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Not everyone bows to the inevitability of subscription models | Opinion

There is a mode of thinking that is far from uncommon in the games business right now, which simply accepts as inevitable the idea that subscription services will become the dominant business model for video games in the coming years.

Within that school of thought there are many schisms; there is plenty of diversity of opinion over which companies will end up as the dominant players, the role that game streaming will play in the whole situation, whether the market will support multiple subscription services from individual publishers, and so on, with positions on such questions being based at least as much on wishful thinking as on genuine market analysis.

The core belief, however, is consistent; subscription services are going to take over, pushing traditional sales models to the fringes as they become increasingly widespread, with consumers balking at paying extra for games outside their subscription libraries.

Not everyone is exactly happy with this vision of the future, not least because it’s easy to see the absolute havoc being wreaked on the TV and movie industries by the collapse of the low-interest, easy money environment that fuelled the ambitions of would-be “disruptors” who single-mindedly pursued growth in subscription numbers with little notion of how an eventual pivot to profitability might be achieved down the line.

Some don’t see subscriptions becoming dominant in gaming at all; even among those who see it as inevitable, there are plenty who see this as an overwhelmingly negative thing, and wonder how alternative business models might be carved out and shielded from that inevitability.

This week saw an interesting dialogue around this topic that made clear some of the most important lines of tension in the games industry right now. Following on comments from Ubisoft’s Philippe Tremblay regarding subscription services – very much in the ranks of those who claim inevitability, though Ubisoft does like to imagine that there’s a place for publisher-specific subscription services in this version of the future – Larian boss Swen Vincke responded publicly to express his disquiet with subscription models and pledge that his company would not permit its games to be included in subscription catalogues.

Vincke’s comments add an interesting perspective to a discussion that has often focused on the impact of subscription models on consumers, platform holders, and major publishers, but has regularly overlooked the position of development studios and smaller independent publishers. His statement was nuanced; he understands and respects why some companies choose to put their games on subscription services, but he makes a clear case for why he doesn’t ever want this for Larian.

He fears that subscription models becoming dominant would essentially create powerful gatekeepers who decide what gets made and released, which is anathema to studios that have worked so hard and taken so many risks to win their freedom from the traditional publishing system. Memories are short in this industry, but it’s not so long since we were celebrating how the digital distribution had democratised the business of releasing games somewhat, lowering the height of the walls around various walled gardens even if not removing them entirely.

Subscription models do threaten a return to the bad old days, no matter how benign and progressive the would-be gatekeepers insist they will be. In this regard, Larian’s thinking is quite long-term; Vincke recognises that there may be money to be made from subscription models right now, but wants to use his company’s success to support and protect the direct sales ecosystem instead of grabbing the easy money and becoming part of the long-term problem.

Not everyone has the luxury of making that choice, of course – many studios live hand to mouth, and few independent studios will ever enjoy a commercial hit on the scale of Baldur’s Gate 3. That doesn’t detract from the strategic good sense of what Vincke is saying here. Even if Larian is leaving some money on the table in the short term by declining offers to put its games on services like Game Pass or PlayStation Plus, the decision makes perfect business sense from a longer-term perspective.

Directly selling games to your consumers is builds value in your business that goes beyond immediate revenue calculations; you get to own the consumer relationship, creating and holding a direct connection to your customers that is key to building a valuable, sustainable business. That’s precisely why a company like Ubisoft wants to have its own subscription service in the first place; it recognises the risk of becoming just another anonymous, irrelevant company that’s “producing content” for services like Game Pass or PlayStation Plus, where all the value of the customer relationship – the branding, the goodwill, and so on – actually belongs to Microsoft or Sony.

We see a lot of discussion about how subscription services aren’t great for consumers in the long run – for the exact reason that Tremblay highlighted, in fact, namely that you end up spending a bunch of money and not actually owning anything in the end, as subscription services forfeit even the highly limited sense of “ownership” that you get from buying digital games.

It’s interesting to see a clear case being made against subscription services from a successful developer’s perspective instead – and Vincke isn’t alone in his misgivings. Both Take Two’s Strauss Zelnick and outgoing PlayStation boss Jim Ryan have been clear that they don’t think launching onto subscription services is a model that works for AAA games – though of course, it’s not hard to dig up quotes from movie studio bosses in the dawn of the video streaming era where they were equally confident that Netflix and its ilk were neither a workable model for them, nor a serious threat to their business. (They might have been right about the former, it turns out; unfortunately, they were deathly wrong about the latter.)

The chaser to this discourse came from Circana’s Mat Piscatella, who added some much-needed data points to the discussion by pointing out that subscription services only account for around 10% of video game content spending in the US right now (I’d wager it’s even lower in other regions, given that Game Pass is the only really major subscription service and the US is by far the best-performing market for Xbox).

Morever, his figures suggest that this revenue has thus far been additive – so as well as there being no real evidence that subscription models are becoming dominant, there’s also little sign of them cannibalising revenue from traditional business models. That latter point fits with Microsoft’s experience last autumn, when the launch of Starfield on Game Pass didn’t seem to harm full price sales of the game in any significant way.

Perhaps that means that fears about this model really are unfounded; perhaps it also means that Ubisoft (and a lot of the rest of the industry) is barking up the wrong tree slightly in trying to push people away from ownership models, which will continue to be healthy and vital even as subscription revenue grows on the side. This would be a real case of the industry getting to have its cake and eat it – enjoying healthy direct sales as well as new revenue from subscriptions – which does sound a little too good to be true.

There’s a reason why every investment product carries a warning to the effect that past performance is not necessarily a guide to future results. While it’s valid and accurate to point out that existing data does not show subscriptions cannibalising revenue or moving to a dominant position, it’s equally valid to point to the experience of other industries – like TV and movies – which have gone through this transition ahead of video games, and serve as relevant examples for how things might develop in future.

We’re still in the early days of subscription models for games. There’s relatively little competition in the space and relatively few really huge titles have been launched directly onto platform holder subscription services (Halo Infinite and Starfield are arguably pretty much it; Ubisoft launches its AAA games exclusively on its own subscription service, not on any of the platform holder ones, so it essentially becomes a kind of game rental concept).

The comparison with the development of services like Netflix would put us right back in the early years before they started spending really big sums on content and got into an arms race with the likes of Amazon, Apple, Paramount, etc.

The fears of people like Vincke and Zelnick about the impact of subscriptions may be unfounded, then – but they might also just be ahead of the curve. It’s reasonable to look beyond existing data and think about whether your company’s strategy today might be damaging the very market you’ll rely on tomorrow.

There are also good reasons to expect the games market to develop a little differently to the music and video industries in terms of subscription services. There are some intrinsic differences; the way we engage with games is very different to how we engage with music and movies, for a start, with most people picking out a game and playing it for weeks or even months, rather than sitting down each evening and thinking “what game shall I dabble in tonight”, so the appeal of a subscription library is notably lower. It’s worth noting that books, another form of media generally consumed over days or weeks in a fairly exclusive way, have also been a bit of a damp squib for subscriptions.

Other reasons are related to wider economic forces; Netflix and its ilk heated up their spending arms race in a very low interest rate environment, and it’s notable how much of that excess has now been reined in (and, for those keeping score, just how many of those companies’ attempts to tighten their belts have involved seriously screwing over the creatives who actually worked on their shows and movies). There’s a legitimate question mark over how the now subscription-dominated TV landscape would look if companies had had to justify their spending more carefully all along, and depending on how the interest rate and investment climate changes in the coming years, video game subscription services may never get the opportunity to hurl money at the problem to the same extent.

Meanwhile, it’s something of a relief to hear senior people in the industry articulate their concerns about this transition, rather than bowing to its apparent inevitability. In the face of that transition and its potential downsides, there’s a great deal to be said for starting the work now to ensure that direct consumer sales remain an open and viable business model down the line.

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