As Microsoft gaming head Phil Spencer drummed up hype for the new Xbox consoles last year, his focus appeared to be less on the next generation of consoles than the company’s subscription service, Game Pass. Ownership is an old-fashioned idea, he and the company appeared to say, echoing the sentiment of subscription and streaming giants such as Netflix and Spotify. Xbox players could look forward to sustained investment in a library of well over a hundred titles, all for a monthly subscription fee far below the cost of a $60 blockbuster title. The promise is one of convenience and value; Microsoft would stress it’s putting customers first.
Like music and film before it, the subscription model is arguably on the cusp of transforming video games. Today, Game Pass and Apple Arcade are the most robust , and opening either of these services for the first time is a head-spinning experience. (PlayStation Plus, by comparison, offers a small, refreshed selection each month.) The choice is huge; plus, it’s an affordable way to enjoy a notoriously expensive hobby. For game makers, the draw is two-fold: a built-in audience hungry for new content and a launch where the risk of actually having to sell the game is removed.
This in itself—the shift from sales to subscription-based revenue—is seismic, especially for independent studios. While subscriptions appear to be a no-brainer for gamers, the benefits aren’t as clear cut for developers. In this new configuration, their customer is the subscription service itself rather than the player.
A Seat at the Table
In an interview with The Verge last year, Phil Spencer admitted there are no fixed terms for bringing indies to Game Pass, describing deals with developers as “all over the place.” This holds true for subscription platforms broadly; agreements can include flat fees for third-party games or funding for entire productions. Notably, contracts also exist based on usage, a deal structure anathema to many indie studios whose short, intense games are ill-suited to the arrangement. This is akin to the Spotify principle; the longer players spend on a game, the more revenue its developers will derive from the pool of subscriptions.
Chris Wright, founder of Fellow Traveller, the publisher behind the cult hit Paradise Killer and prominent Apple Arcade launch title Neo Cab, says such usage deals can vary but center either on player numbers, play time, or play sessions. Some services won’t guarantee any money up front, while others calculate earnings from play time so that developers “won't get paid until they’ve earned out that minimum guarantee.”
This range of deals doesn’t just reflect a diverse landscape of games and studios; it speaks to the commercial reality of negotiations between big tech companies and much smaller entities. With games already on these platforms, Wright knows exactly the types of deals that exist. This gives him enviable bargaining strength, but for other independent studios, some of whom prefer to remain anonymous, the power imbalance of the negotiating table is a genuine anxiety, one that will intensify if these platforms continue to grow their subscriber bases. “We've certainly heard of devs accepting deals that we look at and go, ‘Wow, that seems quite low,’” says Wright. “Most indies don’t have a huge amount of leverage.”
'Sticky' Products
The economic logic of usage deals also favors high-replay-value titles and those who make them. These “sticky” titles—i.e. games that retain players through satisfying (some might say compulsive or even addictive) mechanics—are set to become increasingly prized commodities in the subscription landscape: attractions to keep players plugged in and renewing their fee.
Retention was allegedly a crucial aspect of Apple’s strategy shift in 2020, which involved canceling contracts of games in development while seeking others that “better retain subscribers.” As Bloomberg reported, an Apple Arcade representative cited Grindstone as a specific example of the type of game the company wants: “an engaging puzzle-action game that has many levels.”
Developers quoted in the story suggested this was a result of low subscriber growth and retention, a hypothesis seemingly supported by Apple’s expansion of its one-month free trial to three. It’s worth considering that subscription platforms might reshape video games according to this engagement mindset. The result could be a boom for arcade-style titles that encourage high replayability or procedurally generated experiences, potentially at the expense of “one and done” narrative games such as those that Fellow Traveller specializes in.
A Patronage Renaissance
Still, the death of the single-player adventure isn’t here yet. For a significant portion of subscribers, these titles will be the main draw in the first place. As Microsoft expands its slate to tempt potential subscribers, fortunate studios will benefit from a growing pot of straightforward, risk-free funding. Totem Teller, an adventure game with a beautiful, glitched-out aesthetic, is one such project, initially snapped up as a timed Xbox exclusive before securing a Game Pass deal.
Ben Kerslake, its creative director, compares Game Pass to Netflix in terms of the creative freedom the video service has afforded particular filmmakers. “For better or worse,” he says. “There’s not a lot of constrainment.” His team, too, effectively has artistic carte-blanche thanks to a relationship with Microsoft which functions “very much like a patronage model.”
Kerslake stresses the benefits of foregoing a middle man, a position usually filled by a publisher. “Even the nicest, most progressive publisher in the world is going to interfere,” he says. “It’s their job.” The Covid-19 pandemic effectively added 12 months of production to the game. Kerslake believes navigating this situation alongside a publisher would have been difficult, likely involving creative compromises. His agreement with Microsoft, however, ensures flexibility. “As far as our relationship goes contractually, it’s just ‘release the game when it’s ready,’” he says. “Apart from that, it’s hands off.”
For all the positives of this patronage model, there are notable downsides. Video game subscription platforms currently offer a curated service (as opposed to Spotify’s more open approach), meaning many talented developers won’t make it onto them. For outsiders, making a living will likely get tougher, particularly if actual sales dwindle. This is already what’s happening in movies; in 2019 subscription revenue grew to $16.2 billion while transactional purchases fell to $9 billion. It’s not difficult to imagine consumers making the same cost calculation with video game subscriptions as those of video; the value appears simply too great to pass up compared to one-off purchases.
What Is a Video Game Really Worth?
As Julie Muncy stressed in a piece written at Apple Arcade’s 2019 launch, the shift to subscription services forces us to reexamine what a video game is actually worth. “Each game is no longer worth the price of its labor,” she wrote. “It’s now worth a fraction of a monthly subscription fee.”
Rebekah Saltsman, cofounder of Finji, the developer and publisher behind Apple Arcade title Overland, suggests that subscription platforms are distorting the value of games and that this is having a knock-on effect for budgeting. One play on a subscription platform isn’t equitable to that of a premium sale, and so the player numbers that could have traditionally been counted on to bring in sufficient revenue are now far greater. All this while video games remain expensive to produce. Saltsman predicts developers will curtail their budgets down the line precisely because of such costs. “Somebody’s going to look at the burn,” she suggests. “And if they don’t have enough subscribers or they’re not making enough profit, they’re going to look at budgets.”
So to what extent is this shift sustainable, and does it even matter? The answer may in fact be no. Netflix has proven that racking up an eye-watering $15 billion in debt to fund content is no obstacle to chasing dominance of the video-streaming market. Game Pass appears to follow this seemingly inverse financial rationale—“not a big profit play” right now according to Xbox marketing head Aaron Greenberg. Operating at such economies of scale, the creative output of major video subscription services has felt increasingly and eerily homogenized, the fear being that the same could happen to video games. If profitability isn’t even the end goal for the subscription services of big tech companies then games might simply become loss-leaders for wider software ecosystems and services. In this scenario, the content of independent studios will be evaluated simply on its ability to drive and maintain subscriptions.
Subscription Meets Streaming
Really, subscription platforms appear to be a precursor for the shift to streaming than an end in their own right. This is where the Netflix analogy really stacks up. Video game consumption is set to be reshaped as players access games instantaneously via apps on their TVs and phones rather than waiting for titles to download to a console. Microsoft xCloud and Google Stadia are already up and running while Amazon is about to enter the fray with Luna. Mike Rose, founder of No More Robots, the publisher behind Game Pass hit Descenders, describes this as both the “most exciting and scariest” aspect of oncoming changes.
“All of a sudden you're opening up these services to exponentially more people,” he says, suggesting this might finally catapult video games into the genuine mainstream even more than it already has. But Rose also cautions this future scenario could all but eliminate game sales. Microsoft, Google, and Amazon—the owners of the backend infrastructure—will charge players for access, not ownership, like video-streaming platforms already do; revenue will be further centralized into the hands of platform holders.
Such a trajectory feels less than desirable for indie studios whose agency, at least in a commercial sense, is perhaps curtailed by this new financial arrangement. Spencer even recently took steps to reassure developers that Game Pass isn’t Netflix, seemingly as a response to such concerns: “I bristle a little bit, because Netflix doesn't sell the content that's in Netflix,” he said on a recent episode of GamerTag Radio. However, this wasn’t the tone the Xbox chief had previously taken when he explicitly compared Game Pass to its video counterpart. If all goes to plan, Game Pass will surely become the de-facto avenue of play for Xbox fans (and possibly even PC gamers), console or not, and players will simply rent these products in perpetuity. “It’s a massive worry,” says Rose. “How else was this going to go?”
It will be some time before it’s clear how the drive toward subscriptions and streaming impacts the industry at large, but one point appears certain: Small studios will need to position themselves alongside major companies if they hope to sustain themselves. Rose knows this so is preparing accordingly. “The businesses that do best are the ones that will fit into these models,” he says. “My plan is to be as flexible as possible.”