While subscription gaming services have been on the rise over the past few years, largely thanks to the growth of Microsoft’s Xbox Game Pass platform, the change in consumer spending and consumption has not followed suit. Instead, subscription platforms and the smaller cloud gaming services are often bold in them forming a small portion of the overall global games market.
It could take years or perhaps even decades, in conjunction with major advances in internet speed and coverage as well as streaming technology, before these distribution methods replace the traditional gaming retail model. And for many popular titles that are offered for free and profited entirely through in-game purchases, these models may not be compatible well.
“I don’t believe subscriptions will be the dominant monetization of the game sector because of the progress it has made within the video and music sector,” Ampere Analysis researcher Piers Harding-Rolls said at the Game Developers Conference last month. . “79% of total market opportunity in 2021, in terms of consumer spending, will be based on in-game monetization. That means, I think, we’re unlikely to see a wholesale shift to subscription monetization. ”
Subscription and cloud gaming represent only 4% of the North American and European gaming markets, or approximately $ 3.7 billion, according to a recent Harding-Rolls study published in Ampere. Of the available services, only 5% are streaming-only offers, while the majority (60%) use an Xbox Game Pass.
The study found that most Game Pass users download their games and they don’t stream them. Harding-Rolls said he expects the combined subscription and cloud gaming market to grow to approximately 8.4% of the U.S. and European game markets by 2027, which is far from the use of subscription and streaming services in the music markets. and video.
This tendency to compare music and video games makes sense. Games are relatively new forms of media, compared to film and recorded music, but all three have simultaneously undergone the same forms of disruption caused by widespread internet access, digital distribution and advent. of streaming.
However, only games are lagging behind in the transition from traditional retail models and downloads to subscription and streaming services. This is largely due to the complex economy of how games are funded, sold and monetized and the different styles, file sizes and lengths of entertainment hours they provide.
Switching subscriptions
The music industry, due to complex factors involving piracy, digital distribution and the technical sophistication of streaming music files, has embraced Spotify and other subscription platforms to clip faster than other form of media. After all, most songs are almost the same length, and streaming an MP3 is much easier than a video or an interactive video game stream.
Approximately 83% of all music revenue in the U.S. now comes from streaming services, according to the Recording Industry Association of America, and industry leader Spotify has more than 400 million monthly users and 31% market share share of more than 500 million paying subscribers worldwide.
TV is lagging far behind, in part because of strained economic relations at the heart of TV production and distribution. Streaming platforms like Netflix and Hulu account for only 26% of the time spent watching TV, according to a report last year from research firm Nielsen, while most Americans (64%) still spend also spend most of their time watching cable and network TV.
The film industry, which has experienced a sharp decline in theater attendees due to the pandemic, has long since moved to mainstream digital distribution, according to a report by the Motion Picture Association of America in 2021. But the viewing share is equally divided into cable and satellite providers and subscription services, the report said.
Meanwhile, many of Hollywood’s most powerful incumbents also have the incentive to maintain the traditional theater model. When some media conglomerates tried to release films they funded directly on streaming services they owned, some directors and theater chains aggressively backed away, making the trend a short-term experiment in an effort to avoid the economic impact of the restrictions. in COVID.
Now, viewers are forced to pony up if they want to see new movies out of theaters or wait about 45 days for it to land on a streaming service. (Actually, 45 days is shorter than the typical 75-, 90- or 120-day windows of the years before the pandemic, and can afford to pay as little as $ 20 or $ 30 for a film still running in the cinemas, such as Amazon and Disney today. allow, are a major change in the movie distribution market.)
And then there are video games, which have only seen the tip on the scales in favor of buying digital in 2020, thanks to the pandemic. Before that, most consumers bought video games on Blu-ray discs from big box stores like Best Buy, Walmart and GameStop and ecommerce retailers like Amazon.
Too many games are still downloaded locally to devices like consoles and PCs, instead of being streamed over the internet via a cloud service like Xbox Cloud Gaming or Google Stadia. The move towards these new distribution formats for gaming isn’t accelerating anywhere near its rate in film and TV, seeing record highs in subscription sign-ups and behavior change. to watch.
Harding-Rolls found that less than 10% of the more than 25 million Xbox Game Pass subscribers just stream games. This suggests that subscription services could play a larger role in helping to bridge the gap between consoles and PCs and the markets where gamers primarily use mobile phones.
“Streaming distribution will gradually become more important in the gaming content subscription market over the next five years,” Harding-Rolls said. “While console users represent the core of Microsoft’s service for example, its future growth will largely rely on converting non-console users through its streaming functionality.”
There will be a shift coming … eventually
Sony probably made the most public rejection of a subscription-first future for the game industry when it launched an understated refresh of its PlayStation Plus platform. Instead of trying to compete directly with Microsoft’s Game Pass, Sony said it’s unsure about the long-term possibility of releasing large-budget games on a Netflix-style subscription platform that’s cheaper each month than the cost of a game.
Sony’s new PlayStation Plus, coming later this year, now includes two more expensive tiers that offer a combination of classic games and newer first-party games already on the market with at least one years or more, in addition to a cloud streaming component borrowed from the company’s PlayStation Now service for the most expensive plan. Missing in any of the three tiers are first-party games the day they release on retail channels, as Microsoft does with Game Pass.
“It’s not a road we’re going to go with this new service,” PlayStation CEO Jim Ryan told Gamesindustry.biz last month, referring to the release of major first-party games like Horizon Forbidden West on its higher subscription offers. “We feel if we do that with the games we make at PlayStation Studios, that virtuous cycle will be broken. The level of investment we have to make in our studios is not going to be possible, and we think the knock-on effect the quality of the games we make is not something that players want. ”
“The importance of subscriptions has certainly grown over the past few years,” Ryan added. “But the gaming medium is so different in music and in linear entertainment, that I don’t think we see it at the levels we see on Spotify and Netflix.”
“It’s very difficult to launch a $ 120 million game on a subscription service that charges $ 9.99 a month,” said Shawn Layden, a former PlayStation exec who manages its internal studios, last year. “Write it down, you’re going to need to have 500 million subscribers before you can start recouping your investment. So right now you need to take a position that is leading the loss to try to grow that base. But still, if you only have it 250 million consoles, you’re not going to have half a billion subscribers. So how do you spin that square? Nobody knows that yet. ”
Even Microsoft has gone out of its way in recent months to reassure developers that subscription gaming is not a business model that will govern them all, and that in fact it believes in having different approaches. in game distribution. That may be in part because Game Pass, while still growing, failed to grow as fast as the company expected, adding only 7 million users from January 2021 to January 2022.
“For us at Xbox, there isn’t a single business model that we think will win. Developers often ask me, ‘If I don’t [Game Pass], am I no longer viable on Xbox? ‘ And it’s really not true, ”Microsoft Gaming CEO Phil Spencer said in an interview with Xbox executive Sarah Bond at GDC 2022.
“It’s really about the diversity of business models, and here I sometimes compare it to other forms of media that we get compared to if it’s music, if it’s video. Where, the models really condensed down to maybe one or two business models that work, ”Spencer added.“ I believe the strength for us in the video game business is the diversity of models. of business and the strength of that. “
In fact, the existence of a variety of business models, with different price points, is one reason why the gaming industry has sunk into a much larger economic force than Hollywood and industry of music.
But those same factors make it difficult for new distribution methods to be obtained, even without significant investment from some of the most cash-flush companies in the tech and gaming space. Microsoft, thanks to its Office, Windows and Azure businesses, can afford it. Many other companies, including Nintendo and Sony, can’t, and we see that playing around with how hesitant Microsoft’s competitors are to jump into the deep end of subscription gaming.
So far, however, it looks like the moniker “Netflix for games” may only apply to Game Pass, based on the scope of Microsoft’s ambitions. And it could take a very long time until we find out how early the Xbox is in the next big shift of gaming distribution.
📥 Subscriptions Week 2022 📥
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