The Pricing Games

Your client is Next Level Gaming (NLG), a start-up in the E-sports and computer gaming industry based in Los Angeles, California. NLG is planning to launch its first game – an online, multiplayer role playing game that is unlike any existing franchise. Being a new player in the industry, NLG’s CEO, Bobby Beck, has asked for your help in deciding its business model.

Your client is Next Level Gaming (NLG), a start-up in the E-sports and computer gaming industry based in Los Angeles, California. NLG is planning to launch its first game – an online, multiplayer role playing game that is unlike any existing franchise. Being a new player in the industry, NLG’s CEO, Bobby Beck, has asked for your help in deciding its business model. The company is considering 3 alternatives: a subscription model where players pay a monthly fee; a retail model where players pay full price at initial purchase, and a free-to-play model where the game is free to play but charges players for in-game merchandise. How would you advise NLG to proceed?

NLG's CEO Bobby Beck needs to decide which of three pricing models to launch with, in order to maximize long-term profitability and competitive positioning as a first-time entrant in a crowded market.

Opening framework should cover: profitability drivers for each model (players acquired × revenue per player, minus fixed and variable costs), qualitative factors (competitive response, retention, acquisition costs, ancillary revenue), and future expansion potential. For Q1, build a top-down market sizing by age cohort — apply computer ownership rates, gaming participation rates, and willingness to try a new genre. Target answer is ~10M players. For Q2, work through each model methodically: revenue = market × take rate × price, then subtract variable costs per user and shared fixed costs. Flag that the $10M R&D spend is sunk and irrelevant. Note the footnote in Exhibit 2 about the additional $10 variable cost for paying Free-To-Play users — missing this is a common error. For Q3, bucket your brainstorm cleanly: customer stickiness, competitive moats, growth vectors (mobile, console, international, sequels), and alternative monetization. Strong candidates bring up e-sports tournament hosting as a long-term upside. For Q4, the survey signals that retail has the weakest retention and lowest add-on potential, effectively eliminating it. Both subscription and free-to-play show strong loyalty. The recommended model is free-to-play — it captures the largest player base (50% market share), provides the strongest long-term competitive positioning, and enables future expansion. The key risk is converting enough free users to paying customers; mitigate by designing two distinct in-game purchase types targeting both aesthetic and progression-oriented players.