3 questions about the future of subscription services (on mobile)

A lot of the recent announcements in the gaming world concern in one way or another a subscription service. There is of course Apple Arcade which is specifically a subscription service. And although it hasn’t been announced, the general expectation is Google Stadia will follow a subscription model. But this interest with a subscription model – on console or mobile – is not all that new. EA has been working in the last quarters towards making a gaming subscription/streaming service.

Every time these topics come up, I have the same 3 questions (these are real questions from someone who knows mobile gaming and free-to-play, and who is less familiar with the subscription environment – not rhetorical questions). And I can’t recommend enough Strauss Zelnick’s discussion on the future of media (as everything else in my blog, I’m saying this in a purely personal capacity).

 

1) Can anyone other than Netflix become the “Netflix of gaming”?

The one thing that is tempting to forget here is the “materiality of media”. In order for consumers to access a streaming/subscription service, they first need to actually subscribe to it on a given platform (whatever that platform is). The first barrier of entry is to actually have access to that service. That’s where Netflix has an advantage over everyone else. Netflix currently has 58 million paid memberships in the US and 80 million internationally (see the financial statements link). So presumably the reach in terms of actual users is even higher.

xboxsmartglassAny new subscription service will need to compete to first get into consumers’ living room (or pocket). Netflix has a head start on that front. And it feels like that might be more than half the battle. It’s probably easier for Netflix to introduce a new TV+ game plan than it would be for a newcomer to get consumers to sign up for a totally new subscription service. In addition, the technology needed to use Netflix as a gaming platform can potentially be modest. Think about Xbox smartglass – users would use their phones as a way to control their xbox and what was displayed on screen. When there were discussions of a potential buyer for Zynga in the last quarter of 2018, it feels like Netflix would have been a perfect candidate. Poker or Farmville – probably even CSR – feel like games that could be played very easily on any medium – including on a TV controlled by a phone.

 

2) What kind of portfolio can we expect?

According to research by SuperData, the n.1 factor when subscribing to a game service is price. The second one is catalog size with 37% (and I’m assuming catalog quality is implied here)

Historically, it feels like Netflix was initially built on recycling content produced in a different framework (either broadcast TV or movies). In other words, to a certain extent Netiflix was probably built off distributing content that was designed with a different distribution model in mind. And most of the time the entertainment product had become profitable while operating within its natural ecosystem. By that I mean a sitcom that was produced for a network on prime time was able to be profitable within the network broadcasting model. Becoming available on a streaming platform was just gravy. Only recently (in the grand scheme of things) has Netflix started producing exclusive content for its own platform.

So, it feels like any gaming subscription service will need to start by capitalizing on “recycled content” to grow. On content that was designed – and successful – for a different distribution model (in the case of gaming either free-to-play or boxed products). It’s not clear there is a demand as strong in the gaming market for old, recycled content. At least compared to TV/movies. You’re not just a spectator when you are playing a game. The nostalgia factor is maybe not as strong – and perhaps people are more willing to watch a show/movie they already saw than they are to replay a game they already played (I haven’t come across data either way – this is just a gut feeling).

So, I don’t know what catalog could be available for a gaming service that would also be compelling enough for players to spend month over month to keep playing. It feels like a challenge.

 

3) How can this become a viable business model?

There is a question mark about the subscription business model for game makers – I’m talking here specifically about developers working to develop exclusive content for this distribution model. And I’m talking also with mobile/free-to-play in mind (because it’s the segment of the gaming business I know the most – and mobile is most certainly a category of gaming that won’t disappear in the near future). The big question here concerns the type of monetization model that would allow developers to produce engaging content for a gaming subscription service.
If price is the n.1 criteria for consumers when choosing a subscription service – and most subscription services are around $9.99/month (round down to $99.99 per year) – then that sets a clear upper limit on what game makers can expect to make if they go the subscription route. If you were to imagine all Netflix subscriptions would do a $99.99 yearly upgrade to have a games package, that would add up to $14bn a year. Fortnite alone is estimated to have generated $2.4bn in 2018 and King generated over $2bn in net revenue in fy 2018.
So as far as hit mobile titles goes, the subscription route probably doesn’t seem appealing (even if the subscription platform were to take charge of UA costs). On the other hand, the subscription platform could fund game makers. And having a guaranteed payout is better than a vast majority of outcomes in free-to-play. But if the subscription service were to pay for those titles at a loss (in other words, subsidize less successful game makers), then the model as a whole simply isn’t viable.
In the case of Apple Arcade, there are many questions concerning the way developers will see a share of the subscription revenue.
This also potentially raises some important questions concerning the types of games that might see a financial benefit to going the subscription route. For example, if game makers where to be paid on a per engagement basis – at presumably relatively low $/time played, then maybe the subscription model would only make sense for games that monetize little and have good engagement. Perhaps the subscription model would be a good distribution format for hypercasual games – better than a low volume/high monetizing genre like an RPG. But then the question becomes why would players pay for a subscription service for something like hypercasual games that could as easily be downloaded for free on an app store.

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