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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