EA, Ubisoft, and others are beginning to offer online subscriptions to their current releases and back-catalog of games. EA Origin Access and Ubisoft UPlay+ are both $15 per month. At first glance, that seems like a decent deal, especially if it includes the newest releases. New premium games typically cost $50+, so as long as you play the game within 3 months of subscribing and cancel, the subscription will be cheaper. On top of that, you’ll also get to play a lot of older games you may have missed without dealing with GameStop. Peeling back the economics of these subscription game passes, however, shows that if they can get you to subscribe to their service, it’s a huge win for the publishers.
Owning a relationship with your customer is a key value creator for companies. When you buy a game through GameStop, Walmart, or on the Xbox Store, Ubisoft and EA don’t actually own the relationship with you. The distributor or retailer does. It’s far more valuable to Ubisoft and EA to know who you are, how you purchase games, when you purchase them, and where they can sell you games on other platforms. For instance, it’s really valuable to them to know who you are, so they can sell you related games on your mobile phone based on your previous purchases or gameplay on console or PC. Moving you onto their services is a big driver of value along with eliminating the licensing/distribution fees they have to pay the retailers. Eliminating those fees increases their profit margins by up to 20% for the same game purchase. Owning the consumer relationship and eliminating the 20% retail fee has pushed many of the largest publishers to build their own PC distribution stores to avoid Steam. This has been easier to accomplish on PC than on the consoles because it’s a more open ecosystem than is available in the console world.
Subscriptions create additional value to the publisher because they keep you engaged with their games. In an industry where engagement is heavily monetized, the more time you capture from a gamer, the more value you can create. Gaming is very different from TV. When you’re playing a premium game you’re 100% focused on that game. Most gamers are playing just a couple titles a year for many hours per game. With television and movies, consumers watch hundreds of hours more per year than they play, but they’re watching hundreds of different shows, making the engagement per show lower than your engagement per game. And if you can get people to subscribe to game passes, it seems like there’s a significant increase in their engagement with the catalog of games. Microsoft recently commented that subscribers to Game Pass increase their time playing by 20% after subscribing. Every minute of that is another chance for a game to monetize the consumer. Even more exciting is that “the average back-catalog game sees its usage increase by 6X after joining the Xbox Game Pass library” (Xbox Wire).
The value of a gamer to the AAA publishers
There are 3.2 billion people on Earth that purchased some form of a video game in 2018. That’s nearly 50% of the entire world’s population. Gaming has shifted from arcades, basements, and LAN parties to one of the most valuable forms of content in the world rivaling TV and movies. That being said, in the minds of publishers and the industry, not all gamers are created equally. Most of the large publishers are building incredible interactive content for a fraction of the global gaming market. With just 350 million PC/Console gamers making premium content purchases, the market for AAA games is just a bit more than 10% of the total gaming industry. According to Super Data’s 2018 year-end review, these 350 million people spent $17.9 billion or $51 per person on premium games in 2018. That’s about one premium purchase per year. Of course, those players almost certainly spent substantially on free-to-play games and mobile games as well, but for the purpose of this article, it’s their premium game purchases that matter most.
A few years ago, Steamspy found that approximately 20% of Steam users own 88% of the games sold on Steam. Let’s say that trend has held and that it’s the same across console and PC. That means that 20% of gamers are buying 88% of the content or that about 70 million premium console/PC gamers are buying $15.7 billion of premium games. If you’re planning on building a subscription business, understanding the consumption behavior of heavy consumers is very important. Typically, you’ll lose money on some fraction of heavy users and profit on everyone else, but you have to know how much you could potentially lose. With a heavy gamer spending approximately $224 on games ($15.7 billion / 70 million), publishers will aim to protect themselves from losing too much of the revenue from those consumers with a subscription. It’s very likely that most of these gamers are playing and paying for items in mobile and free-to-play games, but we’re focused on AAA pay-to-play games in the subscription bundles.
At $15/month fee, each subscriber is paying $180 to use UPlay+ or EA Origin Access for the year. At $224 per year of premium game consumption, the most valuable consumers to the gaming industry see a monetary benefit of subscribing to UPlay+ or Origin Access, if and only if, they’re playing games just from that publisher — a very unlikely assumption. The publishers, on the other hand, are guaranteed to improve their revenue. Normally, they’d have to pay 20% of the $224 to the distributor, so Ubisoft or EA would make exactly $179 per year on the average heavy consumer of games. Of course, it’s much more likely that their consumption is widely distributed across publishers and if EA and Ubisoft are able to get one of these gamers to subscribe, they’re capturing more value during the year from the subscription and increased engagement with their games than they would if you were to continue to buy premium games one-off from other retailers or distributors. So they’re covering the potential lost revenue from heavy gamers, while potentially increasing revenue from across the rest of the consumers who spend just $51 per year. All they have to do is convince you that it’s worth the monthly fee to get access to a catalog of old games and occasionally access a newly released game.