Video Games by Subscription – Will Gamers Pay Monthly to Play?

Written by: Jay Yi, MBA; Edited by: Chris Thompson, CFA, MBA, P.Eng

eResearch | Large tech conglomerates Alphabet Inc. (NASDAQ: GOOGL; LSE; 0RIH; DB: ABEA) and Apple Inc. (NASDAQ: AAPL; LSE: 0R2V; DB: APC) have been  focusing on the lucrative and growing gaming industry and are making moves to take market share as they introduce competitive subscription-based gaming platforms Google Stadia and Apple Arcade. This follows gaming companies Sony, Microsoft, Electronic Arts, and Ubisoft who all now have their own subscription-based gaming platforms.

There is already evidence of success in the disruption of existing industries through subscription models such as in the video streaming industry. Netflix, who provides users with a diverse platform of movies for a small monthly rate, has already grown into a US$125 billion company, forcing competitors such as Disney, AT&T, and Comcast Corporation to develop their own subscription-based video streaming platforms.

The gaming industry is changing for all stakeholders including: (1) consumers who used to go to retail stores to pay a flat cost for a game but now have the option to play a multitude of games for a small monthly rate, (2) game companies who used to have unpredictable revenue projections dependent on how many games were sold directly to consumers but now have a predictable subscription-based revenue stream, and (3) game developers who now have a greater chance of exposure as users who may have never bought their game may now try it out.

These platforms also create opportunities to leverage data as users will have an opportunity to try out numerous games rather than just buying one and playing it for a couple months. Metrics such as the amount of time played and trends such as the first-person shooter games which have become popular can be analyzed to both develop and license games more likely to be played.

Google announced its own subscription-based gaming platform to be launched in November 2019 for a US$9.99 monthly cost. Google is taking a different approach by leveraging its massive cloud infrastructure to provide users the ability to stream games directly on majority of platforms including desktop, console, smart televisions, and mobile. The platform is compatible with HID class USB controllers but Google has developed its own proprietary controller with direct link to Google’s data centers.

On September 19, 2019, Apple Inc. announced its launch of the Apple Arcade, a subscription-based gaming platform with over 100 games able to be played on Apple’s family of devices including the iPhone, iPad, Mac, and Apple TV. Apple invested over US$500 million to develop the Apple Arcade and will include “indie” games which took years to develop in addition to games from Konami, Ubisoft, and Lego.

Developing a popular game is now a small part of a long term strategy to retain users on gaming platforms by offering additional downloadable content such as maps and characters, and events such as tournaments.

There is a lot of competition ahead in the subscription-based model but it is all going to come down to which platform can create the most attractive user experience and provide access to the most wanted content, which will ultimately develop loyal customers who are willing to continually pay monthly subscription costs.

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Alphabet Inc. (NASDAQ: GOOGL; LSE; 0RIH; DB: ABEA)

• Headquartered in California, United States, Alphabet is a multinational conglomerate of technology companies created through a corporate restructuring of Google in 2015.
• GOOGL currently trades at US$1,232.78 per share with a market capitalization of US$854.5 billion.

Apple Inc.  (NASDAQ: AAPL; LSE: 0R2V; DB: APC)

• Headquartered in California, United States, Apple is a designer, developer, and seller of consumer electronic products, best known for their iPhone, MacBook, iPad, AirPod, and Apple watch products.
• AAPL currently trades at US$221.03 per share with a market capitalization of US$998.8 billion.

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