Subscription-based game services have emerged as the main business model of the future market, as they allow users to enjoy numerous games by paying only a monthly fee, instead of buying individual titles. Even developers such as Ubisoft and EA have prepared their own subscription services. In early 2022, Xbox actively announced that Game Pass had secured 25 million subscribers, and it was clear that subscription-based services were also trying to become the ‘trend’ in the game market, just like any other media content market.
It is evident that subscription-based services, which have deeply penetrated into everyday life in various fields, are also actively expanding their foothold in the game field, but on the other hand, there are also views that subscription-based services have clear limitations in the game market compared to other content.
Subscription Gaming Services in 2023: What Happened?
As many have already experienced in their daily lives, 2023 witnessed the proliferation of the subscription economy across various industries, including digital content, apparel, cosmetics, and even automobiles. This trend led to an increase in consumer fatigue, especially with the overlapping effects of subscription fee hikes due to rising prices.
Gaming services followed a similar path, with industry leaders like Xbox and Sony PlayStation announcing subscription fee increases in line with their policies introduced in 2022. Apple also raised its app service fees, and Apple Arcade saw an increase from $4.99 to $6.99 per month.
Recent reports indicated that Netflix might include microtransactions and ads on its gaming platform. The Wall Street Journal suggested that Netflix is considering charging for high-quality games beyond small mobile games. Notably, the acquisition of Joseph Staten, creative lead for the "Halo" series, by Netflix in August hinted at the streaming giant's serious intentions in AAA game development.
Meta, leading the VR market, announced "Meta Quest+" in June, offering various VR games in a subscription format. A distinctive approach of providing two carefully selected games for free each month sets it apart from other subscription services.
While subscription services have expanded their presence in various fields, including gaming, to gamers, the real question was: “Were there any games worth subscribing to?” Even if there are multiple game companies that provide subscription services, they are limited to old games or live service games, which are based on updates. This issue brings the focus to Xbox, which has a vast subscription game library.
Xbox Game Pass had a notably rich year in 2023, offering a significantly larger number of core titles than in 2022. Updates for existing games, such as Forza Horizon 5 Rally Adventure and Halo Infinite, were also part of the service. Bethesda and its subsidiaries contributed with new titles like Starfield, Redfall, and Hi-Fi Rush, providing a diverse and abundant gaming experience for Xbox Game Pass.
However, despite these positive developments, there are persistent concerns and uncertainties regarding future growth.
Xbox Game Pass: Reaching its Limits?
Several factors contribute to concerns about the future growth of Xbox Game Pass. One major concern is that, despite explosive growth in subscriber numbers in the past, sustaining this growth might become challenging. Additionally, striking a balance between increased subscription fees and delivering appealing core titles that consumers are willing to pay for poses another significant challenge.
Some media outlets highlight that Microsoft has not disclosed the total number of Xbox Game Pass subscribers since announcing 25 million subscribers in early 2022. While market research firm Omdia mentioned that Xbox Game Pass had reached 41.7 million subscribers last year, some consider this number to include the transition of existing Xbox Live Gold subscribers into the service, now called Xbox Game Pass Core.
Another concern arose when the Securities and Exchange Commission (SEC) report was released at the end of last year. The report revealed that the incentive targets for Microsoft CEO Satya Nadella did not include Game Pass subscriber numbers. Game Pass subscriber goals had been consistently included in Nadella's compensation targets until 2020. According to Axios Gaming, Nadella had achieved these targets until 2020 but fell short over the following two years.
The SEC report also showed that Nadella's growth target for Xbox content and service revenue in 2023 was 4.4%, but the actual growth was only 0.7%. The growth rate for Game Pass fell significantly short of the 73% target in 2022, achieving only 28%. While Microsoft's decision not to disclose Game Pass subscriber numbers anymore might be speculative, the slower growth trend is evident.
Actually, in 2022, Phil Spencer, head of Xbox, acknowledged that the growth of Xbox Game Pass has reached its limit, that Game Pass has already reached most of the gamers that own consoles, and the revenue won’t get bigger than 15% of the overall revenue of content and services.
However, Xbox does not seem to worry about the growth. Xbox, with its motto "Gaming for Everyone," appears less concerned about the console market's existing user base. Gamers are already aware that Xbox has taken a step back from the traditional console market competition. While the value of Xbox Game Pass, allowing gaming across platforms anytime, remains attractive, industry experts suggest that inviting non-console gamers into the Game Pass ecosystem is more challenging than anticipated.
Perspectives on Subscription Gaming Services
Reflecting on subscription gaming services centered around Xbox Game Pass in 2023, the discourse leans more toward the skeptics who have been critical of subscription gaming for years. CEO of Take-Two Interactive, Strauss Zelnick, has been one such skeptic, consistently predicting challenges in expanding the user base for subscription gaming.
Zelnick pointed out several years ago that the interactive entertainment business and the linear entertainment business is completely different, and mentioned that it will be very difficult to expand the pool of game subscription service users. He views gaming subscription services as catalog businesses, only appealing to consumers interested in playing various titles over a given period.
Zelnick has emphasized that subscription services should bring economic benefits to both consumers and developers/publishers. He believes that while offering older games through subscription services is acceptable, providing new titles from day one poses challenges to understanding its economic viability.
Sony's approach with the introduction of the new PS PLUS subscription service last year aligns with Zelnick's perspective. Jim Ryan, CEO of SIE, similarly stated that new games would not be included in the subscription service. Both Zelnick and Ryan share a common theme – the importance of an investment cycle that resonates with both gamers and industry stakeholders. They argue that offering games through subscription services from the first day may not be the most effective approach.
We don’t know which is right. There may not be a correct answer. The opinions of developers who recently published their game from day one on Xbox Game Pass are also quite divided.
Examining the case of Lies of P, it becomes apparent that smaller, lesser-known developers could benefit from substantial marketing support provided by Xbox, gaining exposure to the extensive Game Pass gamer community. The exact investment received to feature a game on Game Pass from the launch day is unclear, but it played a significant role in introducing titles from less globally recognized developers for promotional purposes.
However, renowned indie labels like Devolver have reportedly rejected proposals from platforms to include their publishing titles in subscription services in mid-2023. This was due to concerns about undervaluing the worth and revenue potential of their titles, suggesting that the approach to investing in smaller games might not be as generous as before.
This aligns with leaked documents from mid-2023, revealing the expected payment list for Xbox Game Pass inclusion. The list included hundreds of millions of dollars for the estimated cost of AAA games, while the game Baldur's Gate 3, confirmed as last year's best game, listed a predicted cost 10 times lower than the expected cost for inclusion on Dying Light 2. This caused a stir in the community, raising questions about the consistency of investment in smaller games compared to previous practices.
While these opinions differ, they all have their justifications, and whether a particular service becomes a trend, it is undeniable that the continuous expansion of subscription services across various industries is driven by perceived advantages. However, Xbox, like others, needs to consider multiple perspectives and navigate a complex landscape to ensure the sustainability of its gaming subscription service.
Exclusive Games on Rival Platform? Concerns about Hi-Fi Rush
Amidst the global gaming industry's interest in efforts to explore the growth limits and breakthroughs of Xbox Game Pass, there was a rumor last week that Xbox's exclusive games could be released on the Nintendo Switch, sparking a heated debate among gamers.
The protagonists of the rumor are Tango GameWorks' Hi-Fi Rush and Sea of Thieves. The former surprised the world with its sudden release last year, and the latter, with its unique gameplay, secured a steady user base as a core title for the Xbox faction. With the news that these firmly positioned Xbox-exclusive games might enter other platforms, there were expressions of concern, including opinions mixed with worry, posted on social media, especially from developers that are friendly to Xbox.
At the core of the concerns raised from the perspective of expressing worry is the well-known business adage, "By trying to serve everyone, you end up serving no one." If Xbox's exclusive games become playable on other platforms, will Xbox be able to maintain its identity for how long, is the worried voice.
"Games for everyone" is a core value that Xbox presents, and Xbox also plans to expand its influence beyond the console gamer base throughout all platforms. However, the current strategy of releasing the few exclusive titles it has to other platforms is causing confusion among current Xbox fans.
Another concern is that nobody expects this strategy to work in reverse. Even if Xbox releases its exclusive titles on Nintendo Switch or PlayStation, it is highly unlikely that Sony Interactive Entertainment or Nintendo would willingly release their exclusive IPs on Xbox. While current Xbox users may have the opportunity to play exclusive games "first" through Game Pass, if exclusive titles gradually become available on other platforms, there may eventually be no reason to subscribe to Game Pass.
Of course, there are positive opinions about this as well. The prevailing opinion in the console game market is that it has already reached its "ceiling" globally, and to secure more revenue, it may be necessary to target new markets and user bases different from the existing ones. If exclusive titles can be sold on all platforms, it could potentially help improve the profitability of publishers and developers in the current economic situation.
However, to appease the anxious feelings of fans and to prevent Xbox from losing its identity, more continuous efforts seem necessary. Even among the staunch fans of the Xbox camp, there is significant opposition to this news, and if multi-platforming of exclusive games continues without community consultation, it could significantly impact Xbox's brand loyalty.
After all... Ultimately, the Important Thing is Game Quality
Many industry insiders view "cloud gaming" as a key solution to the challenges facing Xbox Game Pass, but the reality is that, after several years, it still seems far from being activated. While the idea of being able to enjoy games anywhere without being bound to physical devices is undoubtedly attractive, except for South Korea, where internet accessibility is secured nationwide, issues related to fluctuating network speeds still hinder the proper gaming experience.
With over 25 million subscribers, Xbox Game Pass holds a dominant position in the subscription gaming service market, but its scale is still relatively small, hovering around 10% when compared to Netflix subscribers. Currently, Microsoft can supplement the library through its substantial capital and game studios, but the sustainability of this business remains uncertain, as Strauss Zelnick mentioned, with no solid evidence supporting it yet.
Going in circles, but ultimately, the important thing is the game quality. The distinctiveness of interactive entertainment content compared to other media content and the clearly different nature of user engagement are key points. Even with a subscription service, the game industry faces unique challenges, and everything boils down to the games as the foundation.
The year 2023 left a lasting impression on gamers, with numerous blockbuster games being released tirelessly, threatening wallets. Some unexpected titles received acclaim, while others, carrying the burden of high expectations, left nothing but regret upon release. Games like Baldur's Gate 3, Hogwarts Legacy, The Legend of Zelda: Tears of the Kingdom, and Final Fantasy 16, each released in the same year, could have contended for the most Game of the Year awards if released in different years, but unfortunately, all these titles were distant from Xbox and Game Pass.
According to research by Circana, consumer spending on subscription gaming services increased by about 2% compared to the same period last year in April 2023. In contrast, revenues from traditionally sold games saw a significant rise. Hogwarts Legacy surpassed 22 million copies sold in December, and Diablo 4 achieved $666M in sales within a week of release, setting a record as the fastest-selling game in Blizzard's history.
What about last year's Xbox Game Pass highlight, 'Starfield'? Despite disappointing gameplay different from expectations, it secured the title of Bethesda's largest game release to date. Even on Game Pass Day One, it recorded impressive sales figures, reaching 2nd place on the global Steam sales chart and 1st place on the UK sales chart. Of course, it's evident that Xbox Game Pass played a significant role in these achievements.
As a medium that dedicates more time to one work than any other, the loyalty of game consumers is thick, and ultimately, game developers can only gain recognition from gamers through a complete game. It might not be a big problem that the growth rate of Xbox Game Pass subscribers seems to have stopped. What's more critical is the question of which game can maintain existing subscribers.
Of course, Xbox is likely well aware of this situation. Just look at the concluded acquisition of Activision Blizzard last year. Xbox seems to continue aggressive acquisitions as a means to add to the Game Pass library, and now we just have to wait to see the results.
There was also hopeful news at The Game Awards 2023. Hideo Kojima, the head of Kojima Productions, personally announced the new title 'OD,' a collaboration with director Jordan Peele. They will be utilizing Xbox Game Studio’s cloud technology to create a unique gaming experience. Although it is not confirmed whether it’ll be available on Game Pass Day One, judging from past trends, it is expected that the game will be playable on Game Pass.
The subscription gaming service, which emerged as a core business model years ago, still seems to have a long way to go. Xbox, actively running ahead by putting aside its physical console business, seems to be burdened with more concerns. How Xbox overcomes the surfaced limitations and how it demonstrates this process will be something to watch in the coming year.