Amazon has announced Luna, yet another stab at game streaming and subscriptions. It seems like the failures of Apple Arcade, Stadia, Gamefly, and our oft-forgotten OnLive have not been effective deterrents. Not to be outdone, Rovio’s Hatch continues to drain money every quarter. Perhaps this is what Bezos warned shareholders about when discussing new “multibillion-dollar failures.”
And despite overwhelming failures, media pundits like Matthew Ball prop up skin-deep arguments in favor of game streaming and subscriptions. Instead of discussing why game streaming and subs might work, let’s talk about why they haven’t worked.
It’s essential to understand the brother/sister relationship between streaming and subs. Subscriptions unlock zero-marginal cost content consumption. Once you’ve paid Netflix or Spotify $10, there’s $0 additional explicit cost to consume another movie or song. However, there are transaction costs. In the “before times,” customers had to mail DVDs back to Netflix to receive the next DVD in their queue. This effectively limited the amount of content customers could consume in a given month. If mailing took 3 days in transit, on a 1 DVD-at-a-time plan, a customer could only consume 10 DVDs in a 30-day month. This assumes the customer turned around DVDs instantly.
Non-steaming subs like Game Pass and EA Play exist in a weird middle, solving some but not all of these issues. Games are distributed digitally, but not instantly. A game like Call of Duty: Modern Warfare can take 3-4 hours to download on a 135 Mbps connection. SSD’s aren’t cheering at the prospect of 200GB games either. But once streaming takes off for games, these problems are solved. No storage is needed!
The incredible rise of free-to-play and GaaS (Games as a Service) renders subs and streaming essentially valueless to the player. Players do not consume games like TV or music, which should have been made evident in the last decade. Players are playing fewer titles in a given year, but are playing fewer titles for longer periods of time. Games solve the content problem in a way that other mediums simply can’t.
The content consumed in games like Overwatch or Clash Royale is the pursuit of strategic equilibrium and/or mastery of mechanics. A new unit in Clash Royale, for instance, can change how players organize their decks, even if they don’t use the unit directly (they must counter it). This can provide hundreds of new hours of content to consume relative to the nearly one man-week of labor to produce a new unit. Therefore, the content output of a given member of the 16-person (!) Clash Royale team is astronomical. Compare this to the thousands of crew members and weeks necessary to produce even a single one-hour episode of Game of Thrones. Supply can’t keep pace with demand in the world of TV and movies. Netflix makes sense in this view because, after bingeing on 9 seasons of The Office, customers can immediately rip into 7 seasons of Star Trek: The Next Generation. It’s another reason why back catalogs are so much more important to Netflix than they are to something like Game Pass. If players are only investing in 3-4 new games a year, then the transaction cost reduction streaming is extremely minimal; the benefit it provides is in high unit consumption TV and music.
It’s a similar story for the failure of gaming subs. If players consume only 3-4 titles a year, subscriptions don’t make economic sense. Not to mention, these 3-4 new titles are increasingly becoming free. In the West alone, League of Legends, Fortnite, Apex, Warzone, and Rocket League dominate playtime. And let’s not forget the entirely F2P ecosystem of mobile. The march to F2P in the West will continue as long as MTX revenues grow and box revenues shrink. There isn’t a whole lot to save by signing up for a $100 a year sub and streaming service when Fortnite doesn’t cost a dime.
Game streaming and subs don’t solve billion-dollar problems for the player. In the absence of doing so, subs and streaming will continue to flounder.
