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Hearthstone on Phones is Costing Blizzard Millions of Dollars

by Elyot Grant on 08/14/15 01:58:00 pm   Featured Blogs

The following blog post, unless otherwise noted, was written by a member of Gamasutras community.
The thoughts and opinions expressed are those of the writer and not Gamasutra or its parent company.

 

There's been a lot of talk this week about how profitable Hearthstonehas become. According to Superdata's latest Digital Card Games Report, Hearthstone is pulling in over 20 million dollars in monthly revenue.

Moreover, since releasing on phones in April of this year, Hearthstone's mobile revenue now exceeds itsown PC revenue:

The graph above makes it clear: PC revenue is down and mobile revenue is up, meaning thatHearthstone players appear to be flocking in droves to the phone version in much greater numbers than they previously did during Hearthstone's iPad release.

There's only one problem: Blizzard loses money every single time aPC-based Hearthstone playerpurchases apack usingaphone. Consequently, the above graph actually conceals a damning fact: Hearthstone's phone release is losing Blizzard millions of dollars.

The value of self-publishing

Blizzard releases games like Hearthstone on PC through its own privately-owned Battle.net platform. When a customer spends a dollar in the Hearthstone shop on PC, Blizzard earns a full dollar in net revenue (minus 2-3 percentto cover payment processing, credit card fees, and disputes). By owning its own platform, Blizzard can avoid the fees paid for console orSteam licensing.

Meanwhile, mobile stores like the Apple App StoreandGoogle Play Storetake a 30% cut of all in-app purchases. They also aggressively ban apps containing linksto external stores (or even mere mentions of their existence), making it impossible to skirt the rules. The 30% cut can representsubstantial losses;if a Hearthstone PC user installs the app on herphone and starts making purchases through the iOS or Android app instead of herPC, Blizzard loses a substantial chunk of revenue.

Consequently, while Blizzard may be killing it on mobile, the meteoric fall of their PC revenue is extremely troubling. From the looks of things, about half of Hearthstone'sPC users have switched over to playing (and paying) withtheir phones. If 7 or 8 million dollars of Hearthstone's monthly revenue has been diverted to the mobile pipeline, then the Hearthstone phone release is costingBlizzard over two million dollars a month in app store fees skimmed off the top!

What makes a mobile port profitable?

Of course, Blizzard knows this. The phone and tablet ports of Hearthstone are wagers on the belief that the increase in growth through new player acquisition will offset the losses due to players switching from PC to mobile. In fact, there are many ways in which the mobile port can help increase Hearthstone's revenue. Here are a few of them:

  1. Decreasing the barrier to entry for the casual audience, therebyenhancing the value ofTV advertsand other mainstream advertising.
  2. Increasing the engagement of existing players by giving them more opportunities to play.
  3. Attracting new players organically, such asthrough high rankings in app store charts.

App store charts are notoriously tricky, butchart positiong is an area in which Hearthstone's phone app has been outperforming the older tablet port. However, the insane popularity of casual card games and social casino apps have held Hearthstone back in the iPad and iPhone card game charts, where the gameoften struggles to earn a spot intheultra-lucrative top 10.

Meanwhile, the Hearthstone phone app has receivedexcellent reviewsfrom Hearthstone players, though Eurogamer's reviewer highlighted an important drawback in saying,"If Ididn't know the game, I would struggle, really."Lacking the mouseover tooltip functionality that the PC version has, Hearthstone's phoneport might actually be less friendly to new players than the PC version. Meanwhile,existing PC players seem to love itand are transitioning to it en masse—preciselywhat Blizzarddoesn't want.

Was the phone release a mistake?

Blizzard's situation is actually quite unique. Many PC developers are already paying 30% feeson revenues generated throughplatforms like Steam and GOG, meaning that mobile co-releases don't necessitate any loss in revenue if players switch platforms. By publishing Hearthstone themselves, Blizzard has arrived in the unusual position of being capable ofdamagingtheir own profits by expanding to additional platforms.

My own companyhas found itself in a similar predicament as we attempt to self-publish our own PC strategy game,Prismata. ThoughSteam and mobile releases are on the horizon, we're incredibly worried about losing revenue due to our existing audience switching platforms. We constantly agonize over the propertiming and featureset of these ports so as to maximize the opportunities to acquire new players while simultaneously encouragingour existing players tostick with the current version. It's a tricky and difficult game to play.

It's impossible to tell from Superdata's graph alone whether the phone release has earned Blizzard enough new revenue to offset the amount siphoned off by Apple, Google, Amazon, and other platform holders. Only Blizzard knows how much of that lost PC revenue is due to their players jumping ship to the mobile edition. However, one thing is certain: Blizzard is paying a substantialrake ontheir mobile earnings, which currently makeup 60% of theirrevenue. No matter how you look at it, Blizzard is losingabout a fifth of Hearthstone's gross revenue to mobile platform holders.

Conclusion

The mass migration of the majorityof a core PC game's audience to mobile is practically unprecedented, much to the chagrin of Blizzard, who almost certainly didn't anticipate that it would be this bad.The millions of dollars in lost revenue may leave Blizzard wishing that they had deliberately removed key features fromthe mobile port, asMojang famously did with Minecraft:Pocket Edition. While Hearthstone players seem to love the game's phone edition and are certainlyglad that Blizzard didn't intentionally cripple it,Activision's shareholders may be scratching their heads on this one for a while.


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