Gaming industry delves deeper into subscription offerings

Set to launch in June, Sony’s revamped PlayStation Plus subscription service will bundle the company’s PlayStation Now cloud
gaming service into a new membership tier that will also offer hundreds of PlayStation titles.
Source: Sony Interactive Entertainment

Sony Group Corp.’s new PlayStation Plus offerings are part of a growing effort in the video game industry to tap into subscription-based models that open up lucrative streams of recurring revenue.

Starting in June, PS Plus will be revamped into a new, three-tiered subscription service. While the basic tier will continue to offer multiplayer access and two downloadable games a month, Sony hopes to extract more revenue from its users by bundling its PlayStation Now cloud streaming service as well as offering access to hundreds of additional titles to those willing to pay a premium.

This trend is expected to gain traction as Big Tech companies also actively seek ways to penetrate the industry.

“Just like every other form of entertainment, the games industry is now all about engaging and retaining users for recurring revenues,” said Michael Goodman, director, digital media strategies at Strategy Analytics. “Therefore, it isn’t surprising that we’re seeing an uptick in subscription-based services from gaming companies as well as Big Tech players.”

Chasing subscribers

Separately, Sony’s PS Plus and PS Now services each cost $9.99 a month. Combining them into a single offering that will also include access to more than 400 games for $17.99 will be very beneficial for the company in the long run, said Goodman.

“This long overdue move effectively creates a very attractive product that is essentially a price cut for the subscription-game side of things and with the added bonus of giving consumers the choice of hundreds of games,” Goodman said.

As of February, PS Plus had about 48 million subscribers, according to Sony. The company did not disclose subscriber numbers for PS Now, which, according to Kagan estimates, were about 4 million by the end of 2021. Kagan is a media research group within S&P Global Market Intelligence.

With all active PS Now memberships set to be legacied into PS Plus, the revamped service stands to launch with an estimated 52 million subscribers. This compares to the combined subscriber base of Microsoft Corp.’s rival Xbox Live Gold and Xbox Game Pass services, which stands at about 43 million, according to Kagan estimates. Xbox Game Pass Ultimate, which includes the online multiplayer capability of Xbox Live Gold, costs $14.99 a month, $3-per-month less than the combined PS Plus and PS Now.

1st to the party

However, Microsoft has been aggressively investing in Game Pass in the last two years. The service gives members access to a revolving slate of titles from a variety of publishers as well as all first-party games developed by the company’s internal studios, which could include Activision Blizzard Inc. following a pending acquisition.

“If the Activision acquisition succeeds, Game Pass will, beyond a doubt, see a massive influx of new subscribers looking to play titles such as Call of Duty without having to purchase them at full price,” Goodman said.

Unlike Game Pass, PlayStation Plus will not offer exclusive, first-party games the day they go on release. PlayStation CEO Jim Ryan believes that doing so would not allow the company to sustain the level of investment it puts into its game studios.

The bulk of Sony’s gaming revenue still comes from its game software, which totaled ¥461.88 billion, or about $3.79 billion, in the quarter ended Dec. 31, 2021. In comparison, the company’s network services revenue, which includes PS Plus and PS Now, totaled ¥102.50 billion, or about $840 million.

“Sony dominates console gaming in terms of revenue, and its premium software strategy has been at the core of that success,” said Kagan analyst Neil Barbour. “It’s possible Sony could make more money by moving first-run games to the PlayStation Plus ecosystem, but that’s a gamble it feels it doesn’t have to take right now.”

Third-party game developers are also chasing the recurring revenue model. Electronic Arts Inc. and Ubisoft Entertainment SA both run their own respective services, EA Play and Ubisoft+, while Take-Two Interactive Software Inc.’s Rockstar Games Inc. Studio on March 29 launched a membership program for its Grand Theft Auto Online video game.

Big Tech’s efforts

Beyond competition from longtime players in the gaming space, Sony is also competing for users with Big Tech companies that in recent years have started pursuing subscription offerings for their respective gaming platforms, albeit with lackluster results.

Google LLC in November 2019 launched Stadia, a cloud gaming subscription service that allows users to stream games onto various devices for a monthly fee of $9.99. Although it was the first major cloud gaming product in the market, Stadia struggled to gain momentum against the competition due to a lethargic library of titles. It had about 3 million subscribers as of year-end 2021, according to Kagan estimates.

“The absence of a cohesive content strategy has made it hard for Stadia to capitalize on what should have been a first-mover advantage,” said Joost van Dreunen, the co-founder and former CEO of gaming research firm SuperData Research. “Its infrastructure was superior for a while compared to that of peers like Microsoft, but the latter caught up and published an impressive catalog of available games.”

It is very unlikely that Stadia will be able to match the titles the competition offers, so to stay relevant it could continue to offer discounts and deals on major titles, van Dreunen said. However, in the long run, the service has likely relegated itself to the “nosebleeds seats” in the cloud gaming space, the analyst added.

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Cloudy outlook

Despite its slow start in the market, the cloud is where the industry is clearly headed, said Michael J. Wolf, founder and CEO of Activate Consulting.

“I’m confident that game streaming or cloud gaming will become a mainstream behavior,” Wolf said. “Google was too early with Stadia, but they will likely expand their relationships with video game publishers and expand the service.”

Another cloud-focused game subscription service, Amazon.com Inc.‘s Luna, became available March 1 across the US The service, which offers a selection of gaming channels with collections of titles that can be streamed onto a range of devices, first launched in early access in October 2020.

“Now that it’s widely available and there are some cross-promotions with Prime, Luna has an opportunity to pick up some momentum,” Barbour said.

A spokesperson from Amazon declined to comment on the number of subscribers Luna has.

Meanwhile, Netflix Inc.’s nascent gaming offering currently includes a selection of games that existing subscribers can play on iOS and Android devices. The streaming company has been ramping up its lineup of internal development studios, asking three alone gaming companies in the last six months.

When contacted by S&P Global Market Intelligence, a Netflix spokeswoman declined to comment on the company’s plans to make additional acquisitions in the near future.

“Netflix’s games so far lack the integration of ‘watch and play’ it could potentially offer, and I anticipate that there will be a few more acquisitions to establish a creative team that can develop interactive experiences alongside its video catalog, and vice versa,” said van Drunen.

As of March 31, 2022, US$1 was equivalent to ¥121.43.

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