How Free is Freemium? An Analysis of the Ethics of the Freemium Model in Video Games

Abstract

The freemium game model has seen many variations throughout the evolution of the gaming industry. This paper explores the many forms that freemium models have taken, analyzing the practices employed by developers to monetize their games. The ethical implications of these practices will be examined, focusing on the impact of these practices on player experience, fairness, and the overall health of the gaming community.

Introduction

In 1958, physicist William Higinbotham created Tennis for Two, considered by many to be the first video game [1]. It was a game that very few people could play, as computers were so expensive that only universities and large companies had them [2]. No one could have imagined that video games would explode into a $250 billion industry, potentially reaching upwards of $600 billion by 2029 [3,4]. From the early 8-bit games of the Atari to the $200 million budget games released on the PS5 and Xbox Series X, video games have experienced an evolution in gameplay, graphics, and popularity [5]. However, the price of games and consoles has increased to a point where many people cannot play the modern games that are captivating the gaming community. This economic barrier is one of many factors leading to the rise of the freemium model in video gaming – a model where the game is offered for free, but players have the option to purchase additional content or enhancements.

This model has revolutionized the gaming industry by making games more accessible to a broader audience, thus democratizing the world of gaming [6]. However, this shift has not occurred without controversy. The freemium model, while lowering the barrier to entry, has introduced new dynamics in the gaming experience, affecting how games are designed, played, and perceived by their audiences. These dynamics call into question the intentions of the developers and whether they are ethical. This paper will critically examine the practices employed in the making of these games and discuss their fairness, morality, and consequences.

History

The earliest model of freemium emerged in the 1980s. PC Magazine editor Andrew Fluegelman created a small experiment where people could send him a disk in the mail and he would return a program to them for free [7]. They could then make copies of this disk and send it to their friends. If they liked the program, they could send him twenty-five dollars. Although not a direct parallel to the freemium games we see today, it was an early representation of what the model aims to achieve.

In 2001, the rise of the most popular freemium game of its time began. Runescape is a massively multiplayer online role-playing game (MMORPG) where players can explore different lands, complete quests with friends, and create powerful characters to defeat various enemies. The game took the world by storm, being recognized as the most popular free MMORPG by the Guinness World Records. While the game was initially released for free, it released a membership option in 2002. Players could buy a membership with a lifetime dependent upon how much they spent. This membership gives more skills, quests, minigames, and maps to explore. Many games began to follow this subscription model, including Maplestory, Club Penguin, and Poptropica. Although it was not required to pay for these games, many benefits incentivized players to purchase the subscription.

Current Models

Following the membership model, freemium gaming continued to evolve over the years. Most mobile games riddle their games with advertisements which can only be removed by paying for an ad-free experience [8]. Battle pass systems are often found in competitive games as an incentive to keep playing. Battle passes give points for completing various tasks and give rewards at certain point thresholds. Players can buy an upgraded battle pass to get greater rewards or to progress faster. Many games implement cosmetic systems where players can give their character a new appearance, but this, too, often requires payment. Loot boxes, one of the most controversial types, allow the purchase of a randomized, redeemable in-game item from a large pool of items, each with different probabilities of being obtained. More than one freemium variation can often be found in a game.

One of the most popular modern freemium models is gacha. Based on the gachapon machines found in Japan, these games typically evolve using in-game currency to try and obtain new characters, weapons, or character appearances. This structure is similar to loot boxes but does not directly require money to purchase. Although the currency can be obtained through playing the game, a stamina system is often implemented to limit how much these games can be played within a day. This means there are two ways to play the game: play a little bit every day to accumulate in-game currency to spend on random collectibles or spend money to get this currency faster. This is the main revenue stream for gacha games. They create a problem for the player by limiting the in-game currency they can quickly earn, and they create a “solution” by offering instant gratification through their chosen payment method.

How The Models Work

There are many tactics that game developers employ in these types of games. Many use psychological techniques to tempt the player into spending. One of these techniques preys upon a player’s fear of missing out on an opportunity. A player might be interested in the several perks they could get from a membership or be anxious about missing out on a limited-time item in their favorite game. The fear that they might regret missing out on these supposed benefits pushes the player closer to spending [9]. While this may not be a problem for the average person, not everyone can resist the temptation. Children are especially vulnerable to these tactics [10]. They might see their friends with new items and feel left out, which pressures them into spending for these items so that they can talk about it with their friends. However, children are not the only vulnerable people to fall prey to this technique. This fear is something that can be found in people of all ages, especially those with social or anxiety issues [11, 12].

These techniques are typically implemented through the usage of limited-time events and items. A player might not care about a reward they can get at any time, but when you add a deadline, it suddenly becomes more tempting, a strategy often seen in marketing [13]. Further, seeing other players flaunt their limited-time items strongly impacts the player’s decision on whether they want to get it or not. Limited-time events are a staple of almost any freemium game for this very purpose.

This effect is amplified when the items offered give a significant advantage over other players. Whether this be stronger characters or more powerful items, these rewards create a clear distinction between players who pay and those who do not. This contrast is made especially clear during player versus player, or PvP, modes. The sole purpose of PvP is to win against your opponent, so if players who spend have an advantage, it becomes clear that you have to buy first place. Players with a competitive mindset are incentivized to spend.

Both fear-based purchases and limited-time events work wonders in boosting player retention. Studies done on social media show how user engagement increases when using strategies that cause FOMO, or the fear of missing out [14]. The same effect occurs in video games. A new event provides fresh content that can bring in more players. Limited-time events keep players coming back. Even if someone stops playing the game, an interesting event with appealing rewards will make them consider coming back to play [15].

Ethical Analysis: Consequentialism

Consequentialism states that whether or not something is deemed right is determined by its consequences. Under this definition, the consequences of playing freemium games must be evaluated to ascertain their ethicality. The most concerning consequence of freemium games is addiction. With the rising popularity of loot boxes and gacha games, concerns have been raised about their similarities to gambling, especially regarding their reliance on predatory monetization [16].

Much like gambling, freemium systems ensure that there is an extraordinarily low probability of obtaining rare and desirable items. Without enough luck, players will have to spend money if they hope to obtain the item. Often, the more money a player spends without getting the item they are interested in, the more reluctant they are to quit. In this scenario, the player perceives the money they have spent as an investment that they do not want to lose– a phenomenon known as the sunk cost fallacy [17]. So, rather than cutting their losses, they will keep spending until they win, much like a gambler would. Loot boxes and gachas are highly addictive in a very similar way to machines and games found in a casino [18]. Although typically less expensive than gambling, much of the audience for these games are children, who understand the consequences less and are far more prone to getting addicted [19].

Although children are the most vulnerable, many adults who choose to play these games do not have the self-control necessary to stop themselves. In 2017, a man explained his experience with the game Final Fantasy Brave Exvius, a game that uses the gacha freemium model [20]. He initially played without spending money, instead opting to spend large amounts of time on the game every day. Eventually, a limited-time event occurred, and he spent money on multiple attempts to acquire a specific character until, $200 later, he finally obtained the character he wanted. After this initial purchase, his tendency to spend money on the game increased. Whenever he could not get a character that he wanted, he spent until he got them, eventually putting his family $16,000 in debt.

People who spend enormous amounts of money like this are called whales. These players often make up a small percentage of the player base. In Genshin Impact, the most popular gacha game to date, only 2% of the player base consists of whales [21]. Despite this small percentage, this game has around 60 million players, meaning that 1.2 million players are considered whales [22]. This is a significant number of people and shows just how effective these games’ methods of enticing players are on both children and adults. These games thrive on attracting these kinds of players. There is no concern about what happens to the players afterward, as the money has already been spent.

It is important to recognize that the consequentialist framework not only highlights immediate consequences but also brings into focus the long-term repercussions of these monetization practices. The exploitation of the player base leads to an erosion of trust between the developer and the player, leading to dissatisfaction with both the game and the industry itself. Additionally, if a significant number of players developed unhealthy gaming and financial habits through these games, it could lead to problems such as increased mental health concerns, increased financial instability among the population, and an increased number of people prone to addiction [23, 24].

Virtue Ethics

These predatory actions and lack of concern for the player base also call into question the virtues of these companies. In an ideal representation of virtue ethics, a game company should aim to put the player’s enjoyment and well-being above all else. In virtue ethics, the means are just as important as the ends, and although the company may provide a large amount of enjoyment through their game, the company’s willingness to hurt the player base to generate revenue cannot be ignored [25]. This harmful behavior is even more pronounced when considering how many players of freemium games are vulnerable and that players are specifically targeted because they can provide the most revenue.

Arguably, it is often difficult for companies to maintain a virtuous standpoint given the competitive market in which they work. In general, freemium games make huge profits. In the three years that the game Genshin has been running, it has made over $3 billion [26]. The market is filled with games looking to make this type of profit, and unfortunately, a large number of them end up shutting down within a year of creation due to low revenue and interest. The games that ended up being successful have struck a balance that pleases both the developer and the player base, typically games that have built a long-lasting relationship with their player base. Although it would be ideal, not every game development team has the resources to build this kind of relationship with their players, whether due to company constraints or lack of interest in the game itself [27]. This often leads to high spending requirements for the game to turn a profit. The clash of financial imperatives and ethical considerations has been ongoing for a long time, and very few games can rise above them.

Justice Approach

The option to spend for perks often makes many players wonder how fair the game is. The justice approach to ethics emphasizes fairness, equality, and justice for all individuals. When considering whether freemium games achieve this fairness for their players, the clear benefits offered to those who pay more suggest that the answer is no.

Many games go against the justice approach by actively reducing enjoyment for players who choose not to spend [28]. Whether through a barrage of advertisements or impossibly difficult levels, they aim to annoy players into spending to have a better time. This does not provide an equal experience to every player who chooses to play the game. However, it is arguable that spending to play a more enjoyable game is not inherently harmful. This is typical of many things in society; consumers can opt to spend more for designer fashion, expensive food, and more. So, this begs the question: does this have a place in video games? If it is going to cost money to enjoy all that the game has to offer, it may be more ethical to put a price tag on the game itself rather than its extra features.

Competitive games often tend to lead to unfair experiences. A competitive game could be a game with a competitive leaderboard or have game modes where you play against other characters. Under these models, players who spend to obtain more powerful characters and equipment are given a much bigger advantage compared to players who play for free. This creates an unhealthy environment for the player base, as the game would be classified as pay-to-play.

These kinds of games do not follow the justice approach, and in doing so often end up repelling players [27]. It is difficult to attract new players to these games because a precedent has already been set that players must pay to be good at the game. This disparity between paying and non-paying players becomes more pronounced over time, further widening the gap in player enjoyment. Moreover, such practices can lead to a fragmented player base, where the community is split between those who invest financially and those who do not. This division not only affects the social aspect of gaming but can also lead to an unevenly competitive environment, diminishing the overall appeal of the game. In extreme cases, the frustration from perceived unfairness might drive players away, reducing the game’s longevity and potential for a diverse and vibrant community [28].

Additionally, the reliance on a pay-to-win model can also have implications for the game’s reputation and reviews, which are crucial in the digital age where many players rely on community feedback before trying a new game. Negative perceptions and reviews from players who feel marginalized by unfair monetization tactics can deter potential new players, impacting the game’s growth and sustainability. In essence, while these monetization strategies might provide short-term financial gains, they risk undermining the principles of fairness and equality essential for building a loyal and satisfied player base.

These practices are harmful to the industry as a whole, but the freemium model does not come without its benefits. Video games are expensive, with the average AAA video game costing around $60. Not only that, but the means of playing them have been getting increasingly more expensive over the years. The PS5, one of the latest consoles, can cost upwards of $750. As games get more advanced, the platforms they run on must also advance. Furthermore, they also require significant time investments to fully enjoy them, something not a lot of players can afford.

Conclusion

The freemium model is not only a detriment to the player base but to the industry itself. As games continue to sacrifice fairness in favor of more revenue, players will continue to grow more and more disillusioned with the industry as a whole. However, it is also important to recognize that the freemium model has brought about certain advantages, such as making games more accessible to a wider audience and allowing for continuous development and content updates. The challenge, therefore, lies in finding a balance – developing monetization strategies that are fair and transparent while still supporting the financial needs of game developers.

As the gaming industry continues to evolve, it becomes imperative for developers, publishers, and regulatory bodies to consider the long-term implications of freemium models on the gaming community. Ethical considerations, player well-being, and sustainable business practices should be at the forefront of this evolution. By fostering a gaming environment that prioritizes fairness, integrity, and respect for the player, the industry can ensure a healthy and prosperous future, where both developers and players can thrive.

By Navneeth Suresh, Viterbi School of Engineering, University of Southern California

About the Author

At the time of writing this paper, Navneeth Suresh was a sophomore at USC majoring in Computer Science and Business Administration. His interests include software development, video games, and badminton.

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