Why gaming is ditching Hollywood for Silicon Valley

By Tien Tzuo August 9, 2019

Last week, Google started to pilot PlayPass, a new subscription service that offers hundreds of premium apps and games for a flat monthly fee. The new service is Google’s response to Apple’s upcoming Arcade game subscription service. Other recent announcements include Project xCloud, Microsoft’s new cloud gaming service; Stadia, Google’s forthcoming cloud-based gaming platform; and GeForce Now, Nvidia’s new game streaming service.

I see all of this as yet another signal that the battleground for gaming has moved from Hollywood to Silicon Valley as the industry slowly moves away from a hardware product-centric business model to a more SaaS-like service approach.

For decades, we’ve seen big video game releases follow the Hollywood approach: a flashy trailer, lots of messageboard hype, a few fan conference sneak previews, and then a big make-or-break release date. Those early sales numbers determined whether something was a big hit like Grand Theft Auto V, or a big flop like Transformers: Rise of the Dark Spark.

But then a funny thing happened. Big games just started showing up without much hype or promotion, like a new Beyonce album. For example, EA’s Apex Legends came completely unannounced last February and had more than a million players just eight hours after its launch. In its first month, the game had attracted 50 million players and earned $92 million in revenue. Similarly, Fortnite came out of nowhere and earned a whopping $2.4 billion last year.

Instead of flashy Hollywood-style premieres and boom-or-bust opening weekend sales, the business model of these games was built around generating a stable base of recurring revenue through subscription services. How does Fortnite, which has been called “the biggest game ever,” make money? Through its seasonal “battle passes,” which create the same lock-in effect as an Amazon Prime membership.

And unlike Hollywood hits, these games don’t release a sequel every year. Instead, they get updated every week. Video games aren’t being developed and sold like discrete products anymore, based on single sales and annual sequels. Games are turning into services, with constant upgrades and virtuous feedback loops. It’s much more of a subscription-enabled SaaS approach to game development than a big Hollywood blockbuster approach.

On the consumer side, subscriptions make games more affordable and encourage creativity and discovery by players. IDC Research Director Lewis Ward recently said, “Our surveys show that users of bundled game subscriptions…tend to experiment more with titles they otherwise wouldn’t play. So the upside for publishers is that subscribers are more likely to try their product because it’s ‘free’ with the subscription. The downside is that if you don’t grab those users out of the gate, they’re more likely to quit.”

That sums up both the appeal — and the challenge — of subscription models. Relatively low acquisition costs mean that you can generate a sizeable base of subscribers fairly easily. But to hang on to them, you’ve got to keep happily surprising them on a consistent basis. It’s all about the ongoing subscription experience, not disconnected annual product releases.

Now, I don’t think big video game launches are going away any time soon — marketing departments love them too much. But if a game studio wants to stick around for the long term, then it’s going to have to develop some kind of subscription strategy. It’s going to have to make every month a launch month.

I can’t wait to see what new services are announced at GamesCom in a few weeks!

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