Digital Convergence and the Gaming Industry: Epic Games as a Case Study

Digital Convergence and the Gaming Industry:

Epic Games as a Case Study

August 31, 2022

8–12 minutes

The gaming industry is one of the longest and most successful when compared to other digital media sectors. It is one of the only media industries to have largely benefitted and grown exponentially during the COVID-19 pandemic with revenues increasing by 32% between 2019 to 2021, estimated at 8.4% average annual growth until 2026, creating a US$321B industry (PwC, 2022). The largest demographic of this booming market is young people, with an increasing amount spending time in virtual worlds instead of the physical, facilitating new forms of communication and cultural production at a time where physical contact between people is limited (Read, 2022). Epic Games, best recognised for its flagship game Fortnite, has been a key actor in shaping the current gaming industry, such as incentivising the role of the ‘produser’ and popularising the relationship between gaming and the metaverse (Jungherr & Schlarb, 2022). This essay explores the extent to which digital convergence has impacted the gaming industry with Epic Games as a case study, exploring changes to industry structure, revenue models, forms of cultural production and consumption practices.

Industry Structure

The gaming industry, and the entertainment industry at large, has increasingly become more aggressive in pursuing horizontal and vertical integration, visualising the consolidation of market power as the end goal. The proliferation of digital convergence in the gaming industry promised a digital world that is seamless and global, yet “content and interactions become increasingly digital, data becomes ever more central as the currency and raw material for consumer experiences,” as PwC (2022, p.17) argues, and creates conflict on laws, regulations and the overall structure of the game industry, which is consequently bleeding into other markets.

In April 2022, Microsoft’s acquisition of Activision Blizzard, the company behind massive franchises such as Call of Duty and World of Warcraft, at $68.7B allowed the tech giant to tap into a community of 400M active monthly players, making it the largest deal in video game history (PwC, 2022, p.14). In the same year, Sony announced the US$3.6B acquisition of Bungie and Haven Studios, responsible for hit franchises Halo and Assassin’s Creed respectively (PwC, 2022, p.14).

In the digital era, tech giants aim to capture the massive audience in the gaming industry, either for user data or direct revenue, which directs the conversation to the Epic Games v. Apple (2021) legal battle on tech-tying and antitrust laws. Essentially, Epic Games’ Fortnite bypassed Apple’s in-app purchases [IAP] system, which demanded 30% of all earnings, and offered its users an alternative payment method that was Epic’s own direct payment system (Smizer, 2021). This resulted in Apple removing Fortnite from the iOS App Store and Epic suing Apple for creating “an illegal ‘tying’ arrangement by linking the use of its smartphones to both its App Store and subsequently Apple’s IAP” (Smizer, 2021, p.218).

The priority of capturing the aftermarket of in-app purchases, and premium game titles as well, is a significant characteristic of the game industry today, with Epic Games (2022), for example, increasing partnerships with developers and publishers for 2022 to strengthen the offerings on their digital storefront. The gaming industry’s structure, then, pursues the consolidation of market power by expanding their market into other industries and markets.

Revenue Models

Sources of revenue in the gaming industry have increased and diversified, where previously was exclusively through the sale of video game copies to now including in-app advertising and in-game virtual items as major sources of income.

PwC (2022) reports that as the gaming industry will grow to account for 10% of revenues by 2026 for the entire Entertainment and Media sector, the total share of revenue are strengthened through an increase in in-app advertising. SuperData’s (2021) 2020 Year in Review report shows that the free-to-play market has increased by 9% to US$98.4B in 2020, essentially receiving the majority of their revenue through advertising.

The Epic Games Store, Epic Games’ own digital storefront, earned US$840M in 2021 alone, which was a 20% increase from 2020, whilst giving away free games each week, adding up to a total of 89 free titles in 2021 (Epic Games, 2022). Owing to the increasingly immersive experience that video games now offer, it also exacerbates instances of digital advertising and brand experiences through virtual in-game items that users can display and use (PwC, 2022).

Fortnite, for example, which has long featured collaborations with various entertainment franchises, expanded their reach through a crossover-event featuring Marvel Comics characters that lasted several months (SuperData, 2021). Their revenue is driven by in-game purchases, such as outfits and accessories for their avatars or buying access to special world maps and modes, but not for competitive advantages (Jungherr & Schlarb, 2022). At a cumulative 3.2 billion hours spent playing Fortnite in 2020, the time users spend in-game is crucial for third-party companies that monetise user activity through recurring small transactions, positioning Epic Games competitively within a market environment where user attention and engagement is highly valued, which, in this context, is achieved through seamless, convenient ways to engage with multiple media experiences more broadly (Jungherr & Schlarb, 2022).

The revenue models for much of the gaming industry has changed, creating new revenue streams and models that thrive in an era of increasing digitisation.

Forms of Cultural Production

The digital convergence of the gaming industry has allowed them to increasingly shape public discourse and act as a platform for people to come together, no longer operating through a one-way relationship but rather being more interactive with their users and proliferate the digitisation of social life.

Bruns (2014) argues that, in the case of media, it not only reflects society through its content, but also through its technological structures. The relationship between media, society and technology are intertwined where innovations in one translate to the other, considering the increased interactivity between users and reappropriating content on that platform (Bruns, 2014).

Although Epic Games in and of itself is not by definition a social media platform, convergence has allowed the additional affordance of social interactions within their video games such as Fortnite, along with innovations and conversations of the metaverse found elsewhere in the media and gaming industries.

The metaverse, now popularised by Facebook/Meta and Mark Zuckerberg, refers to a digital space that affords seamless interaction via extend reality applications, such as augmented or virtual reality (Jungherr & Schlarb, 2022, p.6). Epic Games has capitalised in this space and has offered its users to participate in many cultural and social experiences.

For instance, with music concerts cancelled during the COVID-19 pandemic, musician Travis Scott performed a digital concert in Fortnite, attracting 4.5M views and an average minute audience of 4.7M, with both Scott and his audience appearing through their virtual avatars (SuperData, 2021). The game’s non-combative game-mode ‘Party Royale’, which hosted Travis Scott, expands and simultaneously diversifies Fortnite’s player base by attracting users who otherwise would be averse to Fortnite’s third-person shooter genre (Jungherr & Schlarb, 2022).

Epic Games, and Fortnite in particular, illustrates the trajectory of how the gaming industry is increasingly creating a social platform and facilitates interaction and communication, no longer confined to only selling video games but also in producing culture.

Consumption Practices

The phenomenon of the ‘produser’ and co-creation thrive in the gaming industry, as heightened interactivity and participation in virtual worlds allows users to create content for others to use as well. User investment is becoming central to the success of video games, shifting how video games imagine joint and multiple ownership of games, acknowledging that player-productivity is the path moving forward, generating value for both the user and the company (Sotamaa, 2007).

It is important then to discuss Bruns’ (2006, p.2) concept of ‘produsage’ and subsequently the ‘produser’, which essentially breaks down the barriers between producer and consumer and enables all “participants to be users as well as producers of information and knowledge,” engaging in “the collaborative and continuous building and extending of existing content in pursuit of further improvement.”

That ties in to Banks and Deuze’s (2009, p.419) idea of co-creation, a phenomenon where “consumers increasingly participat[e] in the process of making and circulating media content and experiences.” Similar to the discussion on cultural production, these concepts are usually imagined within media and communications studies.

However evidently, these now also apply in the world of video games and the game industry.

Fortnite allows for users to create their own virtual worlds and modifications, or ‘mods’, in their ‘Creative’ game-mode, affording new media modalities for communicating and socialising between players (Werning, 2021). In his research, Werning (2021) found that this particular Fortnite game-mode has helped scientists and other researchers communicate the challenges of the climate crisis in facilitating the translation of environmental sustainability concerns into the game – which he refers to as ‘ecomodding’ – for a younger demographic.

Although usages for teaching and educational purposes are fringe, immersive and decentralised digital worlds are increasingly becoming the expectation for game companies to keep up with the market, with Fortnite and open-source game competitor Roblox, which ranks number 3 on top 10 free-to-play titles in 2020 according to SuperData (2021) at $2.249B in revenue, becoming the go-to platform and, as PwC (2022) reports, stealing screentime from social media apps like TikTok.

Co-creation has thus become the new norm, where gamers not only consume but also produce their experiences in games. The digital convergence of the gaming industry has allowed them to increasingly shape public discourse and act as a platform for people to come together, no longer operating through a one-way relationship but rather being more interactive with their users and proliferate the digitisation of social life.

Conclusion

Digital convergence has transformed the landscape of the gaming industry, lowering the barriers of entry on the one hand by affording increased user co-creation and participation, yet also creating a highly competitive market where failure to quickly adapt to technological changes means being acquired by a larger corporation to consolidate their own market share. The industry’s future is uncertain considering the possibilities, though with the number of players and rapid changes to technology, it is an area of increasing contestation.

Bibliography

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Bruns, A. (2006). Towards Produsage: Futures for User-Led Content Production. In F. Sudweeks, H. Hrachovec, & C. Ess (Eds.), Proceedings: Cultural Attitudes towards Communication and Technology 2006 (pp. 275-284). Murdoch University, Perth.

Bruns, A. (2014). Media Innovations, User Innovations, Societal Innovations. The Journal of Media Innovations, 1(1), 13-27. DOI:10.5617/jmi.v1i1.827

Epic Games, Inc. v. Apple Inc., 4:20-cv-05640, (N.D. Cal. 2021).

Epic Games (2022, January 27). Epic Games Store 2021 Year in Review. https://www.epicgames.com/site/en-US/news/epic-games-store-2021-year-in-review

Jungherr, A. & Schlarb, D. B. (2022). The Extended Reach of Game Engine Companies: How Companies Like Epic Games and Unity Technologies Provide Platforms for Extended Reality Applications and the Metaverse. Social Media + Society, 8(2), 1-12. DOI: 10.1177/20563051221107641

PwC (2022). Perspectives from the Global Entertainment & Media Outlook 2022–2026. www.pwc.com/gx/en/industries/entertainment-media/outlook/downloads/PwC_Outlook22.pdf

Read, S. (2022, July 28). Gaming is booming and is expected to keep growing. This chart tells you all you need to know. https://www.weforum.org/agenda/2022/07/gaming-pandemic-lockdowns-pwc-growth/#:~:text=The%20video%20game%20sector%20is,exceed%20%24320%20billion%20by%202026.

Smizer, E. C. (2021). Epic Games v. Apple: Tech-Tying and the Future of Antitrust. Loyola of Los Angeles Entertainment Law Review, 41(3), pp. 215-252.

Sotamaa, O. (2007). Let Me Take You The Movies: Productive Players, Commodification and Transformative Play. Convergence: The International Journal of Research into New Media Technologies, 13(4), 383-401. DOI: 10.1177/1354856507081961

SuperData (2021). 2020 Year in Review: Digital Games and Interactive Media.Werning, S. (2021). Ecomodding: Understanding and Communication the Climate Crisis by Co-Creating Commercial Video Games. Communication+1, 8(1), 1-27. DOI: 10.7275/1nsh-tg46

Originally submitted as coursework for the Master of Global Media Communication, University of Melbourne

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