The divide between game makers and players has always been razor thin. But the latter can burn through new content faster than the former can create it. As a result, in a high-risk, high-reward industry like games, creativity scales poorly. Talent is perhaps one of the industry’s most critical bottlenecks and why, for studio leads, user-generated content presents such fertile ground. A large and engaged community of people that both creates and consumes — on platforms like YouTube, TikTok, and Twitch — sits at the center of the ever-growing creator economy. Now, that movement is coming for gaming.

Of course, game studios have tapped into their fan bases as sources of innovation for decades. Doom, perhaps the most famous first-person shooter of all time, built its success in the 1990s on opening up its underlying source code to anyone willing to build additional levels and add-ons — it was one of the original games to drive the “modding” phenomenon. And after observing the quality of spinoff content based on its first-person shooter franchise, Half-Life, Valve grew from a publisher into a full-fledged digital platform (including Steam, the world’s largest digital marketplace for PC games). To this day, one of Valve’s most successful titles of all time, Counter-Strike: Global Offensive, was the result of a homemade spinoff. 

User-generated content in games has a long and rich history, but such contributions have traditionally been considered a form of self-expression or niche fandom: participants created content for the love of the game and the sense of community, not necessarily for monetary gain. Today, that’s changing: Game studios are slowly recognizing that the value creators bring to their titles is worthy not only of social cache, but actual cash. 

Through fan-built blockbusters like Roblox — which nearly tripled payouts to external developers last year — and still-nascent players like The Sandbox and Mythical Games, where players can build and own their own blockchain-based game experiences, the creator economy is infiltrating the games industry. Players are discovering new ways to monetize their contributions, whether by building original game worlds, creating and selling in-game goods on the blockchain, or engaging with fans through new gaming streamer tools. Meanwhile, studios and game developers are realizing that giving players the opportunity to contribute — and share in the profits — presents a competitive advantage. This has the potential to reshape the underlying economics of game design and distribution in key ways.

The economics behind the UGC boom

The rise of UGC — and its embrace by big AAA studios — is not the product of pure enthusiasm: it is largely a matter of necessity. The cost of making games continues to rise. A pre-COVID analysis by game design legend Raph Koster found that on a per-megabyte basis, a $5 million indie mobile title and a giant $100 million AAA cross-platform extravaganza effectively cost the same amount to create. It explains why large publishers tend to be risk-averse — or at least weigh their bets very carefully.

But even that investment does not satisfy the inevitable drive toward constant innovation. A game studio’s competitive edge emerges from its ability to develop cool, new experiences. The relentless cycle of “more of the same, but something different” can be difficult to reconcile in a hits-driven marketplace. By opening up the creative process to players and outside developers, publishers effectively outsource innovation and de-risk their business. Shifting that onus from a small team of professional designers to a huge crowd of fans and passionate players enormously scales the design process. Providing access to a game’s building blocks and encouraging players to develop in-game items and experiences for others serves as a constant early beta-testing process of novel content. 

Over the past five years, the Electronic Arts game developer Maxis has generated around 5,000 pieces of individual clothing for the life simulation game The Sims, according to EA senior VP Samantha Ryan. “But if you look at one of our biggest UGC sites, they’ve created 39,000 pieces in that same period of time,” she noted in a recent panel. “There’s just no way as a professional development house to keep up with our players.”

Game executives like Ryan are now saying the quiet part out loud. Legacy publishers are notoriously slow to adopt novel revenue models and technologies (VR being one obvious example). They tend to “wait and see” until they’re forced to enter a category at a premium, often through acquisitions. Case in point: When Activision Blizzard finally entered mobile gaming in 2016, it did so at a $5.9 billion price tag for King Digital. In this new era — intense fan engagement coupled with the monetization of “passion” and leisure alike — creativity and virality in games are driven not by closely guarded corporate plans, but by external (often social) forces.

For game developers, there’s another upside: Now that the lion’s share of both the publicly traded and privately held industry generates income using a service model, there is a content surplus. Digitalization and its accompanying free-to-play revenue model have made games available to everyone. In this glut of available games, it becomes more expensive to connect consumers to content. User-generated content offsets marketing costs because it bolsters a firm’s ability to retain its players and lowers churn. Being part of an active community and having a constant flow of new content available for the games they like encourages players to stick around longer. That positively impacts the average game life cycle and reduces the threat of substitutes.

The future of UGC: from social cache to cash

Like microtransactions before it, the growing ubiquity of modders — fueled by cross-platform tools like Overwolf and Mod.io, which allow game developers to build extensions and mods for thousands of existing games — has transformed the game industry’s traditional business model. Now we’re seeing the beginnings of the next phase of UGC: games that open up their platforms completely for players to create self-sustaining, user-generated worlds — with player-owned economies to match. 

It’s the approach that catapulted Roblox’s blockbuster direct listing this spring. There are millions of players building millions of worlds on the platform. (According to Roblox, it’s no longer even a “game,” it’s an “experience.”) Of course, Roblox is not the first to pursue this strategy; Manticore, The Sandbox, Rec Room, CREY Games, Playerstate, and Traplight Games are all developing similar models. But Roblox was a pioneer when it came to direct creator payments: In 2013, it launched a Developer Exchange program, which not only allowed outside developers to create games and digital accessories, but also to split their profits 50/50 with the company. The amount of money Roblox spends on UGC developer payouts has grown every year since, and accelerated with velocity over the course of the pandemic. Last year, the company paid $250 million to developers; more than 1,250 creators made at least $10,000 through virtual sales in their Roblox games, as the company reported in February.

While Roblox is the most visible example of a successful UGC monetization model, the emerging crop of nascent players in this space are forging new experiments. Rec Room, a social, virtual world of player-made game rooms, expects to extend more than $1 million in payouts to 2 million content creators this year as part of its Creator Compensation Program. Mythical Games creates blockchain-based games where players can make money by buying and selling digital goods; this spring, the studio launched an in-game non-fungible token (NFT) marketplace in its Blankos Block Party game, where players can buy and sell the title’s toy-like characters and other digital goods. Similarly, last month Satoshi’s Games introduced Elixir Marketplace, an NFT marketplace for games like the upcoming Light Nite, in which players earn bitcoin rewards for mastering the game or selling and trading in-game items. On the community-driven platform The Sandbox, creators can monetize assets and gaming experiences on the blockchain. On Immutable X, players can buy, sell, or trade digital items on Ethereum in game worlds like Gods Unchained. And in Axie Infinity by SkyMais players can earn income — hence the phrase “play to earn” — through NFTs by breeding and trading digital pets called Axies; there are even reports of players around the world, from the Philippines to Colombia, combating economic slowdown through these game economies.    

While many of these emergent applications are blockchain-based, creators are discovering other ways to monetize in-game worlds as well: in Animal Crossing, for example, some intrepid players created their own WeChat QR codes to display in the game so fellow players could pay them for custom merch. Another active avenue is live-streaming platforms like Streamloots, which provide new ways for game streamers to monetize fan engagement in real time (for example, by granting a fan a one-on-one interview or giving tips on how to beat a particular game). The average Streamloots buyer spends $26 per month on digital interactions, more than four times what the average user spends on Twitch subscriptions.

Social game-making, not just playing

Traditionally, most forms of entertainment ask us to passively consume: We binge a Netflix show; we watch a concert. But in gaming, the way audiences actively engage with entertainment — and even embody it — is changing. In experiences like Roblox, The Sandbox, and Rec Room, the point of the game is to make a game. User-generated content isn’t simply a new way of playing — it’s an increasingly viable method of monetization, a form of identity, and a social connector.

Character creation has long been a core component to role-playing games; through UGC, it’s becoming more complex and more expressive. Avatars simultaneously establish a deeply emotional connection while enabling the unique experience of adventuring vicariously through a tailored proxy. (And through companies like Itsme and Genies, those avatars are becoming increasingly personalized.) Rather than using an anonymous pawn or token to navigate a game world, we get to explore through the lens of a distinct skill set and personality. Do I want to be a sniper this round, or rush in? Maybe I’ll be an undead rogue and go questing on my own. Increasingly, gameplay is transitioning from a form of entertainment to a form of expression.

Deeper still is the social component — the emotional desire not just to connect, but to create and contribute. By developing novel in-game items or experiences, we’re able to share with others beyond merely playing. As opposed to the static scrolling of much social media, players can interact in real time in virtual form — some users are even getting married within customizable game worlds like Rec Room. Fan art has existed for a long time, of course. But nowhere else is it the driving revenue model as it is in gaming today. 

* * *

Over the past three decades, as the gaming experience has become richer, players have been asked to engage more deeply in an ever-expanding range of decision-making exercises. Ultimately, the march toward advanced customization means we are moving away from a single objective experience. We may be playing the same game, more or less, but we are increasingly doing so on our own terms. Now, through the next phase of UGC, we’re also able to share — and sell — those tailored experiences with others.

As it has in media, education, and the crypto world before it, the creator economy is now manifesting itself in the broader business of games. But where modding and UGC was previously seen as an accretive revenue stream reserved for a game’s biggest fans, in the future the practice of making, battling, trading, and selling in-game creations will become integral to the player experience. 

 

  • Joost van Dreunen teaches at the NYU Stern School of Business and is author of "One Up: Creativity, Competition, and the Global Business of Video Games." Previously, he was the co-founder and CEO of SuperData Research.

Join the Newsletter

Technology, innovation, and the future, as told by those building it.

Thanks for signing up.

Check your inbox for a welcome note.