The Forthcoming Harry Potter Live Service Game: A Crucial Test for the Industry

The prospect of Warner Bros releasing a Harry Potter game as a service is intriguing, but not for the reasons the company expects. The likes of Sony, Warner Bros, Ubisoft, EA, and Square Enix are all investing heavily in live service experiences, but not all can succeed. The current state of live services has been aptly summarized by the latest Jimquisition, which highlights the difficulties of this model. A key difference with the Harry Potter game is that it will be built around a massive franchise with a pre-existing audience, primarily children who are already familiar with the series. The target market is established, as evidenced by the success of Hogwarts Legacy, which sold over 22 million units and was one of the best-selling games of 2023. This raises the question of why Warner Bros is embracing the live service model so enthusiastically after the success of Hogwarts Legacy. The answer lies in recurring revenue, which is a constant stream of income from an engaged player base. However, the live service model is challenging, with growth in video game spending slowing down to single-digit percentage points. This means that the pool for new live service spending is drying up, and what remains can be categorized as spending cannibalism. A game that relies on recurring spending can only be successful if other games that also rely on recurring spending fail. To increase the pool, you need new players or increased spending from the existing player base, neither of which is happening. The low retention numbers for the newly released Payday 3 are a testament to the fact that the "if we build it, they will come" philosophy is no longer sufficient. Most Payday 3 gamers complained that the game played no differently from Payday 2, a game where they had already invested time and money. This raises the question of why they should switch to a new live service game with a low cumulative player base when they have already invested in an established one with a high cumulative player base. For new live service titles to achieve success, they need to offer something new and original that justifies the sacrifice in lost time and investment from older titles. This is a chicken and egg conundrum, as gamers will likely jump onto a new live service game if it gains traction, but to get traction, it needs gamers. The list of failed live service games is growing, and publishers are beginning to forget that new games, whether live service or traditional, should be fun to play. The new live service game Palworld, for example, sold well initially, with sales exceeding 25 million units in a short period. However, retention has fallen by 84% since launch, likely due to confusing gameplay mechanics. The initial buzz was not enough to sustain player interest, and players returned to established games like Fortnite. Similarly, The Finals, a first-person shooter, lost more than four-fifths of its core audience just six weeks after launch, possibly due to competition from established free-to-play and live service shooters. The worrying part is that even fun games may not be enough to retain players, as evidenced by the fact that both Palworld and The Finals are considered fun to play. This sparks trouble, especially given that 95% of studios are working on or planning to release live service games. The established live service games are getting more successful, not less, which makes it difficult for new entrants to compete. Warner Bros President of Global Streaming and Games, JB Perrette, stated that the traditional gaming market is "volatile" and that growth will come from games that allow players to live and work in a world on an ongoing basis. However, the most successful live service games are not necessarily those that offer a vast open world. Instead, they often focus on instant gratification, and the most successful DLC is usually cosmetic. The success of Minecraft and Fortnite can be attributed to their ability to constantly reinvent themselves, simplicity, and perfected cosmetic microtransactions. Other successful live service games, such as CS:GO, War Thunder, Dota, and League of Legends, are veterans of the live service market, making it difficult for new games to compete. The most important question for the new Harry Potter live service game is what kind of game it will be. It is unlikely to be a dopamine hit arena shooter or a purely sandbox experience. Narrative-driven live service games like Destiny often drop their storytelling pretenses and become arena shooters. The issue is that the Harry Potter universe should be built around a good narrative, staying true to its origins, which is why Hogwarts Legacy was so successful. The challenge is to extend the game's universe or explore tie-ins while maintaining credibility and sustaining player retention. This requires a huge investment from the publisher, a plan, a roadmap of creativity and expenditure, and a declaration of commitment. If not done correctly, it could end up costing more than traditional single-player games. The supply side of live service games is complex, with constant additions of cosmetic, gameplay, and season passes needed to sustain the audience. Development teams can use AI to create new content, but it must be compelling to prevent diminishing returns on investment. The cost of enhancing the live service experience could be higher than the returns in microtransaction revenues if the new content is not engaging. The economics of running a live service model can be seen in the example of Roblox Corp, which has not made a profit despite increasing revenue. The company's R&D costs are keeping pace with revenue, and if this model is repeated with live service titles, it could become a false economy if gamers move away from the game and stop spending. In conclusion, the success of the Harry Potter live service game will be a crucial test for the industry. If Warner Bros cannot succeed with this game, it may indicate that there is little future in releasing new live service titles, as they will either be unsuccessful or have a short lifespan due to increased competition from established live service games.