this is the third trend that you explored. Is the gaming industry becoming more accessible? We found that, yes, it's been happening gradually over the last decade or so. But for most of video game history, accessibility was sort of an afterthought if it was thought of at all. Probably the biggest development was back in 2020. A company called Naughty Dog released a

game called The Last of Us Part 2. This is an action-adventure game where you run, jump, and shoot your way through a sprawling, post-apocalyptic world filled with zombies. I mean, I wouldn't think that would be very accessible for players with hearing, vision, or physical disabilities? No, it definitely doesn't. But the developers of this game were thinking differently. They had had success making another one of their games easier to play, like just more player-friendly in general.

And so they started wondering what other options could they add to a game to make it accessible to even more people, including players with disabilities. And so they started having meetings with disability advocates and gamers with disabilities. And at one of these meetings, a gamer who was blind asked them, could they make an option that would allow him to play one of their games, like someone who could not see a screen at all? And to be honest, I mean, the first thought in my head was like, probably not. This is Amelia Schatz. She's a lead designer at Naughty Dog.

You know, like, no, I don't think so. But it was so interesting of a question and it got me thinking about I could let it go. So as Amelia and her colleagues started working on The Last of Us Part 2, they decided to do a lot of experimenting and consulting with gamers with disabilities. And they eventually added more than 60 different accessibility options to the game. That sounds like a lot. Like what kinds of things did they add? Yeah, it's so interesting. It's like players can have the option to reassign what each switch and what each button does, which can be really helpful for players with certain physical disabilities.

Players with hearing impairments could turn on visual cues. And then there were options aimed at people with vision related disabilities, people like Ross Minor. Growing up, so many blind people, including myself, have developed crazy convoluted ways to play video games. Ross works as an accessibility consultant and actually specializes in video games. He remembers back when this Pokemon video game was really hot when he was a kid, and even though he couldn't see the screen, he adapted. I literally went home and got my Game Boy and memorized every single sound in the game just to play alongside my friends. Over time, Ross figured out how to play other kinds of games, even if they weren't designed with him in mind.

But there were certain games that Ross thought he would never be able to play, what some called AAA games. These are your big-budget, epic titles with epic storylines that often require players to navigate huge 3D worlds. I had these thoughts when I was a kid, like, oh, if they added this feature, I'd be able to play the game. But it always just seemed like a pipe dream. And that is until Ross played The Last of Us Part II,

because the game had all these accessibility options for vision-impaired players. There was a screen reader that helped him navigate menus. There was voiceover that described what was going on in scenes, and then lots of sound cues. Sound cues for when you need to vault over something, when you need to crouch, when you're aiming at an enemy. Like there's so many different sound cues.

It's truly a work of art. But maybe his favorite feature was an option that allowed a player to send out a sort of sonar pulse in the game. And then like in stereo, you know, it'll play like a sound to the left or a sound far off to the right. And then you can track that object and it'll guide you to it. So yeah, you're literally able to go through the entire game. You're able to collect items and weapons and all of that completely by yourself.

I'm not an emotional person, but like it literally brought tears to my eyes because something like this was never done before. That's really incredible. Is there a big market for this, for these type of adaptations? Yeah, the numbers show that a lot of people with disabilities play games. According to the Census Bureau, about 13% of the overall population has some sort of disability. And according to some estimates, the percentage is even higher than that in the gaming community. I love the idea of making these games more inclusive. As I understand it, there's another, you know, kind of reckoning or thing that's been long overdue in the gaming industry, and it's about making the environment better for workers. This is the fourth trend that you looked at, the human cost of putting out these very complex, lucrative gaming products.

Exactly. And that human cost is long, grueling hours. There's actually a name for it in the industry for this punishing schedule. The special name is crunch. You always hear about crunch. Get there very early, stay in until very late. A lot of suffering until we were not suffering anymore.

Crunch after the break. So, Waylon, when we talk about crunch, what are we talking about here? Yeah, so in a 2021 survey of game developers, one out of four workers said crunch meant for them working more than 60 hours a week. And the entertainment press has documented more extreme schedules. I mean, and not just for developers, but across departments. So one kind of notorious example, there was an executive who said that the writers for the game Red Dead Redemption 2 worked 100 hours a week for three weeks on the game. Another report said that employees at Epic Games regularly worked at least 70 hours a week on Fortnite, this blockbuster game we mentioned

earlier. I mean, the company acknowledged that workers had put in extremely long hours in rare cases and said it was trying to keep that from recurring. You put in hours like a nurse or a doctor in the ER. My goodness. So, I mean, did you talk with any workers about what that's like or why they put up with this crunch? Yeah, we did. And really, it's because they love gaming. And sometimes they grew up playing the game they now work to create. I talked to someone named Skylar Hinnant. He's a quality assurance tester at ZeniMax. That's a

video game publisher that's owned by Microsoft. The prestige of like working on something that you grew up playing like is really cool. So there is a certain level of passion tax that you pay to get into the industry. So passion tax is when an employee might do unpaid work or put up with maybe subpar working conditions because they just really love what they do. I hadn't heard this term passion tax before, but it doesn't sound that different from like, say, you know, the world of journalism or podcasting where people might work themselves or push themselves really hard because you really love the work and you really believe in what you're doing. You feel like you're trying to save democracy or something like that. And I mean,

a lot of gaming is like just grinding it out and spending hours and hours doing it too. So it does seem like it's part of kind of like the ethos of gaming. Yeah. And I think that, you know, you mentioned journalism and podcasting. I mean, that's a creative endeavor, right? And so gaming is also like that. It's like any kind of creative field where, you know, you're working on this amorphous project and a lot of surprises can pop up. I talked to someone named M. Geiger. They're an editor at Sega. So their job is to polish text that's been translated from Japanese to English. And M. says that sometimes when they think they're all caught up, game developers will unexpectedly ask to tweak the copy.

We are just at the whim of the devs and higher-ups who are trying to get this game out as fast as possible, and it makes things a little bit difficult. Is there a larger structural reason that workers put up with crunch? For sure. And we talked about that with Joanna Westar. She's a professor of labor and employment relations at Western University in Ontario, Canada. The problem here, and in Marxist terms, if you want to go there. Yeah, let's go there. Yeah. There's a reserve army of labor, right? That's what we talk about in terms of labor demand and labor supply. If there are a lot of people

willing to do the job, companies can afford to pay workers less. The working conditions could be more harsh. And if somebody burns out, then they burn out and income somebody else. And what we see in the game industry is that there is quite a large reserve army of labor. Joanna also says that the video game studios get caught in something called the iron triangle of project management. In the iron triangle, you need to deliver your game on time, on budget, and within the scope that you promised, right? You've got to build the parts that you said you were going to build. And what happens is that that starts to be so constraining that really the best piece of flexibility in that triangle is the workers themselves. The most natural thing to do is just say, all right, everybody,

buckle in. Here we go. Are workers pushing back on this at all? Like, is anything changing? Yeah. You know, so executives have started to acknowledge crunch. They've talked about, you know, this lack of wiggle room where neither deadlines nor budgets can budge. Other executives have conceded that overwork happens and they're trying to address it with things like overtime pay or comp time. But we've also been seeing workers starting to organize to push for better work conditions. Skylar Hinnant, who we heard from earlier, and about 300 of his fellow quality assurance testers voted in 2023 to unionize. They actually became Microsoft's first U.S. union. And then employees at Sega of America also unionized in 2023.

They recently ratified a contract. Employee M. Geiger says the workers were encouraged by organizing efforts both within their industry and other places like Starbucks. So I think it's part of this generational shift where younger workers are more pro-union than older ones. It really does boil down to a group of colleagues who just want to make the place where they spend so much of their time, they want to make that time more comfortably spent better spent more efficiently spent they want to make it more livable for one another the video game workers that we talked to you said they hope their efforts help make the industry more humane and more stable and that having a happier workforce will actually lead to better games

Waylon thank you so much for joining us today and sharing all of this incredible reporting. I know so much more about gaming now, and I get to share all this information with my son. Oh, good. Well, thank you so much for having me. And I hope you get to the Sherlock Holmes level in the Princess Peach game soon because it really delivers. OK, I'm going to work on that. That's Waylon Wong, co-host of The Indicator podcast. This episode was produced by Abby Wendell and edited by Jenny Schmidt, mastering by James Willits.

The reporting for this episode was brought to us by The Indicator, a production of NPR. Their series on the gaming industry was reported by Waylon Wong, Darian Woods, Adrian Ma, and Angel Carreras. It was produced by Corey Bridges and fact-checked by Sierra Juarez. Kate Kincannon edits the show. The Sunday Story team includes Justine Yan and Andrew Mambo.

Our supervising producer is Liana Simstrom and Irene Noguchi is our executive producer. I'm Aisha Roscoe. Up First is back tomorrow with all the news you need to start your week. Until then, have a great rest of your weekend.