MARCH 11, 2015 • Big Fish Games is now accepting the Bitcoin Internet currency for online game payments and in-app purchases for both its browser and downloadable PC titles. To process bitcoins the publisher has partnered with San Francisco-based Coinbase. The latter is one of the more stable and reputable Bitcoin platforms anchoring 1 million bitcoin wallets and 25,000 merchants in the currency system. Around one half of Big Fish’s $266 million in 2013 revenue was generated by non-mobile content. Big Fish mobile transactions will still be processed through Apple’s App Store or Google Play, but the rest can now be transacted via bitcoins. Due to sometimes wild bitcoin valuation shifts, the publisher does not intend to hold the digital current. Through Coinbase, transactions made with bitcoins will be settled immediately in dollars.
Impact: Any major online consumer service or merchant agreeing to accept bitcoins in payment is news. The currency is unregulated, not backed by any entity that can shore up its value, and is totally lacking in any protections for consumers or merchants. For all of these reasons bitcoins found early favor with illicit drug and gun traders since the currency arrived in 2009. Currency speculators have also latched onto bitcoins, with each bitcoin trading around $1,000 until bad news hits. The reason for the high value is that there is a relatively finite number of bitcoins in circulation at more than 12 million or so at the moment. What keeps the value from sky-rocketing further is that new bitcoins are added to the system incrementally, but the most bitcoins that will ever be in circulation is 21 million. As an open source software project, Bitcoin is reliant on a wide network of individuals to verify bitcoin transactions as there is no official clearing house. As transactions happen, lots of them are collected into virtual safes that need the right key code to open. As incentive, those who successfully verify these collected transactions by cracking the cryptologic code protecting them, are rewarded with new bitcoins. When there are no longer new bitcoins to be circulated, then the incentive for verification will have to shift entirely to a fee-based system.
What makes bitcoins risky is that their value can shift radically. Last year when the Chinese government restricted the ability to change bitcoins into yuan, bitcoin value dropped to around $650. The same devaluation happened in early March when two bitcoin exchanges were hacked. This is the major reason why Big Fish intends to settle them for dollars immediately. What is attractive to merchants are the fees charged for transacting bitcoins are less than the 2% to 3% it costs to accept each credit card transaction. Coinbase, for instance, charges no fee for transaction settlement up to the first $1 million, and then 1% after that. Another merchant advantage, although a disadvantage to consumers, is there are no chargebacks in bitcoin purchases. Once the transaction is made, there is no consumer remorse or going back, the transaction is done. Despite these merchant pluses, big national retailers have been slow to accept bitcoins. Zynga only signed on last January, and Big Fish is the first game company that Coinbase has worked with. Other big names include Overstock.com and Victoria’s Secret.
How much will the bitcoin option help Big Fish? That’s hard to say. When we first looked into the company back in 2008, Big Fish had been around for six years and was seeing its revenue double each year. But that growth trajectory has not held up despite a successful transition to mobile publishing. Neither did the publisher’s excursion into a cloud gaming subscription service work out as planned. Big Fish Unlimited was shut down last year when it became obvious the service was not on a path to profitability. Big Fish’s 2013 revenue is only around 161% higher than it was in 2008. We don’t see accepting bitcoins as a big consumer draw yet, and they can only be used with a certain portion of Big Fish’s content. Then there is the question of how many bitcoin users are also Big Fish gameplayers. So we are curious to learn how much revenue actually will be transacted in bitcoins. Our suspicion is that most of the drive behind bitcoins is currency speculation rather than commerce. With only so many bitcoins in circulation, there seems to us to be a corresponding finite number of consumers willing or able to use them. That’s all short-term perspective, however. What happens when there are no more new bitcoins added to the system? Does the value drop as new speculators are discouraged from entering the market? Do bitcoin horders decide to unload them on merchants when their value is high and a drop in value is suspected? These are all scenarios to be considered, but no one really knows. That’s why we will be watching carefully how well Big Fish and Zynga will do with accepting bitcoins.