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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 Gamasutra’s 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 Hearthstone has 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 its own PC revenue:

The graph above makes it clear: PC revenue is down and mobile revenue is up, meaning that Hearthstone 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 a PC-based Hearthstone player purchases a pack using a phone. 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 percent to cover payment processing, credit card fees, and disputes). By owning its own platform, Blizzard can avoid the fees paid for console or Steam licensing.

Meanwhile, mobile stores like the Apple App Store and Google Play Store take a 30% cut of all in-app purchases. They also aggressively ban apps containing links to external stores (or even mere mentions of their existence), making it impossible to skirt the rules. The 30% cut can represent substantial losses; if a Hearthstone PC user installs the app on her phone and starts making purchases through the iOS or Android app instead of her PC, 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's PC users have switched over to playing (and paying) with their 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 costing Blizzard 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, thereby enhancing the value of TV adverts and other mainstream advertising.
  2. Increasing the engagement of existing players by giving them more opportunities to play.
  3. Attracting new players organically, such as through high rankings in app store charts.

App store charts are notoriously tricky, but chart 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 game often struggles to earn a spot in the ultra-lucrative top 10.

Meanwhile, the Hearthstone phone app has received excellent reviews from Hearthstone players, though Eurogamer's reviewer highlighted an important drawback in saying, "If I didn't know the game, I would struggle, really." Lacking the mouseover tooltip functionality that the PC version has, Hearthstone's phone port might actually be less friendly to new players than the PC version. Meanwhile, existing PC players seem to love it and are transitioning to it en masse—precisely what Blizzard doesn't want.

Was the phone release a mistake?

Blizzard's situation is actually quite unique. Many PC developers are already paying 30% fees on revenues generated through platforms 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 of damaging their own profits by expanding to additional platforms.

My own company has found itself in a similar predicament as we attempt to self-publish our own PC strategy game, Prismata. Though Steam 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 proper timing and featureset of these ports so as to maximize the opportunities to acquire new players while simultaneously encouraging our existing players to stick 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 substantial rake on their mobile earnings, which currently make up 60% of their revenue. No matter how you look at it, Blizzard is losing about a fifth of Hearthstone's gross revenue to mobile platform holders.

Conclusion

The mass migration of the majority of 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 from the mobile port, as Mojang famously did with Minecraft: Pocket Edition. While Hearthstone players seem to love the game's phone edition and are certainly glad 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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