Freemium: How the Chinese Market for Video Games May End Up Influencing Worldwide Business Practices and the Future of Film

Freemium refers to a business model where a basic version of an online service (e.g., a game or app) is given away for free but - should the customer want an enhancement - there is a charge.

Filmmakers have yet to generate significant revenue using the freemium model. But, if the experience of a handful of online game companies in China is any indication, filmmakers may soon be offering a basic version of their film online for free (perhaps with subtle sponsored messages embedded) and charging fans for premium content once they're hooked.

The basic freemium application or game is designed to spread from user to user online. As discussed elsewhere on this blog, the key to this kind of "viral" spread is a free core functionality that is either uniquely entertaining or useful.

In the freemium model - after the "viral" spread of a free basic service - upgrades or certain desirable features cost money: "In its most simple form, this is like combining the "lite" version of a [useful or entertaining] app with the premium version, which for iPad apps, can be unlocked with an in-app purchase."

The Chinese market for online content is notoriously difficult. By American standards, the level of unpermissioned copying - and what some experts see as a conditioned unwillingness to pay for content - is unprecedented. According to Chinese game publisher Henry Fong (as reported in a January 3rd, 2013 post to BBC News), "Chinese gamers have been trained from day one to prefer the freemium model."

Still, if you can make it in Quanzhou, you can make it anywhere.

Like distance runners who train at altitude, a game publisher who makes money in the thin air of the Chinese online market may just have what it takes to compete in all of the world's arenas.

As described by Juliana Liu, Hong Kong correspondent for the BBC, the lessons being learned in China are rapidly becoming the standard for successful monetization of games worldwide. Chinese game publisher may even (without realizing it?) be establishing a business model that filmmakers worldwide will soon be following.

For example, when Henry Fong's game company, Yoda1, began distributing a version of Clouds and Sheep (a mobile game from Germany) in China, they offered it for free. Yes, Yoda1 monetized by selling advertising space within the game to Yum Brands (Kentucky Fried Chicken and Pizza Hut are both big brands inside China). But the basic Clouds and Sheep game was free to the user in China. But advertising wasn't the only revenue stream from Clouds and Sheep in China. Yoda1 "also created a wide range of in-app purchases, called "coin packs" which vary from just six yuan ($0.84; £0.64 [revised to 2023 exchange rates]) all the way to 388 yuan ($54.09; £41.34 [revised to 2023 exchange rates])." The free version of Clouds and Sheep was downloaded approximately two million times in just one month in mainland China. And the most devoted of these millions of Chinese fans spent real money to acquire the coins that would keep their cyber-sheep happy.

Yoda1 is not sharing revenue numbers. But, after launching their first game on July 28th, 2012, Yoda1 is reporting (as of January 3rd, 2013) that over 8 million Chinese gamers are now playing their games.

And worldwide publishers using the freemium model are estimated to have earned more than $9bn in sales in 2012 (with one tenth of that number attributable to mobile), according to Lisa Hanson, managing partner of the research firm Niko Partners.

While the bulk of the revenue from freemium comes from PCs - mobile gaming is growing in China.

Because mobile broadband is still rare in China, the market for mobile gaming in China is still largely untapped. Most games are played on PCs (video games consoles have not been available in China). But that is about to change. 4G access and the market for mobile devices is about to explode. And mobile gaming (and mobile film viewing?) in China may reshape the global market for entertainment in unprecedented ways. Perhaps more importantly, the lessons learned from Chinese game companies may soon spread to filmmakers and others throughout the world.

Who will be the first filmmaker to harness freemium for huge revenue?

No comments:

Randy Finch's Film Blog:

Thoughts from a film producer about making and distributing films.