In Analysis, Business Model, Forecast/Sales

Will Apple be Joining the Netflix of Games?

Well, we said it in our welcome to 2019 brief on January 8.  We predicted that 2019 would be the year where everyone talks about the Netflix of Games.  The competition continues to heat up as now we may be adding Apple to the picture.

The latest news this week were rumors that Apple was looking to launch its own game streaming service.  In reality this is not really news as almost every major player is looking at being the Netflix of games.  Game streaming is not so much a question of “if,” but a question of “when” and “whom.”

DFC Intelligence analyst David Cole was interviewed by TechNewsWorld in this article on Apple’s potential with games.  Our basic conclusion is that Apple has a unique user base, but they will not be competing with Sony or Microsoft.

Back in the 2011 to 2013 timeframe there was a great deal of interest in streaming game services.  At that time, the technology was clearly not what it is today.  Technology has improved significantly, but core business model challenges remain.

The big challenge is getting consumers to pay for a game streaming service.  The recent DFC Intelligence Business of Video Game report analyzed the many game streaming and subscription services already on the market.  In other words, there are many case studies going back over time.

The big services like PlayStation Now and Xbox Game Pass (a game download service) are fairly robust.  However, they are trying to charge monthly subscription fees of $10 or more.  That is a hard sell even to avid game consumers.

The Apple audience is one that is used to getting games for free.  The beauty of owning an iPhone or iPad is a casual user never has to pay a penny.  Revenue comes from the small percentage of heavy users that pay extra features.

The challenge subscription services face is straddling the line between heavy users and the casual users that don’t like to pay.  Many subscription services land in an uncomfortable middle ground.

Games are unlike video and music in that consumers can spend hundreds of hours on a single game.  This compares with a movie that lasts 2 hours or a song that lasts a few minutes.  Sophisticated consumers are willing to pay $60 or more for a game because they know it provides a large amount of long-term value.

The latest Call of Duty or FIFA soccer is a bargain at $60.  Activision and Electronic Arts would clearly like to migrate those users to more of a subscription model that could charge users more.  However, a game streaming service needs to offer a large library of all-you-can-eat games at under $20 a month and preferably closer to $10 a month.

The big $60 annual games are already generating $5 a month per user.  Bundled as part of a $10 to $15 a month subscription from a third party provider they would probably be challenged to generate the usage to equal what they are already generating.

Electronic Arts and Activision Blizzard are not the types of companies that could successfully launch their own major streaming service.  They would need to work under third-party providers, most likely Microsoft and Sony.  Of course, they will want to keep their big new games off a streaming service until well after launch.  This in turn means streaming services are focused on older content.

Going back to Apple, the company faces the same challenges as other potential streaming services.  Right now, Apple’s game streaming service is very much a rumor.  However, without knowing anything about it, we can say it is likely to be a niche service.  It should have almost zero impact on the major players in the video game industry, either positive or negative.

All this is not to say that game streaming services will not be a big part of the future.  Our upcoming forecasts predict that most gamers will have some form of subscription service in the next five years.  However, the overall impact on the game industry is not likely to be as great as many people are assuming.

2019: The Netflix of Gaming and New Game Consoles

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