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Microsoft and Sony set sights on the Netflix model

A subscription service providing ongoing revenue could be a win-win for creators and platform holders; can MS or Sony make this model work?

Of all the various innovations we've seen in this console generation, it may be the business model changes that have the most lasting impact on the games industry. Though originally introduced in the back half of the previous generation, the notion of giving consumers "free" games on a monthly basis for continuing their subscription to console online services has become a standard part of the model in this hardware generation.

The degree to which this is expected, and to which the perceived quality of each month's offerings is hotly debated, is a clear signal of how the value relationship between consumers and game software is changing. Now, within the next few months, both Microsoft and Sony will evolve that relationship even further, with services which aim to give consumers access to current-gen game software through a very different transaction model.

"Many people will be worried... but the reality is that there's plenty of precedent to suggest that a subscription service won't harm sales of new games"

Microsoft was first out of the blocks with its announcement, revealing at the end of last month that a large library of software for the Xbox One will be made available for a $9.99 recurring monthly subscription. Sony's version of the concept is similar in business terms, if dramatically different technologically; it's going to start adding PS4 titles to PS Now, a game-streaming service which currently offers a huge library of PS3 games for a $20 recurring subscription (or $45 for three months, which gets it a little closer to Microsoft's pricing).

The goal being pursued by both firms is fairly obvious; paying monthly rather than buying titles outright is the model which has become dominant for both music and video, so it stands to reason that games will follow down the same path, at least to some extent. There's certainly some appeal to the idea of a "Netflix / Spotify For Games". From a business perspective, getting $120 (or $180) from consumers in flat monthly fees for games is probably actually a revenue boost if the service is primarily picked up by the kind of consumers who don't buy a lot of new games - either predominantly buying pre-owned, waiting for titles to hit bargain basement prices, or borrowing games from friends, for example.

On the other hand, there's an abundance of consumers out there who buy far, far more than the two new games a year that you'd get for that $120 fee - so any of those who stop buying new games in favour of a subscription service will represent a major revenue loss to the industry. Many people will be worried about that possibility, no doubt, but the reality is that there's plenty of precedent to suggest that a subscription service won't harm sales of new games.

"If the business case for these services is very clear, however, the question of which technical approach will succeed is rather less so"

New titles won't go directly onto a subscription service; there'll undoubtedly be a lengthy exclusivity period for people who pay for a physical or digital copy of the game, with titles only appearing for subscribers once their revenue potential in direct sales is already all-but exhausted. Subscription revenue therefore becomes a second bite at the cherry - a way of boosting the industry's often rather ratty-looking "long tail".

From a consumer perspective, that's actually not all that different from the way things are now. If you're not bothered about playing a game in its first few months on the market, then you're probably going to end up buying a second-hand copy - or getting it from the bargain bin, or borrowing it from a friend, or perhaps even just waiting for it to pop up on PlayStation Plus at some point.

Game software generally loses value dramatically after the first few months on the market; lots of options exist for picking it up cheap, but decades of experience shows that this doesn't dissuade fans from buying new games they really care about. Games are a "zeitgeisty" medium; people want to be playing the game everyone else is playing right now (as anyone who's had to put up with their social media feeds being filled to the brim with Zelda chat while every electronics store in the city remains out of stock of Switch can tell you - not that I'm bitter, of course).

For the industry, however, most of these options aren't very appealing. Second-hand software sales enrich GameStop, and just about nobody else; there's an argument that second-hand sales boost new software sales by providing trade-in value, but it's hard to balance the effects of that against the simple revenue loss game creators suffer from the repeated recycling of second-hand stock through stores that often deliberately push consumers towards used games instead of new ones. Borrowing the game from a friend is arguably preferable to the industry; no money is changing hands at all, so at least potential revenue hasn't been sucked out by a third party.

"Given the limitations of PS Now, Microsoft's native software approach seems far more likely to be a hit with its consumers"

Given, then, that we're already talking about consumers who have a range of options for accessing software which provide no revenue to game creators, something like a Netflix-esque subscription service starts to make a lot of sense. How the revenue works in the back-end will, no doubt, be subject to endless negotiation and dispute, but the point is that at least the revenue exists; games on the service will continue to generate cash for their creators as long as they're being played, and every cent they receive is a cent they'd never have seen in the currently dominant second-hand models. Moreover, the existence of subscription services could be a net boost for the games industry as a whole; the ability to access a large library of software for an affordable monthly subscription fee is something that will appeal to a lot of consumers, potentially bringing them into the console ecosystem.

If the business case for these services is very clear, however, the question of which technical approach will succeed is rather less so. For now, I think that Microsoft's model - allowing consumers to download and play locally the software on its subscription service - is comfortably superior to the PS Now streaming system.

Game streaming over the Internet remains a technology that's arguably ahead of its time; there are question marks over the business case (since the provider needs to pay for racks and racks of hardware which every consumer using the service already possesses in their own home, a duplication of functionality that makes little sense, especially since PS Now recently dropped support for "thin client" platforms like Bravia TVs), but more importantly, a huge number of consumers simply won't be able to make use of the service because their broadband connections are not up to the standard required for high-quality, real-time gameplay. The demands of real-time game streaming are very different from the demands of watching live streams of video, because you can't buffer a real-time game stream; when it works, it's impressive, but the reality is that for a great many consumers it either doesn't work at all or only works at time when the network isn't congested.

Given the limitations of PS Now (and I think the dropping of support on Bravia TVs, mobile phones and so on is an ominous sign for the future of the service), Microsoft's native software approach seems far more likely to be a hit with its consumers - indeed, the company may be hoping to recapture some of the magic of the Xbox 360 era, when its enormous advantage over Sony in online services helped it to maintain a lead over the PS3 for several years.

For Sony's part, the desire to try to boost PS Now may be its undoing, at least in the short term; but an enhanced version of PS Plus (PS Plus... Plus?) with a library subscription built-in seems like a no-brainer in the medium term. It's a win-win situation for platform holders and game creators alike. The only really big loser in all of this will be heavily pre-owned reliant retailers like GameStop; if game subscription services truly take off this year, they'll have to scramble to find a new model before it's too late.

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Latest comments (11)

Alfonso Sexto Lead Tester, Ubisoft Germany7 months ago
EA seems to be experimenting the same way with their EA access. So far seems to be working for them. This could be also understood as a precedent of what this article is saying.
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Klaus Preisinger Freelance Writing 7 months ago
Correct me, if I am wrong, but it seems to me groups of people playing one game together for longer periods of time is more important today, than people playing solo and hopping from game to game every three weeks. Meaning the perceived quality of the service depends on the choice of games and not the type of business model it represents.

As for the Netflix analogies, do we really expect Sony and MS to stop releasing $60 games? Look towards Amazon, they want you to watch Prime, not order some piece of plastic some media company is selling through Amazon.
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Jeff Kleist Writer, Marketing, Licensing 7 months ago
Umm, Amazon wants you to order that plastic if you're not buying the movie through them. Amazon are the ones selling that for the most part, they're the retailer. Thry also run a disc on demand service for boutique titles.

Those under 30 seem to attach very little value to ownership, probably from growing up in a mass piracy culture. Thry value ease of access at a cheap price, hence Netflix/Spotify/etc. They pirate or go without, they rarely buy, and in the case of games, it's usually something they can play for a year. That's why thr FPS and fighting games are focusing on selling you hats instead of DLC with substance. Hats also continue to sell when a game goes free.

Netflix style models give value to IP that has burned through it's time in the sun, the 95% of games, TV, and movies that are forgotten about a month later. Not only that, but it gives a second chance to be discovered, just like home video did in the 80s (Lethal Weapon probably being the most famous example of a bomb that exploded on video)

Spencer has already talked about "original series" like a Telltale or maybe more King's or Space Quest as an example of what they might do on pass.

ThEse are the issuesSony has, near as I can tell

1- Native PS3 games simply can't happen. You can't emulate or do machine porting of CELL on x64. It has to be by hand full up. So they have to run expensive, custom, low capacity servers for the purpose.

2- it's obvious their strategy of getting SmartTv Owners to sign on has failed, and therefore supporting those clients is simply tossing money down the drain. A major selling point to the brass of PSNow was supposed to be bringing PlayStation to lower income countries using what they already have. I don't see PC gamers being that enthusiastic about it either, they're probably targeting Korean game parlors and the like more than individual users.

3- As near as I can tell, PSN lacks the ability to dynamically reassign rights to games like thrnMicrosoft system does. with MS there's essentially a bot that gives and takes, and everything it gives has a "pumpkin date" where it dies unless the bot renews your licenses. In fact it seems that PSN can only remove rights by building a wall around the game. People who asked for No Man's Sky refunds were told they could never own a digital version of the game again, and they cannot give refunds on preorders. Assuming my observations are accurate, it would require a huge rewrite of the rights management backend to even begin to emulate the Microsoft service. I assume right now they're accelerating whatever plans they had and plan to string a bunch of retail units instead of custom server blades they're running now for PS3, at least for the time being.

4- Since Microsoft's system has essentially zero overhead beyond what they already spend keeping the store up, compared to the gargantuan expenses PSNow has, They can do things like what I expect tot see this Christmas "Xbox One S with 100+ games free!*(tiny print"for three months"). A lot of people will go for it. They aren't going to go for "buy this game for triple what Gamestop charges", or a limited subscription service that doesn't "just work" for. Any people and costs twice as much.
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Show all comments (11)
James Prendergast Research Chemist 7 months ago
@ Jeff, just to muddy the waters a bit:

Regarding point (3), the way the NMS license revocation worked makes no sense to me. Especially given how PS+ works. i.e. When your subscription lapses you lose access to those games but then regain access once you re-subscribe - but you don't get the titles that you could have 'added to your account' in the intervening period.

In fact, the entire way that PS+ works is through user choice - you have to choose to add a game on the monthly offer to your account. It seems like there's no reason an individual licence could not be revoked and then re-enabled through payment.

I wonder if they just don't want the hassle of having to do this and monitor it for abuse or something...
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Richard Browne Partner & Head of Interactive, Many Rivers Productions7 months ago
I think the point of EA Access is valid ; if the major publishers want to go this route with older software they'll want to do it on their own, not through a collaborative channel that dilutes revenue. Ubisoft channel, EA channel, Square Enix channel for $X a month. Otherwise this is just another route to cannibalize new sales. Basically we deal with limited time as much as we do with limited financial resources. New sales are already being somewhat affected by games lasting so much longer, whether that be through open world implementation or through multi-player stickiness, games had to change in reaction to second hand sales. If I had a near unlimited library of games to stream down at my leisure it might well take a lot more to get me down the store (physical or digital) to buy the latest greatest thing.
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Jeff Kleist Writer, Marketing, Licensing 7 months ago
@James, that puzzles me as well, but we have repeated examples that they are unable to deactivate/deactivate outside of PS+. If I had to guess they're completely separate versions running on something else so far as the store is concerned. It wouldn't shock me if they're a kludge of the movie rental system to be honest.

But like I said, all indications are that they can't do it like Microsoft does. And of course, PSNow is what they dropped a billion dollars on, and anything that undermines that investment isn't desirable :)
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Derek Fitzgerald Director, Quality Assurance, EA Canada7 months ago
@Alfonso Sexto: I generally avoid commenting about anything EA specific whenever possible, but wanted to thank you for highlighting this, Alfonso. Access is undoubtedly a very relate-able analogue, and has been available for a couple years already. Surprising Rob didn't reference it in the article.
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Paul Jace Merchandiser 7 months ago
"I think the point of EA Access is valid ; if the major publishers want to go this route with older software they'll want to do it on their own, not through a collaborative channel that dilutes revenue."

@Richard Browne--I also see this as true. However, why not add another revenue source on top of your own? I commented on this in another story but since Microsoft will be paying out royalties to use publisher's games they would essentially be turning down free money if they refuse to join up. Further more, even if they sign up they get to decide which games can and can't be used on the service. So in theory EA could sign up while still making certain EA Xbox 360 and EA Xbox One games exclusive to EA Access. So they'd have another selling point for EA Access and would have another monthly check coming in from Microsoft. They'll also probably be much more open to this considering that Microsoft allowed them to bring EA Access to Xbox One while Sony outright refused them while also insulting them with their "EA Access doesn't represent good value" comment.

EA Access has set the bar for this model(and they do it incredibly well with a very affordable model) but Microsoft did experiment with the monthly subscription model a few years ago, although for that version you were getting a $99 Xbox 360 with a two year Xbox Live Gold monthly subscription/contract of $14.99 a month. It only lasted a year or two though.

As for Xbox Game Pass, it has tons of potential and I'm pretty sure they will be offering free trials for all Xbox One purchases during the holidays. Hopefully they have an open beta so that we can test it out before launch.

Edited 1 times. Last edit by Paul Jace on 18th March 2017 12:17am

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Jeff Kleist Writer, Marketing, Licensing 7 months ago
The question people need to ask is what kind of carrots is Microsoft ready to offer to get the good stuff on the service? Royalty discounts? Cross promotion for an upcoming sequel? There's a lot of things they can do to motivate the third parties to land there, and I'm sure just like Games with Gold became an ID@Xbox dumping ground for awhile for games that no one was going to buy, so will this be again. I can't imagine that such $15 fifteen minute thousands as iDARB are doing very well once they stopped being free.
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Nick Parker Consultant 7 months ago
I'm not sure we can yet say that either the PS Now or Xbox Game Pass represent a "Netflix for games" service. The only comparison is the subscription payment model but Netflix offers an all you can eat and keep within the monthly payment whereas PS Now and Game Pass are more like a club membership offering members the opportunity to stream rented games or download discounted games. Alfonso is right, Xbox Game Pass is more like EA Access than Netflix.
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Jeff Kleist Writer, Marketing, Licensing 7 months ago
Xbox Game Pass is EA Access. Same system making it work

Game Pass is also all you can eat. The discount is seperate from the "rental" plan and an additional bonus, you keep nothing with Netflix. There is no streaming involved.
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