Video Game Industry Eyes Direct-to-Consumer Rewards — and Risks

Taking a cue from the subscription streaming video-on-demand ecosystem, the video game industry has quietly begun offering content to consumers online rather than solely through packaged-media retailers such as GameStop, Best Buy and Target.

Last May game publisher Electronic Arts acquired the cloud gaming technology assets and personnel of a wholly owned subsidiary of GameFly — the online packaged-media rental service that also offers movies and TV shows.

Specifically, EA aims to distribute its games to consumers online without paying license fees to third-party game platforms such as Xbox, PlayStation and Nintendo. At last year’s at annual E3 gaming confab, EA bowed a prototype subscription online gaming platforms EA Access and Origin Access.

“Cloud gaming is an exciting frontier that will help us to give even more players the ability to experience games on any device from anywhere,” Ken Moss, chief technology officer at Electronic Arts, said at the time.

Sony, whose five-year-old subscription gaming service – PlayStation Now – features hundreds of catalog games for $99 annual fee, is reportedly considering direct-to-access for new releases following its purchases of online platforms Gaikai and OnLive.

“The greatest disruption of entertainment is the combination of streaming and subscription,” Andrew Wilson, CEO of Electronic Arts, told Fortune. “More people are engaging, with less friction, through cloud-driven services.”

At the same time, offering consumers online access to hundreds of games for annual or monthly fees (the latter without contract) threatens an established retail market where game publishers often charge and get more than $50 for a single game.

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“I do believe that some subscribers might cancel after finishing the newest game they wanted to play, but the vast majority will keep their subscription because of the online multiplayer component of those same games,” said Greg Potter, an analyst with Kagan, a media research group within S&P Global Market Intelligence. “Publishers are okay with this model because hit games often have multiple revenue streams other than the purchase at the point-of-sale.”

Indeed, the gaming industry saw revenue reach record $43.8 billion in 2018, up 18% from 2017. That figure dwarfed the global box and SVOD markets.

The latter has Netflix CEO Reed Hastings worried.

In the SVOD pioneer’s recent shareholder letter, Hastings said Netflix controlled about 10% of domestic TV screen time – a tally he said is under threat more from online gaming than other SVOD competitors.

“We compete with and lose to [online gaming service] ​Fortnite ​more than HBO Now,” Hastings wrote. “When YouTube went down globally for a few minutes in October, our viewing and signups spiked for that time. Hulu is small compared to YouTube for viewing time. Our focus is not on Disney+, Amazon [Prime Video] or others, but on how we can improve our experience for our members.”

 

 

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