Gaming and subscriptions are still a messy match
Hello, and welcome to Protocol Entertainment, your guide to the business of the gaming and media industries. This Tuesday, we’re discussing the roadblocks facing a subscription-first future for the game industry, Activision Blizzard’s tough quarter and Elden Ring’s continued reign atop the sales throne.
Xbox Game Pass stands alone
Video games aren’t experiencing a Netflix or Spotify moment after all. At least, not yet. While subscription gaming services have been on the rise for the past few years, thanks largely to the growth of Microsoft’s Xbox Game Pass platform, the shift in consumer spending and consumption hasn’t followed. Instead, subscription platforms — and the smaller cloud gaming services often bolted onto them — make up a tiny slice of the overall games market.
The shift won’t happen any time soon. It may take years or perhaps even decades before these distribution methods come close to supplanting the traditional retail model in gaming. Meanwhile, free-to-play and in-game monetization reigns supreme.
- “79% of the total market opportunity in 2021, in terms of consumer spending, was based on in-game monetization. That means I think it's very unlikely that we're going to see a wholesale shift to subscription monetization,” said Ampere Analysis researcher Piers Harding-Rolls at the Game Developers Conference last month.
- Subscription and cloud gaming represents just 4% of North America and Europe game markets, or roughly $3.7 billion, according to a recent Ampere study. Game Pass leads with 60% market share in the West.
- Harding-Rolls said he expects the combined subscription and cloud gaming market to grow to about 8.4% of the U.S. and European game markets by 2027, a far cry from the adoption of subscription services and streaming in the music and video markets.
The tendency to compare games with music and video makes sense. Games are a relatively new form of media compared to film and recorded music, and yet all three simultaneously underwent the same forms of disruption caused by widespread internet access, digital distribution and the advent of streaming.
- About 83% of all U.S. music revenue now comes from streaming services.
- Streaming platforms like Netflix and Hulu account for 26% of time spent watching TV, according to a report last year from research firm Nielsen, while most of America (64%) still spends a majority of their time watching cable and network TV.
- The film industry has long since shifted to digital, and COVID-19 cemented that further. However, at-home viewing is still evenly split among cable and satellite providers and subscription services, according to the MPAA.
And then there are video games, which only saw the scales tip in favor of buying digital in 2020, thanks to the pandemic. Prior to that, most consumers bought video games on Blu-ray discs from big-box stores and ecommerce retailers. Millions of consumers still do, in part so they can resell them on the used market.
- Games are still overwhelmingly downloaded locally on devices like consoles and PCs rather than streamed over the internet through a cloud service like Xbox Cloud Gaming or Google Stadia.
- Harding-Rolls found that less than 10% of Xbox Game Pass’ more than 25 million subscribers only stream games. This suggests subscription services may play a larger role down the line in helping bridge the gap between consoles and PCs and the markets in which gamers are mainly using mobile phones.
- “While console users represent the core of Microsoft's service, for example, its future growth will increasingly rely on converting non-console users through its streaming functionality,” Harding-Rolls said.
Sony made arguably the most public rejection of a subscription-first future when it rolled out an understated refresh of its PlayStation Plus platform last month.
- Instead of competing directly with Game Pass, Sony said it was uncertain about the long-term viability of releasing big-budget games onto a Netflix-style subscription platform.
- "Subscription has certainly grown in importance over the course of the last few years," PlayStation CEO Jim Ryan told GamesIndustry.biz last month. "But the medium of gaming is so very different to music and to linear entertainment, that I don't think we'll see it go to the levels that we see with Spotify and Netflix.”
- "It's very hard to launch a $120 million game on a subscription service charging $9.99 a month," Shawn Layden, a former PlayStation exec in charge of its internal studios, said last year.
Having a diversity of business models and price points, as Microsoft now concedes, is one reason why the gaming industry has ballooned into a much larger economic force than Hollywood and the music industry.
But it’s those same factors that make it difficult for new forms of distribution to catch on, at least not without significant investment from some of the most cash-flushed companies in the tech and gaming space. Microsoft, thanks to its Office, Windows and Azure businesses, can afford it.
For now, however, it looks like the “Netflix for games” moniker may apply only to Game Pass. And it may take a very long time until we know just how early Xbox has been to gaming’s next big distribution shift.
— Nick Statt
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In other news
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Raven union vote gets the go-ahead. A group of 21 quality assurance testers at Call of Duty studio Raven Software will be allowed to participate in a union election, according to The Washington Post, after the NLRB shot down management’s attempt to broaden the election to the entire 230-person workforce.
Xbox just had its best March on record. Microsoft’s console was the bestselling gaming hardware device in North America last month, according to market research firm The NPD Group, and it was Xbox’s best March on record, beating out March 2014 in dollar sales and March 2011 in unit sales.
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Elden Ring stays atop the sales throne
FromSoftware’s open-world role-playing sensation Elden Ring was again the bestselling game in North America last month, according to The NPD Group.
That means it remains the bestselling game of 2022 and now ranks as the second bestselling game of the last 12 months, behind only Activision’s Call of Duty: Vanguard. “Elden Ring showing an inverse decay curve, which is rare to say the least. Very strong [word of mouth], a true blockbuster,” said NPD analyst Mat Piscatella.
For a largely single-player game hailing from a lineage of ultra-difficult niche action titles, Elden Ring’s financial success is a monumental slam dunk for the Japanese developer. It’s also a testament to the resilience of single-player gaming in an industry dominated by free-to-play live service titles.
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