Game vs Movie Subscription Business

Can we dive into a bit of detail on how you see content subscriptions changing the console business and the economics of that?

I think content subscription is not unique to console. We mustn’t forget that there is another platform that’s really, really important and really big and that’s Steam. I imagine that they can also enter the space. Content subscriptions, for me, changed the industry in two ways. Firstly, it’s economic, in that they create a window of opportunity of revenue, which the game industry has been really slow to capitalize on. If you compare the revenue streams of gaming, historically, they’ve been very linear or singular. What’s nice about the last decade, or five years, in particular, is that the revenue streams have moved from being in a very, very small window box, in time, and a very small way of just one transactional sale, to being multiple streams. They’ve been more like the movie industry, where they’re making money from 10 different sources.

Now you have income from selling the game, from the sale of add-on content, the free-to-play game as a service model and you have subscription, all as possible ways to monetize. If you’re in the mobile, you also have ad-funded revenue. As an industry and a media, we’re becoming a bit more plural and quite similar to the revenue opportunities of movies. That means you can think about your game in a more complex way. All of these revenue opportunities, in the end, resolve down to design decisions and production decisions, as well. One of the interesting things we’ve seen, if we draw an analogy from the movie world, is the type of content that people commission, when they’re trying to meet the business needs of a subscription, is different from the type of content that they commission when they’re trying to do a theatrical release.

At least in the movie world, I think it has allowed a lot of more adventurous and more risky decisions, on content creation.

You can serve the long tail rather than just going for the big hits?

You can serve the long tail, but you also don’t need to think so much about what you’re marketing. If you think about a theatrical release, it’s a one-shot experience and you are pouring a huge amount into that one-shot experience. It needs to have this big hit, big stars. All of that creates this momentum of where the thing gets bigger and bigger. It’s part of the problem that games have. They get bigger and bigger and bigger because it costs so much to launch a game that you need to spend more in making sure it’s successful. The more you spend on making sure it’s a great game, the more you have to earn and so it just consolidates gaming.

The interesting thing in subscriptions models is that a lot of those economic pressures change. If you’re acquiring for a subscription, it’s much easier to have a range of content. You can take some risks, because you don’t need to have a $100 million marketing budget to create awareness. You’ve got your user base there, to whom you can give the game. We found that, to some extent, with PlayStation Plus where, if you had a great game, it didn’t need to have a huge budget, in order to be very successful. I think there are great positives there, for content creation. We’ll also see this with Apple Arcade; they’re commissioning a lot of content. Hopefully, we’ll start to see a broadening of content commissioning, to sort out the problem that major publishers have had, which has forced them to really reduce the number of titles they produce – which has been quite dramatic, for every major publisher – into often, a handful of these $100 million, $200 million blockbusters. I think the subscription model might drive change, in what I think has become, potentially, an unhealthy trend, in content creation.