Subscriptions are nothing new to the games industry. From the monthly fees for classic MMOs to the service charge for multiplayer games through PlayStation Plus or Xbox Live Gold, players are accustomed to making regular payments to access video games.
But in terms of subscribing to a library of content -- a model that has come to dominate all other forms of entertainment -- it can feel like the games industry is playing catch-up. Yes, PlayStation Now has been available since 2014, but it's arguably been the rise of Xbox Game Pass that has really drawn attention to how this form of subscription can work in games.
Netflix, Spotify, Amazon Prime and others have already proven this model works in TV, film and music, so what lessons can games companies follow when defining their own subscription service? This was the question at the heart of a session during our recent Changing Channels conference.
"Games like Fortnite are showing us that they don't just have to be games, they can be a whole entertainment venue in themselves"
The panel began by discussing how subscriptions have changed how consumers engage with entertainment, with Midia Research senior analyst Karol Severin pointing to the growing trend of multitasking. No single form of entertainment can hold a viewer's attention anymore, he said, adding that it's much more likely for young people in particular to be playing a game while on a FaceTime call to a friend and binge watching Netflix on a laptop to the side.
"Binge consumption in gaming -- playing for longer sessions -- is nothing new, but the fact it has arisen in video creates a bit of competitive pressure," Severin said. "It's either going to be taking away engagement or attention, but games are well positioned to accommodate for multi-tasking -- arguably more so than music or certain video services. Games like Fortnite are showing us that they don't just have to be games, they can be a whole entertainment venue in themselves."
With multitasking disrupting the status quo, the analyst warned that the shift towards binge-watching is "something games will need to consider going forwards."
Robert Price -- who spent ten years in home entertainment, most recently at 20th Century Fox, and now works at influencer marketing agency Fourth Floor Creative -- said the emergence of subscription services means consumers are now accustomed to "endless choice" when it comes to entertainment.
People now decide very quickly whether they want to continue spending time on something, whether it's a TV series or a Game Pass title. Since there is so much content available, Price argued it's "natural" for users to flick through content, making it more important for creators to grip them from the beginning. Subscriptions, Price continued, have "changed everything," including the "perception of what new is" -- especially when combined with streaming.
"The film and TV industries built a business based on the exclusive windowing of content," he explained. "What streaming has done has taken that away -- because there's so much new content, the perception of that value has changed. That's something that may be interesting for games publishers to think about going forward: that ability streaming gives people to try different things very quickly.
He continued: "People don't necessarily see the value of waiting for new content; they want to get it straight away. That process has certainly been accelerated with the pandemic."
"People don't necessarily see the value of waiting for new content; they want to get it straight away"
The panel also noted that subscriptions mean a "broader sweep of content" is now being made in television, including shows that might not have previously been commissioned for traditional platforms. Parallels can be seen in games, with Microsoft snapping up studios like Ninja Theory and Compulsion Games to bulk up its Game Pass library with products somewhere between indie and AAA.
Severin said there has been a shift in what is defined as mainstream programming in TV. Traditionally, this label only applied to content targeting a wide audience, but the rise of subscriptions services means that "niche is the new mainstream." Companies are now focusing on "super serving" particular audiences in certain markets, and as these emerge around the world, they can "make a mass out of these niches."
It was observed that TV series aren't surviving as long in subscriptions services as they did on traditional platforms. Historically, a US show would push forward to 100 episodes in order to achieve syndication, allowing production firms to sell for licensing and re-runs at a higher per-episode price. Now they are canned after a couple of seasons if they don't gain traction, or if production is becoming too expensive as expectations -- both from the audience on quality and cast on pay -- increase.
Severin argued this actually presents an opportunity for games, which have proven to be adaptable as long-term sources of entertainment.
"Monetising fandom is absolutely key to driving growth over the next half a decade or so"
"Let's say you're going to break with a season one and season two pass of a game," he says. "To make a season three pass doesn't need to get more expensive. It's not going to be the same jump an actor or actress will require. There may be an opportunity for games to sustain longer shelf life of the assets they're going to be driving into subscription services."
The panel also noted how TV and film subscription services are turning to well-known shows as much as new ones to draw people in, whether it's Friends on Netflix or all the long-absent shows resurfacing on Disney+. Price said mainstream IP that people recognise is a big part of creating a broad span of appealing content, while Severin indicated this was a sign of a wider trend in entertainment.
"There is a really big shift that has happened in music, is happening in TV, and will happen in games -- and has already -- and that's the shift of monetising the consumption and access to content to monetising the actual fandom," he said.
"Monetising fandom is absolutely key to driving growth over the next half a decade or so, as access to consumption is becoming commoditised. Consumers are learning that the value of access to all music is $9.99, and the value of access to all videos is $14.99 or $20 or whatever it might be. The super premium you're only going to reach if you're going to be able to tap into consumers' emotions."
With so many subscriptions services available -- in each industry, let alone across the full breadth of entertainment -- it's reasonable to assume there might be consumer fatigue, or at least that we're starting to see the limits of how many subscriptions people will sign up to.
However, Midia Research data shows this is not the case. Severin reported that in Q2 2020, 19% of consumers were paying for three or more entertainment subscriptions -- up from 13% for the same quarter in 2019. Looking at video alone, the number of people who subscribed to more than one video service was up from 18% to 28%.
There's seemingly nothing stopping people from signing up for more services, then, but the abundance of alternatives also means there's nothing to stop them cancelling their subscription.
"It's really important to be able to distinguish [yourself] on something," said Severin. "At the moment it's being distinguished by content, rather than interface and discovery. [But] discoverability is a really big issue, because the more content there is, the less you get entertained. If you only have Netflix and only have two hours to watch stuff, you now only have one hour and forty minutes because you spend twenty minutes deciding what to watch and you're still paying the same price per month. To me, that's potentially going to grow into a negative sentiment if it's not addressed."
"If you can remove two clicks from a process, that's worth many, many millions of dollars"
Priestley added: "There's a lot of discussion around the UI. I know some companies are looking at using AI to look at how the viewer watches, what bits the viewer watches. There's also discussions around bundling [different subscriptions and platforms together], and around whether there is actually a business case for services to let consumers not pay for a subscription but pay for the content they want to watch. For example, all seasons of one particular show.
"There's such a lot of work going into the back end of streaming services, with various vendors all working on what's being served to the user. Some companies [define users] as tribes, and they will serve you what they think your tribe will want to watch in order to make it easier for them to find... Some of the platforms aren't great at telling you what's new on their service. So I will often miss something, not realising it's there, and I won't see it until the algorithm serves it up because I watched something else."
Price noted that discoverability will become even more important as an issue with the more subscription services that launch. As an example, he pointed to the fact that every major Hollywood studio is expected to have its own offering by the end of the year.
Severin emphasised that interface will play an increasingly vital role in retaining subscribers on any service, adding: "Anything that can remove friction like having to switch app or window or click something else -- if you can remove two clicks from a process, that's worth many, many millions of dollars."
Looking at the effect of subscriptions in games specifically, Xbox has recently claimed that Game Pass is actually driving sales of titles included in its library across all platforms. Similarly, there's the older example of Rocket League, which rose to popularity by being offered temporarily as a free game to PlayStation Plus subscribers -- a deal that catapulted Psyonix to the level of success it has enjoyed over the years.
But are these exceptions to the rule? Is the Xbox Game Pass effect temporary while the excitement of such a service is still fresh? Price certainly seemed to think so: "That argument was made when content was licensed by major producers to Netflix at the start -- that it would help overall sales of that content. Initially it did, a bit, but over time it didn't. That effect definitely dissipated."
Severin noted that stories of success or indeed failure when it comes to be subscriptions services need to be taken with a pinch of salt.
"There are going to be a lot of companies driving a lot of different narratives as this transformation transpires," he said. "That's very natural because every company has a slightly different endgame. When you look at it that way, it makes sense that Xbox would push that narrative. If your business is built on an ecosystem play across many industries and verticals, you don't really have to care as much about the games unit economics because you know you can drive value elsewhere.
"The business models that exist in film have been in place for 80-odd years and were blown apart in six"
"On the other hand, if you're somebody like Take-Two, for example, it makes sense that you wouldn't want to push that narrative because it's potentially going to dilute your ARPU, and because you're purely a games company, there is nowhere else to draw that value from."
Behind these conflicting narratives lies a key point: the rise of subscription services does not mean the premium model's demise is imminent. Price suggested there is plenty of room on the market for both subscription services and the $60 blockbuster games that continue to sell in millions. "They can co-exist," he said. "Inevitably over time, you're going to have less of the £60, £70 games and more on streaming. But that's sort of the case already."
Subscription services are undoubtedly a key pillar in the future of the games industry. With the success of Xbox Game Pass, and even AAA publishers like EA and Ubisoft trying their hand, it's unlikely the battle to be the oft-touted "Netflix for games" is going to end any time soon. The real question is whether this will benefit the industry overall. When asked if subscriptions have bolstered or harmed the TV and film business, our panelists offered a slightly mixed response.
Priestly argued it depends on who you ask. Netflix will naturally say it's been beneficial, while production companies will say they are still catering to both. Viewers clearly approve given the increased usage of such services.
Price said subscriptions have "changed the industry beyond all recognition" and is amazed at how quickly this has happened: "The business models that exist in film have been in place for 80-odd years and were blown apart in six. But people are consuming more content, the models are growing exponentially. When will the streaming services hit a billion subscribers? I can't see it being too far away. And in the long term, they'll deliver huge financial returns which is why you see Netflix's share price so high.
"For me, this was an inevitable consequence of the world we live in, the digital revolution, and it will end up being highly profitable."
Severin concluded that it is inevitable subscriptions will further disrupt the industry and suggested that, for any companies considering working on something disruptive, now would be a really good time to explore this.
"As we progress towards streaming in gaming, there will be companies that want to stay purely in their traditional model, and there is absolutely nothing wrong in running a profitable business in a declining market," he said. "You can actually sometimes be more profitable than you would be in a growing market.
"But if you're going to try to grow, expand and build for this new world and for these new consumer behaviours. It's easier to start building with that in mind first than trying to potentially take the new world and retrofit it into your old infrastructure. That almost never works."