Collectible card games became an instant hit upon the creation of Magic the Gathering by Richard Garfield and Wizards of the Coast in 1993. Magic has went through some changing fortunes over the past 20 years (including WotC being acquired by Hasbro in 1999) and faced some successful competition in the form of card games based on Yu-Gi-Oh! and Pokemon, but Magic is now bigger than ever.
However, dark clouds loom on the horizon, as a digital disruption is taking the collectible card game genre by storm. In this post, I will examine the current situation and take a closer look at two key players: Hasbro’s Magic the Gathering and Blizzard’s Hearthstone.
Magic the Gathering, the reigning champion
Magic’s reign has been a long and prosperous one. At the age of 22 years, the physical card game receives new expansions multiple times per year and the franchise generates record-level revenues in the neighborhood of $300 million annually. According to Hasbro, there are more than 20 million Magic players around the world. Hasbro is also running a large competitive scene with more than 50 major tournaments per year with prize pools in tens of thousands of dollars.
Magic has also been a pioneer in online play as its Magic Online launched all the way back in 2002 with a business model closely linked to physical cards and even a redemption program that enables players to exchange their digital cards for physical ones (but not the other way around). A more casual digital version, Magic: the Gathering – Duels of the Planeswalkers, was released in 2009 and has received annual sequels ever since. Since the launch of Duels, around 25% of players who come to the physical card game have come from the computer version.
In July, the Duels concept was renewed as a platform instead of separate annual releases and changed to a free-to-play model complete with in-game quests and currency to purchase card packs with. Magic Online remains as a parallel digital product offering the full experience including digital competitive play that Duels does not have. The new version of Duels is also the first time Magic appears digitally outside Windows environment, as it includes an iOS version, although the PC and iOS versions are not linked together.
Nonetheless, for Magic, the physical market has always been the primary market. In 2013, Magic brand director Mark Purvis commented that “it has really been our strategy all along to use the digital medium as a way to reach gamers and educate them about Magic, teach them how to play, and then make them aware of what kind of communities are in their local game store.”
This strategy serves to explain why the new Magic Duels lacks any meaningful competitive play: if the product is only meant to give players a taste of Magic and then direct them to the physical card game, creating a full digital experience is even counterproductive towards that goal. This stance is also visible in the Q2 earnings call comment by the CEO of Hasbro, Brian D. Goldner: ” As we’ve talked about, we’re investing to continue to improve and seek more players in MAGIC Online. We have Magic Duels. Hopefully you’ve downloaded it by now onto your iPhone. It’s a great digital game that really introduces people to the play.” (emphasis added)
Thus, the Magic business model is based on sales of physical cards. With more than 80 sets of cards released over the past 22 years, there have been two main factors that have kept people buying cards: (1) the main format for competitive play, Standard, only allows players to use cards from a few latest expansions and (2) Hasbro has consistently worked on enabling a functional market for existing cards by providing minor support for formats that allow older cards to be used and by self-restricting their ability to reprint cards.
Enabling this collectability and trader aspect of playing with Magic attracts more people to the game and helps retain them. Many Magic players are highly aware of the financial aspects of the game, and the high resale value of an existing collection can be used to justify continued investments into the game. In fact, there is a blooming Magic economy where third-party vendors purchase card boosters by the pallet and players purchase sets or individual cards that they need instead of random packs of cards. In order to keep this economy running, Hasbro needs to ensure that card collections continue to have value.
Hearthstone, the disruptor
Hearthstone has taken the card game scene by storm. Launched to open beta in January 2014, Hearthstone immediately generated $173 million in revenues in its first year of operation and is currently estimated to bring in around $20 million per month having reached 30 million players (SuperData estimates that 17 million of them are active).
Compared to Magic, Hearthstone is easier to get started with, faster-paced, and much more convenient: you can play for shorter periods of time and on a device of your choice (PC, iOS, Android) with the same account and the same card set.
Viewers and entertainment are important factors for the promotion of the game, and for anyone who wants to turn playing into a career. Already, a number of Magic pros have switched over to Hearthstone, such as Brian Kibler, Stanislav Cifka, and Paul Nemeth. There are plenty of tournaments in Hearthstone and good opportunities for winnings as well as income from streaming, which is almost non-existent in Magic.
Hearthstone has taken a different approach to collectability than Magic: there is no trading in Hearthstone. Players purchase cards in random packs that cost either real money or in-game currency that can be earned by playing the game. Undesired cards can then be disenchanted for dust, which can, in turn, be used to craft new cards (you need to disenchant 4-8 cards to craft one card). Some cards can only be obtained from Adventures, single-player challenges that are similarly unlocked either with real money or in-game currency. Furthermore, there are cosmetic changes that can only be bought with real money, such as character portraits and some card backs – in the vein of standard free-to-play monetization.
Thus, Hearthstone is a genuine free-to-play game: everything that affects gameplay can be acquired for free by playing the game (a lot). Any money spent of the game goes directly to Blizzard as there is no trading and the collections the players have are purely personal and not really owned by the players but merely available for them to use.
For the financially inclined, the way to make money in Magic is through the trading market, whereas in Hearthstone it is through entertainment and streaming.
Should Magic compete with Hearthstone at all?
According to SuperData research, digital players make up 61% of the worldwide collectible card game market with 37 million digital players and 23 million physical players. Still, that means that at least at the moment, there is a sizable physical card game market as well.
There is a positive scenario for Hasbro in which the increased attention captured by Hearthstone increases the interest in collectible card games in general and thus directs more players to Magic as well. However, as long as the digital product is seen as something of secondary value and not as important as the physical product, there is little hope of capturing a major share of the digital market.
Even if Magic wanted to seriously compete in the digital space, it may simply be too slow to evolve to match the speed of its nimbler digital competitors. In 2013, Aaron Forsythe, senior director of Magic’s R&D described their development process as follows: “We start three years in advance of a set being released by discussing big-picture settings, themes, story beats, and mechanics. An advanced design team then spends six months cranking out gameplay ideas that fit in that broad framework, after which the set’s design team proper picks the best ideas, expounds upon them, and works with the creative team to make sure the worldbuilding and cards mesh well. From there it goes to the final design team, who has the incredibly difficult job of tying all the pieces together—rules, flavor, digital implementation, branded play activities, casual play, intro products—into one cohesive package.” A three-year development cycle is extremely slow nowadays.
Furthermore, Magic has a fundamental problem when it comes to going digital: the trading economy that they have carefully built up and cultivated, and with it the audience they are serving. Changing their business model to one better suited for online environment would likely cause an uproar among the existing community. It is a classic case of disruption: the incumbent is damned if they change their model, and damned if they don’t. In hindsight, it is easy to comment that you often need to disrupt your own business model before someone else does, and having come online as early as 2002, Magic definitely had an opportunity to do so.
Given that the number of digital players already surpasses the number of physical players, and the general digitalization trend, it is unlikely that the number of physical players will ever become higher than the number of digital players. However, Magic is in a good position in the physical market. If Hasbro deems it likely that the physical market will remain strong in the future, there is no need for it to force its way into digital. If, on the other hand, Hasbro deems it likely that the physical market will shrink significantly, it is still in a position where it could go for a full-on transition into digital.
How about going half-in digital? Even if Hasbro could unify their clients instead of the current split to Magic Online and Magic Duels, provide comprehensive mobile support, and make the game pretty, comprehensible to a new viewer, easily streamable, and faster, they would still be in an awkward position because of the trading economy, either gimping the digital offering to retain the value of physical cards, or undermining the physical cards without having a top-class digital offering. The only way such a strategy can work is if the physical game remains the most important one and the digital offering is merely an extension and a pathway to the physical offering. This actually seems to be more or less what Hasbro is doing. If this is the case, Magic indeed does not compete with Hearthstone; it leaves the larger digital market mainly for Hearthstone and focuses on the smaller, but still profitable, physical market. In a world where digitalization is a major megatrend, this strategy is not without its risks.
Picture is from Blizzard’s Hearthstone press kit