Video game revenue

What does a player buy?

A modern game purchase can include a licence to the game software, online services such as multiplayer matchmaking, servers and cloud saves, future content updates, and in-game currency or items. Under IFRS 15, the publisher identifies which of these are distinct performance obligations. A game with a substantial single-player mode that works without the publisher's servers delivers value on its own, so the licence is usually distinct from the online services. A game that is essentially an online service, where the player can do little without the publisher's servers and continuous updates, may be a single combined obligation. See media accounting and performance obligations.

Video game revenue: a launch with online services

A publisher sells 100,000 copies of a new game on 1 October, the start of a quarter, for net proceeds of US$ 60 each, 6,000 thousand in total. Players receive online multiplayer services, which the publisher expects to provide for about 9 months for a typical player. Consider two judgements. In the first, the online features are integral, so the game and the service are one obligation recognised over the 9-month service period. In the second, the game has a full offline campaign and is distinct, and 75% of the price is allocated to the licence based on standalone selling prices, with the rest recognised over the service period.

Under the first judgement, revenue of 2,000 thousand is recognised in each of the three quarters. Under the second, 4,500 thousand is recognised on launch day for the licence, plus 500 thousand a quarter for online services, so first-quarter revenue is 5,000 thousand. The same sales produce very different quarterly results, so publishers disclose the judgement and the estimated service period, which they review as player behaviour data comes in.

How is virtual currency accounted for?

Virtual currency, such as coins or gems bought with real money, gives the player a right to future items, so the cash received is a contract liability. Revenue is recognised when the currency is spent and the publisher delivers the items, according to the type of item. Currency that players are expected never to spend is breakage: if the publisher expects to be entitled to it, it recognises it in proportion to the pattern of spending; otherwise only when the chance of spending becomes remote.

Durable items are recognised over the period the publisher expects to provide them, usually estimated from how long paying players keep playing, so only 22.5 thousand of the 180 thousand spent on them is revenue by the quarter end. See breakage on unused tickets for how breakage works.

How are season passes and free-to-play games treated?

A season pass or battle pass gives access to rewards released over a season, so its price is recognised over the season. Free-to-play games earn no revenue from the download; their revenue comes from in-game purchases, recognised as above, and from advertising shown to players, recognised as the adverts are shown. Downloadable content sold separately is recognised when it is made available, or over time if it is itself a continuing service. See advertising revenue.

How are platform fees treated?

Games are sold through console stores, PC storefronts and mobile app stores, which keep a share of the price. The publisher decides whether it is the principal in the sale to the player, reporting the full price as revenue and the platform's share as a cost, or whether the platform is its customer, reporting only the net amount. The answer depends on who controls the game before it reaches the player, who sets the price and who is responsible for the game working, and can differ between platforms. See app store revenue.

How are game development costs treated?

Under IAS 38, development costs are capitalised once the six development criteria are met, including technical feasibility, and amortised from release, often over a short period because sales are concentrated around launch. Practice varies widely: some publishers capitalise most of a game's development, others conclude that the criteria are met only late in development and expense most costs. See software and cloud costs.

How does US GAAP differ?

ASC 606 applies the same principles, and several large US publishers recognise revenue from games with integral online features over an estimated service period. Development costs are capitalised under ASC 985-20 only after technological feasibility is established, which for games is often close to release, so US publishers typically capitalise less than many IFRS reporters. See content library amortisation.

This guide is general information. It is not tax or legal advice for your situation.