Topic Talk: The Economics of Gaming
I’m still playing through Persona 3 Portable and Chained Echoes so I will have more on those games coming soon in future articles. As an intermission, I wanted to try an article talking about a topic since I have focused on specific games and integrated topics into the games. The Economics of gaming are multi-layered, especially as gaming as evolved from a very niche hobby which got you bullied in school to a very mainstream and multi-dimensional hobby which has worldwide popularity. As this growth has happened, the role of money in gaming has changed significantly. Basic game sales were increasingly not enough profit for publishers and developers: merch, microtransactions, and DLC became prominent as ways to increase revenue from one particular game world. Reusing assets became an easy way to get more cashflow with less repeated work and I think this is why we have so many more sequels than we did in gaming past, especially of the biggest titles. Cutting costs to increase profits has become more of a reality since gaming is no longer created in garages and small companies exclusively. We have a large number of mega-companies who make games in addition to a growing field of indie developers.
For this post, I want to give a brief theory of money to set a grounding for exploring the economy of gaming. I’ll also talk a little about organizational development. I’ll highlight how different games utilize methods of exchange and finally how corporate profits given our own economic model have changed the face of gaming and how gaming can teach us a new path forward.
Quick note: I apologize for missing last week’s entry, but I had a family emergency and that took my concentration. I know consistency is important for loyalty and trust and as I want this business to grow and I thank you for your grace.
A pre-order bonus from Trails of Cold Steel 2, it is the Mira coin which is the currency of Zemuria, the world of The Legend of Heroes Series.
What is Money?
Money at its core is a store-of-value where members of a society agree/forced to consent to its shared value. Namely 1 dollar is always 1 dollar in the moment of exchange. It is stable and is not a security or a commodity which can increase or decrease in value because of their volatile natures.
One caveat as we have seen recently is inflation. Inflation over time decreases the value of a dollar. When printing fiat money, more money exists in the ecosystem and the less each individual dollar is worth. Most world currencies do not have a burn mechanism (purposely destroying money to increase its value) and there is nothing to limit how much money can be created. To prevent money from being created, the Fed is now trying to raise interest rates to discourage borrowing and creating money.
One other small note before I begin: legally, publicly traded companies have to act in the best interest of their shareholders. This does not include workers, good product, or fairness to consumer. All that legally matters is that publicly traded corporations increase their price-per-share to enrich their shareholders. This will be important as we look at how anti-consumer practices have grown.
The back of the Trails of Cold Steel coin, 50 mira.
Money to Buy Games Thought Experiment
Gamers work with a couple of different economic scales when looking both at purchasing games and playing the games themselves. When buying a game, timing and separation of costs become vital when deciding whether to pre-order the new Legend of Heroes game (or whatever game suits your fancy, you can tell what I want this year) or to wait. Also, if you pre-order can you separate your payments over time to allow you to earn more money.
Below I will describe a common scenario when deciding about a preorder or waiting for a sale. I include estimated sales tax assuming a new game is between $50 and $70+ with a collectors edition costing $100 with bonuses.
Pre-order for day 1 release $55-110 (do you want the base game, the legendary edition, extra skins, etc.?) Pay at once at time of reserve (Amazon, Best Buy, Walmart, etc.)
Pre-order for day 1 release $55-110, option to pay in installments before release without taking a loan (Gamestop model)
Buy within 3 months $45-85 (maybe get a pre-owned copy or hit an early sale)
Buy within 6 months $35-75 (usually you can get a 25%-40% off in this range)
Buy within 1-2 years $25-$70 (usually you get a 50% off sale at this range or more)
This decision is an economic decision. It also shows the power of the Gamestop model. If I have a source of income, I can put money down 3-6 months before the game comes out to spread out my costs and still get the new game for less of a direct hit to my finances. Time/depreciation is also a factor in economics. More people are able to buy games as prices drop for sales or prices change after being on market for a while and more people are able to buy games at full price if they can spread their purchase out.
In game, there are also a variety of economies. Some MMO’s have a combination of real-world and digital currency earned through doing tasks and participating in the game world. However, for ease of this reflection, I want to focus on how money is earned in RPG’s through killing enemies and how shops react to your growth assuming infinite quantities of supply again for simplicity an in keeping with many game mechanics.
Keep your eye on this coin, it’s going to become important later in this piece.
Currency in Japanese RPG Video Games
Heroes have to earn money and often a lot of money in order to be able to get the items, gear, and information needed to advance through the story. Gaming mechanics are also very self-centered in JRPG’s because the prices go up for you but it does not look like the villagers are necessarily paying the same prices you are for armor and weapons. Most of the time expendable items do not increase in price, but also do not get better. Given this information, let’s think about a standard monster encounter. Trails of Cold Steel will be the game from where these examples are pulled.
Rean attacks and kills two lizard monsters and earns 50 mira. Think of monster hunting as printing money in addition to experience gain. By killing two lizards you have printed 50 mira. Rean killed two spiders and got his 50 mira and he wants to buy a potion. Rean goes to the local village and buys a potion for 50 mira. This is a simple exchange. However, in addition to Mira, monsters also drop sepith, which are crystals that are both functional and exchanges of value. The Legend of Heroes series installments all have a set exchange rate for sepith to mira different for each of the seven elements: fire, water, wind, earth, time, space, and mirage. Time, space, and mirage tend to be more rare and valued higher. Monsters dropping sepith is also another example of printing money and utility tokens, To refresh:
Rean kills two lizards and gets 50 mira, as well as 3 wind sepith and 2 water sepith. Rean can keep the sepith for refining materials or exchange it for more mira. All items and equipment can only be bought with mira. If you can kill a monster, you can print money or items exchangeable for money.
One caveat: this only applies to the act of killing the monster itself, not any quest rewards. Quest rewards come from the existing economy and are not printing money as killing a monster would be.
Printed money doesn’t affect the economy of the main world because the increase of prices is built into the game code to create a challenge to get better equipment for tougher encounters. It is separate from the rest of the functioning of the world, but I wanted to have gamers be comfortable with metaphors of money before I move onto bigger real-world applications.
Since taking a picture of real money I think is illegal, here is a cryptocurrency replica coin. Cardano is a digital asset which has its own exchange infrastructure for a variety of services and exchanges.
Gaming and Macro-Economics
Gaming retail, developers, and publishers are all working to predict human behavior in terms of gauging the interests of their customers. This is how gaming companies make money. That is why we have such a variety of cosmetics, advertising playing on GameStop TV every time you enter a Gamestop store, large production trailers, gameplay footage, etc. This is much more complex than the days of Pong on the Atari. Macro-economic trends have done three things. 1) Gaming is now a specialized field often requiring a lot of experience to create, market, and distribute games. This requires larger teams to create the biggest experiences. 2) Gaming is a force in the economy and this has led to publicly traded companies focused solely on gaming. 3) Gaming has increased demand for semi-conductors and other highly sensitive equipment thus increasing demand for rare earth metals and specialists to make consoles, controllers, and PC’s. These are in addition to the effects of the pandemic and inflation limiting distribution and creating personnel setbacks (having to lay off/fire staff and more time needed for illnesses.)
I want to start with point number 2 because I think this is the key question in looking at labor issues and the distribution of equipment. I want to look at GameStop and Activision Blizzard as publicly traded companies. Remember what I wrote in the beginning of this article: “publicly traded companies have a legal responsibility to make more money for their shareholders.” This is a model based on infinite growth because increasing profits for shareholders is coded into law. In an RPG this is cute because you can have more interactions with well designed monsters and not cause harm to the world, but it is not cute in the real world. Do you wonder why we are seeing more Gamestop employees speak out on their horrible experiences? Do you wonder why Activision/Blizzard can have a culture rampant with sexual abuse with no checks and balances? It is because legally corporations do not have to have an interest in the well-being of employees. As long as the numbers go up, the corporate culture can be whatever it wants to be as modeled by the CEO and other C-suite executives. Legally, shareholders do not have to care about anything except their own wallets and that includes Board Members for Publicly Traded Corporations.
Since a corporation has nothing legally in itself to promote fair consumer practices or fair treatment of workers, there are government regulations for minimum wage, sexual harassment, safe workplace conditions, etc. However, regulation happens in a loose manner because large businesses are often investments for politicians and people rich enough to have diverse portfolios. The other oddity of sorts is that C-suite employees often have stock options as a part of their compensation, meaning they also have incentive to make sure the earnings per share keeps rising at any cost because they are also shareholders in addition to managing the company. Paying your workers 10% more means adding costs and lowering earnings per share. Adding NFT or crypto divisions is also a no-brainer for corporations because they can sell earnings in their company to pump the NFT or crypto project and sell on retail investors as the price goes up.
Thus, because of the mandated obligation to increase profits, game producers and retailers want to get their specialists for as cheap as possible. QA Testers, Coders, sales staff, all need to be in the door for as cheap as possible. Mid-level managers to support teams also have to be cheap as possible because they are not shareholders. Once you are elevated to the level of shareholder, and particularly an insider shareholder, that is when one is elevated to have real power in a publicly traded corporation. Activision Blizzard and GameStop have both utilized these legal structures to create unsafe workplaces for workers and unfair compensation practices, especially as they have manipulated regulations. Activision Blizzard sought out a merger to enrich the shareholders and a disgraced CEO as well as crush a potential union effort. Gaming as big business can be really ugly and our decisions as consumers only do so much to look at this colossal problem of finances.
Conclusion
Now that I have made all gamers sad, I want to spend the conclusion thinking about our responsibility and our hope, given the amount of things we cannot change. First, it is vital that we listen to the voices of people who are suffering from labor abuses. Spend time with your friend who is a Gamestop employee learning about their experiences and go research the work of A Better ABK. Second, buy games from local sources when possible. Given the economics of gaming, this is incredibly difficult because so much of game distribution has become monopolized in many areas. But if you have a local game store, buying some games from them will help support a more local model of gaming. Kickstarter is also a great way to support developers. Third, don’t boycott a game for labor related purposes unless the team themselves tell you to do so. Because of the higher economics of share prices and executive compensation, boycotts often result in more workers being fired rather than effecting anything about the CEO or C-Suite compensation. Finally, if you are feeling adventurous, find groups who are advocating for fair consumer practices and start discussions about changes to public shareholder laws and get as many positive lessons and community as you can from the games you play. If you can turn the lessons of a game into something which helps real people, that is the best reward.
As a gamer, we all understand the creation and manipulation of money because we all do it in the games we play. We do it for the sake of the common good of the worlds we inhabit and the development of currency can be a really good thing. It is also important to understand the manipulation of money in the real world so we can support the people who make our games and give us great joy. People’s suffering in gaming is incentivized by law and the more we know, the more we can embrace those suffering. The gaming community can do anything and I look forward to having more discussions about how to make our world a better place.
