The ad vs subscription model is a hotly-debated and highly-tested model in the digital world. Netflix has nailed it. So has the New York Times. Pandora is still struggling after multiple iterations of their model. YouTube Red turned YouTube Premium is dying a slow death. The news of Apple’s Arcade, Google’s Stadia and Microsoft’s E3 game subscription services are the first steps in the mobile gaming industry into this turbulent arena.
Choosing a business model in any industry is certainly not straightforward, demanding many considerations and compromises along the way. Analyzing what’s gone before us and learning from others’ successes and failures can give good insights into what we can expect. Let’s take a birdseye view at how other industries and companies are making it work, or not, and then look at how these trends can inform predictions of the likely success or failure of subscription in gaming.
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What’s worked and what’s crashed
For a long time, Netflix was a clear winner in the subscription stakes. They stuck to their vision of pay to watch and it’s well…paid off, with around 3 million new subscribers joining every month, and a current total of 149 million subscribers. Part of their success has been the focus of their business model from the onset – you watch, you pay. This isn’t without some pain points though. They struggle with users sharing accounts and login details, and as more competitors are entering the market, the high cost of purchasing multiple subscriptions has become unrealistic and many viewers are turning to piracy.
YouTube launched its first subscription service back in 2014 with Music Key. It was relaunched under YouTube Red in 2015 and then rebranded and launched for the third time in 2018. After 8 months, the word on the street is that it’s going to be phased out.
The digital publishing industry is one which is much more complicated and is continuing to experience many challenges. The ease of obtaining news has reached new dimensions, and the battle against fake news and ad blockers has forced some to put up a paywall. The New York Times and the Financial Times are good examples of successful subscription-focused strategies. The Telegraph offers basic access for free with the rest behind a paywall. Others are battling it against the ad blockers, with The Guardian openly asking for donations to avoid going down the subscription route, and the Drum and others putting up a freewall (where registration is mandatory but free).
In the music industry, the story is mixed. There’s Spotify’s 100 million paid users, totalling 217 million users when including those using their ad supported platform, and Apple Music with 56m paid users. Pandora, on the other hand, has 6.2 million paid users against a total of 66 million users and this total is down from 81 million in 2017.
Predictions for gaming
Within the throng of companies in the subscription space, there’s a pattern to the success stories. Ultimately, it comes down to the nature of the industry and the categorization of core users. The media and entertainment industries, which are traditionally based on one-time purchases or uses, have created a working business model. Users generally watch a TV show or movie once, and will put their hands in their pockets for quality entertainment. However, the loyalty of users often lies with the show and not with the channel, as has been demonstrated with the end of Game of Thrones and the high volumes of unsubscribes from HBO. Neilson’s “Q1 2019 Total Audience report” confirms this with their data that 66% of adults log into a streaming service with the intention of watching specific content. YouTube on the other hand, with its focus on UGC (user-generated content) offers low commitment entertainment which makes it hard to attract serious and repeat watchers who are willing to pay for their fickle video browsing habits.
Digital publishing is more of a gray area due to the growth in fake news that clouds many reputable companies and the issue of ad blockers that prevents a sustainable ad model for legitimate ones. Readers can be generalized into two categories – those wanting (seemingly) more reliable news who will turn to the publications they feel they can trust, even if it costs them, and those who can filter out the fake noise who will remain with free publications. Similar to entertainment, most users will read an article only once, so repetition is not an issue, but they may browse a high quantity of articles over many different publications, so variety is a must and cost is an issue.
Gaming is a totally different story, where repetition is key to a game’s success. It’s more closely aligned to music – music lovers will repeatedly listen to a song they like and will demand uninterrupted access in the process. Casual listeners, on the other hand, are less likely to be bothered by hearing an ad or not being able to create a playlist or skip a song. This closely reflects the habits of players of mid and hardcore games versus casual and hyper-casual games. Hardcore gamers playing PUBG are looking for a different experience and have different expectations from paying for a game than a suburban mom playing Candy Crush while waiting in line at the doctor. What’s more, the self perception of each group in being a “gamer” is different, and will be reflected in their willingness to commit to a subscription. If 70% of smartphone owners in the U.S. play mobile games three to four times a week but don’t identify as gamers, they’re unlikely to fork up for a gaming subscription service.
How the endeavors of Apple, Google and Microsoft will pay off is not clear cut, as we are still yet to see all of their business models. They will undoubtedly have to reflect the habits of different types of gamers or compensate developers with offers they can’t refuse. What’s clear is that gaming in 2019 has a large mix of user demographics who interact with games in a different way, and they must be treated so if the business model is to succeed.
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