Games Subscriptions: Is the "Netflix of Games" Inevitable and What Does It Mean for Developers?

[Music] hello everyone thanks everyone for attending my name is piers harding rolls and i work as a games industry analyst at ampere analysis so the topic for today's talk is the games content subscription market and i'll be examining the market opportunity the competitive catalog landscape and delving into some of the characteristics of the subscription gamer so i think first off i think it's worthwhile just setting the scene of where i think we are as a kind of industry in terms of its uh development and the kind of disruptive wave that we're going through at the moment and it's a kind of long development cycle i would say

we started off with various stages through which have been developed through the connectivity of different device categories and they've allowed different business models to emerge and we're now in this i think final stage the sort of culmination of all this development heading towards what i would describe as a kind of on-demand consumption model and i guess the definition of that is giving players access to content across all device categories when and where they want it and the idea is to deliver content or games to the broadest audience in the most efficient way and if we think about that kind of consumption we're thinking about a form of consumption which fits well within the subscription monetization model

and i think that's driven the idea this sort of catchphrase of the netflix of games so it's been banded around for quite a few years now and i think when people use it it sort of immediately conjures up comparisons with other entertainment sectors at its most basic it suggests access to a catalog of content of course and that's you know fairly straightforward in the context of some of the game's subscription services obviously xbox game pass playstation now um but it also um indicates the kind of shift that we've seen in other entertainment sectors so the way we've seen the video the music sectors develop a much more significant shift towards subscription as the main kind of monetization model for the industry and i think that in turn stokes a bit of fear in the games studios and the developers that

you know potentially under that sort of model they will be progressively more squeezed and the rules of monetization and engagement start to shift from what we are used to now but actually i think it's a pretty misleading analogy um there are some similarities between the game sector and these other entertainment sectors but the games sector is fundamentally different in many ways as many of you sure know most of the spending on games is on in-game monetization primarily in free-to-play titles so 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 also in the context of subscription

services there is this ability to have hybrid monetization so in-game monetization combined with subscriptions which means that the commercial framework for these services is very different from the framework for other entertainment subscription services and it's not just a case of replacing say the premium sales with subscription sales you know you have this ability to monetize those subscription users in other ways as well and that means potentially higher arpu in terms of you know higher rp ceiling in terms of the overall opportunity potentially compared to these other sectors the other difference is that there's not much exclusive content which is available just for subscription services i mean there's a few examples i think in apple arcade but generally you can't um if you want to get access to a game that was in a subscription service you can do that

through other forms of monetization so all the games in game pass for example you can buy premium games outside of that and that means the commercial framework is different for the game subscription services also means the drivers for content inclusion within the services vary within the game space compared to the entertainment sector and i think that is reflected in the sort of deals that can be done so the the actual acquisition of content into those services from both the service provider side and from the devs there is a good deal of flexibility in the term types of deals that can be done i think so if we look at the key drivers for adding games to subscription services obviously we have the direct revenue and i think there's you know a lot can be

said about the different deals that can be done with different uh platforms and services there's a lot of variation there it depends on you know what the service provider is trying to get out of it and the extent of um the willingness to provide exclusivity from from the content owner for for example and other factors such as you know whether it's a new launch or a new release obviously those i guess more comprehensive deals offer a bigger revenue opportunity but for many game devs i think that's really tough decision to make so we you know the decision of putting your game day and date into a subscription service for an exclusive amount period of time it's tough to make a decision of you know a decision around that is that a good commercially for me at this point in time

and i think as a result many of the deals that are done are really for older titles catalog titles they tend to be uh the deals that have been done the other um drivers for adding content to these subscription services include you know re-establishing a franchise if you're bringing a new game in a particular franchise out um and putting an older title into a subscription service to rather raise the profile there's the ability to reach a wider a broader audience and potentially getting exposure to highly engaged gamers so some of the stats that microsoft has come out again with today you know talking about gamers subscription games xbox game pass gamers who are much more willing to spend on content etc um there's also this ability to boost visibility and do co-marketing with the service providers potentially

and there's also a network effect to consider so if you bring in a significant amount of users the network effect potentially on other platforms where your content is available and the opportunity in terms of additional premium sales might be boosted because of that so talk to a little bit about why you would put your content into these services and how games is different from other entertainment subscription services i also think it's worth just looking at the opportunity so we've got it in perspective to understand you know how impactful it could be on the market so this is the north america and european games market total with the chunk that is relevant to games content subscription services it's only four percent of the market currently

so i don't think we should i guess overblow the idea of the netflix of games in the context of the entire game sector and if we look at the forecast it's it's growing and it's going to continue to expand but i also don't see that there's going to be this very dramatic shift across to subscription monetization because of those points i made earlier talking about the um you know the strength of in-game monetization for example which takes a massive majority of the share of spending across across the sector so this is our estimates for market share for the leading services again this is across western spend across games content subscription services for q4 2021 and it's clear that xbox game passes in

dominant position and microsoft has you know been very active in terms of his acquisitions and that is driving a kind of concern that um its pipeline will be substantially boosted its first party pipeline and what are the implications for third-party companies that are putting their content into that particular service and this kind of dominant position obviously exacerbates that situation um i think there will be some implications potentially so the more first-party content the bigger franchise franchises it brings into the service obviously i think squeezes those smaller titles potentially and if they if there's this significant shift towards games as a service titles then again i think there's a potential for it to undermine the engagement available

for smaller titles in those services well i think we had to take it into context though this is an impact which could you know be contained around the sort of console opportunity so the xbox console opportunity and potentially have a knock-on impact on playstation to some degree at the moment i think it's less relevant is that in pc space and obviously the mobile space they all you know in terms of the wider opportunity i don't think this is a sort of a significant amount of concern so the success of xbox uh game pass has been driven primarily by the inclusion of um newer releases compared to other services obviously the you know sort of warship moment was the introduction of uh their own first party releases directly into the

service but there is a very strong correlation between the performance of xbox game pass in terms of the number of subscribers it's picked up in the second half of last year and the number of day one uh titles that have come into that uh service a sort of mixture of so in blue here that's third party titles and and oranges first party titles um and it's it's very hard to see other services competing on this level of of uh willingness to financially back the service to bring in uh certainly first party title so sony's upcoming kind of reformat of its subscription services i don't see them changing their policy for first party content but potentially they may start to boost in in in the context of third-party new releases but um you know this is this is why xbox game pass has been particularly

successful um so this is just to reinforce uh that idea this is playstation now age of catalog and xbox game pass age of catalog compared and you can see that xbox game pass is much younger in terms of its catalogue it's got a lot more fresher content and newer content compared to playstation now obviously the positioning is is vastly different the success of both of those platforms i think reflects the quality and the age of content that's in those different services and if we're thinking about how the game pass catalog is going to evolve i've talked about that kind of watershed moment where first-party gains were placed into that service and then progressively we've seen third-party content which is

higher profile basically catalog content which older titles but high profile titles and we're in this stage now where um third-party games day one release are going into the service and the next stage is seeing bigger franchises of those new releases going directly into the service so that should be um you know we've already seen some interesting additions this year i think it's just inevitable that we will see some big franchises going in and i think the end game is this idea of sort of cloud night native games and that's when we get some sort of exclusivity i think for the game pass proposition obviously distributed through x-cloud within going past ultimate and i think um you know that's the sort of end game it's not might not come this year might not come next year but it's certainly something that's with the announcements today for example with the ideas you and other factors this is definitely the

kind of road map which they're developing towards so we talked about the sort of main players in the market and the usual suspects but are there opportunities for content owners outside of those so at the moment there's a lot of activity of cloud gaming service providers in the telco space who are served by white label aggregators and cloud gaming technology companies and there's an opportunity there i think to license content into those services or it's not going to be a huge opportunity it's a sort of incremental opportunity and i think there's a window of opportunity to do these kind of deals now because the interest is really high there's a lot of services that come to market there's a lot of competition between services and they are you know wanting content they're

competing for content um so there is an opportunity there and then obviously we have other new entrants coming into the market netflix is the obvious big name which is announced it's uh move into the market and it's now securing content i think it wants to secure you know a good batch of third-party content so it can build up the portfolio whether it can do that under the current terms that it's offering i think is perhaps questionable i think it may need to revisit those terms to become more competitive with the existing players so it's something to consider for them but this you know netflix's move might prompt other s-volt players to move into the market as well so there are opportunities to pursue but i think it's also worth looking at how competitive the kind of catalog situation is across these subscription services

um first up you know this is just a basic number this is the now amount of distinct titles um i think it's from december 2021 number of distinct titles across all the services that we track and actually it's not most services are pretty small you know there's of less than 300 titles many a lesser 200 titles playstation now has a lot of legacy classic games in there that bulks out the catalog but they are a kind of exception at 900 titles and xbox game pass ultimate is around 500 that's what's going past pc is less xbox game pass console is getting less um but i think you have to sort of realize that actually there's not that much uh content in these services at the moment there's not a huge amount and i think you know competition to get your games into those services depending on

what they the service providers want in terms of the level of you know maximum catalog that they hope to have i think that's something that um you know obviously impacts the ability for you to get your content into those services and if we think about you know if they are expanding that much this is the xbox game pass ultimate volume of distinct titles that we sort of define it across the whole year and aside from the sort of uplift from ea play pc being bundled into the service it's not actually that much different from march's 500 titles december 2021 there's 515 a very small percentage you know a few percent increase in total volume possibly because they're thinking well do we can we actually is it commercially viable to have more is it going to become a discovery issue all these kind of factors that come into that decision making there is some rotation in and out of those services obviously

so overall there were 686 distinct titles in game pass in 2021 but still not a massive number and a lot of those are kind of you know legacy titles or titles that won't come out of the service as you know the slots are taken in effect and if we look at the sort of activity of publishers so this is another way we slice the catalog data is to look at the company activity you can see that there is around 700 companies across these services active many of them with sort of one one or two titles but there are a few which have built a more progressive amount amount of titles are going into the services and you know it does suggest that there's already a certain level of quite significant competition to get access to those catalogues in terms of the activity of different companies but also

you know shows that there's a willingness to experiment and um you know identify if there's a you know opportunity there worthwhile incremental opportunity that's worthwhile this is a slide which looks at the xbox game pass distinct games by actual publisher uh from december 2021 and you can see the microsoft and e8 titles obviously take the mass uh the volume big chunk of the share of those titles but there is a you know a wide range of different publishers that are active and some in effect direct publishers um you know devs are directly publishing into um this particular service and i've highlighted the ones which i think are relevant to the kind of indie space and it shows that there is a kind of small but relatively important role for um the indie titles across those

different indie publishers um this is obviously not all the publishers are active in that particular service but they are um the biggest you know in terms of the ones that got multiple titles in that service you know the thing we have to consider is if if microsoft does add a lot of first-party content which it inevitably will do with its acquisitions that it's done and it's looking to acquire more higher profiles for the franchises from third parties that go into these services whether those smaller titles less distinct titles or less well-known titles are increasingly squeezed in terms of the kind of discovery loop and this slide just takes a little look at the you know one of the strategies in terms of publishing for devolver digital looking at which

services they're putting their games into i think what this shows is there's been a kind of diversification of its strategy in the context of so it's taken some of its products out of xbox game pass or it doesn't it's reduced its exposure to xbox game pass and its willingness to kind of diversify across other subscription servers so it's showing a fair amount of sophistication i would say and that's what we're observing in terms of the strategies of different companies in this space that they are slowly growing kind of more sophisticated strategies another thing that's worth looking at is the kind of complexity of the market environment so of the services that we track some of those are what we describe as kind of local telco based services but they all have catalogs which are relevant and can be sort of tracked in the context of seeing if they are overlapped with say the international players

this visualization is a tree map from our data tool which looks at the different catalogues of services within italy so it's looking at some of the local services versus the global services and looking at the overlaps between different services and it shows already a good deal of complexity is sort of understanding where your if you're a service company you know where your exclusives lie and how much content is really um unique in terms of your service but also this kind of information i think gives content owners the ability to negotiate better deals to kind of take advantage of that complexity to understand the landscape and see whether gaps exist within particular portfolios and where you can have the maximum impact in terms of your particular products if you're looking to put those into subscription services

so i'm going to finish up we talked a bit there about catalog i'm going to finish up with some slides around uh consumer research basically that we do to look at some of the characteristics of subscription gamers and generally you know they are more active than your average gamer so here it shows they spend 23 percent more time on a weekly basis playing games uh substantially more engaged if we look at the average number of subscriptions per gamer i think it's interesting obviously us is the heaviest there the other markets that we do our survey work in you can see that there's a kind of downward trend um i guess there's some thinking there in terms of your if you're thinking of your content strategy will you know if you're if you're looking to engage an audience in specific territories then you know whether you're putting your games into subscription services or not

you know there's a decision to make there if you feel that it's under sort of represented in certain markets for example it also illustrates that there is significant growth potential i think for subscription services in these other markets where in the us it's i wouldn't say it's mature but it's obviously more advanced but it gives you an idea of the kind of ceiling that could be achieved in some other western territories for example we also ask consumers how they discover games and there's um some significant differences between um what uh game sorry subscribers game content subscriptions subscribers do to find their games versus your average gamer um so they subscribers look to social media online video sites and and games platform online stores as their kind of sources for discovering content it's quite interesting that games

platform online store is so high for a subscription service it kind of reiterates the idea that actually they're much more engaged and they're willing to spend across all kind of different content areas for the average gamer word of mouth is actually much is at the top so there's a significant difference in the way they discover and that you know might be interesting to you in terms of reaching different audiences and that would be relevant across those kind of discovery channels like i guess this is looking at game pass subscribers and it's looking at just some of the basic demographics so this is the age uh range and you can see that the age of game pass so this is a comparison of game pass xbox play as we call game pass subscribers versus xbox console gamers with no game pass and you can see that it skews um a bit older in terms of the

the subscribers and i think that's because and also they have you know more likely to be living with children at home it's more sort of family oriented uh in terms of the devices that they play on those varied devices um so multiple devices and quite high penetration of obviously console as you'd expect but also smartphone for example which goes with the idea that game pass is progressively multi-screen in terms of its strategy you can see how that fits into to the types of consumer that are using game pass and i this looks at the spend across different categories of again game pass subscribers versus xbox console gamers with without game pass and you can see that across all categories they tend to spend more this is not as i guess dramatic spend uptick as some of

the data that microsoft has released itself released some more data today actually looking at the spend but it does kind of correlate and re i guess um you know from an independent source this reiterates the idea that they are willing to be they are more more engaged and they're also spending more content more on content across different forms uh forms of monetization so getting access to that audience is actually quite beneficial uh in that context and this slide looks at the genre taste of the game genre tastes of game pass subscribers versus again xbox console gamers without game pass and i guess some of the key differences is that there seems to be a willingness to have a more sort of varied genre taste uh versus um you know the the average game com exports console user who is looking at um you know as heavily into shooters etc

there's less interest in that there's more interest in more casual games and a sort of broader appeal i think of different games and i think that reflects the the family type experience um the family environment that game past subscribers are playing games in so just to wrap up there's a few sort of takeaways of the session i don't believe that subscriptions will become the dominant um monetization model for the game sector as it has done progressively within the video music sectors um the the fact that in-game monetization is worth such a significant chunk of overall spending means i think it's very unlikely that it's going to shift is going to be so significant for that to happen there are multiple reasons to add games to subscription services we touched on

quite a few of them it's not just about direct revenue but there's opportunities for marketing your product into services using as a marketing platforms engaging a broad audience a more varied audience an engaged audience that might be interested in a broader collection of content uh the game pass domination of the market at the moment i think it does potentially have some implications but we've got to think about where that where those implications are going to play out and i think that you know if you're thinking of the broader market if you're just focused on xbox as a platform for example cons console based then i think you would you know think about it more seriously but the implications are more focused in where game pass is dominant um there are additional sales opportunities to take advantage of which

i think there's a window of opportunity to take advantage of those sales or those commercial deals that are taking place within the our gaming space with telcos and local providers but that is a window of opportunity i'm not sure how long it's going to be open for there's a lot of interest at the moment because of the rollout 5g and full fiber solutions so it's something to consider i think short term we investigated the idea of indie content and the role it plays within the different services and the importance of it you know the question is whether in certain services as they become more high profile the scale scale of those services grows and we get to a point where you know bigger franchises are considering going into those services and there's first party content whether you know those smaller games get increasingly squeezed and the terms of

acquiring those or putting those games into those services starts to deteriorate in some way and we investigated subscribers to these content subscription services and how they are different to the average gamer that they're more engaged they play more they spend more and they have more varied gaming tastes means they are an interesting and certainly worthwhile group of consumers to get access to thank you very much so i'm happy to answer a couple of questions if anyone's gone hello simon hello um yeah i had a question about the say the indie publishers and i know that devolver put in some of its risks when it went public on aim that they

were concerned that the upside from you know single-player indie games that don't have iap might be diminished over time with game pass can you can you talk to whether you think that will be an issue well i think that's one of the the you know one of the question marks i don't think anyone really knows but i i think that it's more less about um probably um kind of service based games and more about the kind of franchise based you know higher profile titles and that's taking a lot of the you know engagement and eyeballs the first party releases thing i think that's one of the the more pressing immediate um impacts that could be felt whether that's you know it has an impact because of it's just the awareness of certain titles and they're coming into the service then that takes a lot of the engagement um i think if you combine that with

service-based games then you're getting a bit of a sort of perfect storm in terms of taking a lot of the engagement away so i think there there is some um concern over that but then we've got to think well where is this taking place in in the broader market there's much bigger broader market out there but this is relatively contained to this particular area of the market within progressively the xbox platform but you know in terms of it could impact you know the thinking around sony's upcoming changes to its subscription services things so it could kind of bleed over into other competitive console platforms i don't think it's going to have such an impact in the pc space although microsoft is committed to doing you know more pc games for game pass and i think it's you know so it's a little bit of an unknown but i would say that there is some concern but we have to be kind of put into

perspective in the context of the market hey there hello to what extent have you seen that the subscription service is actually driving the behavior of being more engaged and spending more versus the people who are more likely to spend and be engaged are also those who would sign up for a subscription service it's a bit of a chicken and egg a question isn't it um i think it there is it's probably a bit of both so you're the most engaged people are happy to try out be the first early adopters or whatever but we're now at phase if you're looking at game pass they've got 25 million subscriptions um there's no doubt that those people that may have signed up to that even in a family setting they're willing to try more content and try different varied content and try games that they wouldn't have tried before um so it's probably a little bit of a mixture of both but i would say that you know it's legitimate on both on both of those

kind of characteristics um thank you as a game developer what's the right way to weigh the financial opportunity of doing an exclusive with like a game subscription service as opposed to traditional publishing that's a good question i think it's a very hard decision to make because obviously it depends on what you feel you can do as a company for your particular product and the terms that you're being offered and i think the terms are you know realistically they're probably going to become for well certainly smaller developers are going to come under pressure um i mean there's you know within specific um services i think um and it's it's down to what the service provider is trying to achieve as well my assumption is that the financial advantage will be less but the exposure greater is that the right way to view it sorry can you repeat that that the exposure is going to be wider but the financial return is probably going to be lower for that specific game

well i think if you take you know xbox [Music] a gameplay expanding pipeline they i think that's strategy is to rely less on paying huge sums to get third-party content into there so i think it's inevitable that there will not be as the terms won't be as good and the and the deals will be you know will be will probably reduce to an extent but maybe not in the sort of near to maybe not over the next 12 24 months because they're still relying on that third-party content and also there's this push you know i think microsoft's doing a push into the pc space um so it it depends on what they're trying to achieve and what platforms they're trying to achieve it on and um so there's there's lots of variables i would say in it the thing is it's not the risk is it's not you know it's not it's not standardized i would say it's not standardized across

different services not it can change over time um so it's it's you know that that's where one of the significant risks is and if you're developing a thing with the idea okay you know i'm going to push it into one of these service that's the terms that you negotiate you know they may be different in in sort of 12 18 months time from from when you thought you know you've heard what the terms were previously you know so i think there's there's some risk involved there thanks any other theories just one one quick question um curious your thoughts about how the emergence of game streaming is going to impact the growth of subscriptions over the next several years uh i see game streaming is is a kind of incremental distribution opportunity i would say um it really it depends a lot on

so the biggest services are those services which use both download and streaming to an extent so they but those services are majority download at the moment and um there's a there's obviously the expansion strategy is to use streaming to reach audiences they haven't reached before but that depends on the type of product offering they put together and the sort of price points and stuff in in certainly in mobile first markets for example and interesting um you know opportunities say for example in india i don't know or um latin america or other asian southeast asia you know where there's um a kind of mobile first opportunity you have to think about whether there's going to be um a sort of commercially viable strategy for packaging together something at a lower

price point that's only specifically for mobile platforms for example for game pass great thanks no problem i think we're sort of running out of time and anyway i think that was possibly the last question but i'm happy to chat with anyone who wants to chat and thank you very much indeed for coming [Music] you