Almost everyone has a story of what they bought after earning their first paycheck. For me, like so many teenagers of my time, it was a videogame. I walked into a local Toys ‘R’ Us and proudly picked up Goldeneye 007.
Such stories are of the past though. The video game store is now in decline. This week, noted video game retailer GameStop ended its search for a buyer, and its stock price plummeted. When the country’s most prominent game store can’t find a buyer — and needs one — the writing is on the wall.
On one level, this is unsurprising. Games like so many other forms of media have begun to shift to digital, and everyone from traditional console makers like Sony and Nintendo, to PC and mobile platforms, now rely on digital sales as an increasing part of their business — and in some cases like mobile, it’s the entirety of it.
But there is more at stake in the decline of the video game store than a change in media format. The business model in general is changing, to include not just digital sales but free-to-play games and subscription services too. That broader change is about more than just games — it’s about what happens to how media are both distributed and consumed in the digital era.
Right now there are two major changes in gaming: the rise of wildly profitable free-to-play games like Fortnite and the arrival of subscription services where players pay a set amount per month to get access to many games rather than buying individual titles.
The former almost caught the gaming world off guard. Epic’s Fortnite is a cartoony, free “battle royale” shooter game in which participants can play on teams to defeat others. It’s accessible, quirky, and like many online games before it, has also become a kind of social space, too. It’s also incredibly profitable. Creator Epic raked in $3 billion in net income on the game in 2018, entirely off players buying things in games: weapons, costumes, and “emotes” — little dances or gestures made by players.
If that’s one thread of the new world of gaming, another is subscription. Most prominent right now is Microsoft Xbox’s GamePass, in which gamers can pay $10 a month and get access to a hundred games.
This is new for gaming. For years (and it’s still the case to a certain extent) people bought individual games and owned them for life. With a subscription, that changes. As with Netflix, there might be anchor titles that entice you to sign up, but it’s the overall value proposition that hooks you in.
We’re likely going to see more of this model. Rumors this week suggested Apple is working on a subscription gaming service. What’s more, soon we’ll see the next generation of gaming devices, the successors to the Playstation and Xbox — and those will almost certainly have a subscription-based cloud service that will see gaming become even more like Netflix: log in from anywhere and access many games on many devices.
What’s strange, though, is that the video game business is doing rather well. Despite fears that mobile gaming would kill off traditional consoles, Sony and Nintendo in particular are even more successful now than they were a decade ago. So what might be prompting a shift to new models if the old one is doing just fine?
For further insight, I spoke to Dr. Daniel Joseph, a postdoctoral fellow at the University of Toronto who specializes in the economics of digital app stores. He suggested that what is driving the change is a desire for more stable revenue — and control.
“Premium games are still doing okay, and the reason they did okay last year was big titles like Red Dead Redemption 2 and Call of Duty,” he says. “But what’s really taking off are things like battle passes.”
Those are a mix of subscriptions and in-game purchases where players can unlock items in the game by completing certain tasks. This is what drives Fortnite’s almost obscene profitability — tap into gamers’ need for rewards and attach it to actions in the games themselves.
But Joseph also argues that subscriptions as a model are a response to changing economics.
“Subscriptions are something companies have wanted to do for a long time,” he said, “but it’s historically been hard to argue for because you have to convince developers they’re still going to make as much money.”
Right now, Joseph says, the games industry mostly works on a blockbuster model. Huge titles like Red Dead Redemption rake in billions while hundreds of smaller titles struggle to make a profit. In mobile, the problem is even worse; there, free games dominate and so-called premium content languishes. For a few makers this is good, but it’s not great for the overall system as it gets filled with fluff.
“There is room for a variety of business models,” says Joseph, “but subscriptions give platform owners a lot of power. It lets them curate and gain control of distribution.”
What subscriptions thus do is stabilize revenue, put platform owners and game makers into partnership, and allow platforms to curate from a glut of content — that is, put forward premium titles to differentiate their platform.
What effect this has on media itself remains to be seen. Netflix has had some great success with its original content, but it also changes how we watch — from binge-watching to repeat viewing to just keeping something on in the background. All distribution models change media and how subscriptions change games is still an unknown.
What is clear, however, is that gaming is undergoing a significant shift that will see a decline in ownership and a shift to services. It’s a model being replicated around media, with Netflix, Spotify, and Kindle Unlimited. And for the kids of the future who find themselves with allowances or a first paycheck, the rite of passage won’t be going to a store, but signing up for a subscription.