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If you think people who pay for virtual items are stupid, you’re an idiot

By on July 14, 2011
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This post originally appeared in the Digital Content Monetization newsletter and is reproduced by kind permission. You can find further posts under the DCM tag.

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I own a virtual farmhouse in Farmville, an apartment in PlayStation Home and have paid for batteries to give me more energy in Cityville.
If you work in traditional media, there is good chance that you are sniggering at my stupidity. After all, what could be stupider than paying for something that doesn’t exist?

Take a long hard look in the mirror

Does anyone who buys a CD really want to own a shiny gold disc that costs a few pence to press? Is the value of news in the paper that contains it, or a movie in the Blu-ray disc?Of course not, they are merely means of distribution.

Now that is not entirely accurate. There can be significant value in the physical manifestation. They make better gifts. They can be items that you display on your shelves to show what kind of person you are. They might give you a sense of joy and pride in ownership, or in having a complete collection.

The concept that links all of these elements of value are that they are social or personal. They are not tied to the content in its own right.

Why does that matter?

In my last column,  I argued that consumers will soon no longer pay for basic access to content. Under pressure of economics, competition and piracy, the traditional model of selling content will become very hard to sustain.

Instead, we need to focus on the social, emotional and personal aspects of what people are buying. These are the key to the future of media.

Let’s take an example from the world of music. In 2008, Trent Reznor of the Nine Inch Nails left his record label and released his album Ghosts I-IV. It was really four nine-track albums, and Reznor uploaded Ghosts I to PirateBay and torrent sites himself.

He allowed users to download the digital version of Ghosts I-IV for $5 from his website, although given that he had already showed people how to download his music from torrent sites, this was closer to an honesty box than anything else.

He allowed users to buy a standard CD version for $10 and a deluxe edition for $75. But the ultra-deluxe edition was the real special release.

It came with four CDs and three glossy books. It was numbered and signed by Reznor himself. There were only 2,500 copies, and customers were limited to one per order. It cost $300.

It sold out in 30 hours. In the first week, Ghosts I-IV grossed $1.6 million. Not bad for an album that could be easily downloaded from the web for free.

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What was worth $300?

Some people might think that highlighting an album that half of its first week sales from a premium deluxe edition is an odd way of arguing that people won’t pay for content.

That’s because I don’t argue that. I argue that people won’t pay for basic access. It would be crazy to spend $300 on the Ultra Deluxe edition if all you wanted was access to the music. There were many better, cheaper, more instant ways to do that.

You might have bought the limited edition to show off to your friends that you were rich. To demonstrate your love for Nine Inch Nails’ music. As a way of expressing part of your own identity. To feel closer to Trent. For the joy of owning a scarce limited edition. For any number of intensely personal reasons.

How this affects the media industry

In the highly profitable world of virtual items in the games industry, users aren’t paying for virtual goods. They are, like the purchasers of the Ultra Deluxe edition of Ghosts I-IV, paying for something in a social context. They are buying status, or self-expression, or paying to strengthen relationships or feel good about themselves in some way.
As the Internet makes it easier than it has ever been for consumers to get access to content, it will be harder to make them pay for it.

But paying for things that satisfy us emotionally, in a social context, will never go away. The trick lies in learning to segment your audience and offer them premium offerings that they will pay tens, hundreds, even thousands of dollars for.

And that will be the subject of next month’s column.

About Nicholas Lovell

Nicholas is the founder of Gamesbrief, a blog dedicated to the business of games. It aims to be informative, authoritative and above all helpful to developers grappling with business strategy. He is the author of a growing list of books about making money in the games industry and other digital media, including How to Publish a Game and Design Rules for Free-to-Play Games, and Penguin-published title The Curve: thecurveonline.com
  • Yanni

    I think only hard core fans pay that kind of money for a CD Box set. And only because it is a physical copy. If the PDF book of the special edition was available a whack of people would have downloaded it as well for free, but they are the type that wouldn’t pay $300 anyway, so it’s hard to say that this would have been a loss of sales.

    The limited edition would have still sold out (I think) due to the hard core fans.

    You could still fnd hare core fans for a startup indie game or a new band, but it’s not the same thing as comparing to NIN ( as you have already pointed out).

    I think the irony is that people only paid $300 for a physical copy, so this is not co cousins proof for your agrument. There is probably a better scenario that this that strengthens your case, but this ain’t it!

  • Fkuallmthrfkrs

    “I think that they pay for the status, the satisfaction, the progress or
    the achievement.”

    Exactly… dumb reasons… dumb people…

    It´s like those peole that are so worthless they need stuff to make them fell valuable..

    And another thing… when i talk about virtual items, what comes to mind first is buying items in a mmorpg… wich is the most dumb thing ever, since the items you buy mean SHIT out of the context of the game, so… DUMB

  • I don’t think that people pay for the physical per se (OK, some people do)

    I think that they pay for the status, the satisfaction, the progress or the achievement. All emotional or social constructs, not physical ones.

    It looks like you may disagree.

  • That argument comes up a lot. I don’t entirely agree with it. I entirely agree that only a famous person can sell so many copies (and hence make $1.6 million in the first week).

    But how about:
    – the touring band who sell 1,000 copies of a £50 “Before they were famous” edition. A punt on whether they become famous
    – the blogger who offers different versions of a book, which may generate more revenue than a blog can from advertising
    – the indie game developer who offers his 1,000 biggest fans that chance to buy a unique packaged version of his game, with concept art, backstory, and signature for £100.

    I think that this model is most interesting from making “ordinary” artists, not megastars, make a decent living. I don’t think that you need to be famous to do that.

    You just need to build and relate to a “tribe” of followers.

  • F4LL0UT

    I seriously disagree with your article – also, there’s a huge paradox. You want to explain that it’s not stupid to pay for virtual goods, so you describe the worthlessness of physical copies by showing that nobody buys CDs anymore (although everybody still listens to music) – so far so good. But why in hell would you then come up with an example where people even pay an absurdly high price for physical copies? Okay, so you see an analogy between them paying for abstract values and people paying for virtual goods – but what does it tell us? The situation remains like that: some people paid for a limited item, which makes sense, while others pay for virtual goods, which still looks incredibly dumb. The physical copy of that CD remains an enduring, rare, special item which you will probably still have in a few decades (you may even give it to your grandkids some day) while owning a few numbers which are saved in some table located on some server remains… I don’t even know how to describe the whole absurdity of that idea. Also I think your interpretation for the motifs of the people who bought that limited edition are at least incomplete but maybe even simply wrong.

  • Trent was already famous. I’ll be more convinced when this business model works from the ground up, for someone who is a completely newcomer. How do they sell a $300 exlcuive package at that point in their career?