Microsoft has announced it will be adding all new Microsoft Studios releases for the Xbox One to its Xbox Game Pass subscription service at the same time as their retail release (Xbox Game Pass is $9.99/€9.99/£7.99 a month). This is a major departure from other games subscription services which are subject to long release windows and are generally home to catalogue titles not new releases.
Seven reasons why Microsoft is pursuing this disruptive strategy:
- Microsoft is seeking ways to disrupt its main direct competitor, Sony. The PS4 sales momentum is such that Microsoft must develop new content and services that set it apart from Sony. Microsoft has the financial clout to absorb the bottom line impact of such an experiment.
- Both Sony and major publishers, such as EA, are evolving their own subscription service strategies. Microsoft is accelerating its Xbox Game Pass strategy so that it maintains a strong position in this emerging part of the market in relation to the competition.
- Framed as a move to give the gamer more ways to play, this strategy will help raise the profile and brand image of Xbox in the eyes of gamers and potential console buyers.
- Microsoft has been criticised for its roster of 2018 exclusives. While we’ll hear more about upcoming exclusives at E3 in June, releasing first-party titles into Game Pass enhances the value proposition of Microsoft’s exclusives without changing the release slate.
- A subscription service is a way to reach a broader, mainstream audience. This move will drive bigger audiences and potentially better engagement for Microsoft’s exclusives this year. It also helps with Microsoft’s later cycle Xbox One product positioning with regards to appealing to a mainstream consumer.
- With many new AAA titles being developed as services, the increase in revenue generated post launch and in-game makes a day and date release into a subscription service less financially risky than a few years ago. Indeed engagement and player numbers are becoming as important as premium sales for delivering long term and sustainable revenue from today’s AAA games.
- Microsoft is preparing for a horizontal, on-demand future. Games platform owners have long looked over at the online video subscription services with some envy as they offer on-demand services that can be played on a cross section of devices while delivering predictable revenue. Microsoft has already initiated a horizontal strategy for its Xbox Live online platform across console, PC and mobile. Building a content proposition which can be extended to other platforms (as EA has done with EA Access) and which can eventually be driven from the cloud is preparation for a post-console future.
What are the routes to subscription success?
- Increased investment in first-party content: Microsoft has already acknowledged that it needs to invest in first-party content and exclusives to differentiate its Xbox offering. Xbox Games Pass is no different, and will need a regular stream of first-party and exclusive content to really drive adoption and engagement of the service.
- Build a commercial framework that works for third-parties: Day and date releases from third-parties is the end goal for Game Pass - or at the least a reduced window between retail release and inclusion in its catalogue - but is very hard to achieve due to the commercial impact of such a move. The commercial argument is shifting a little due to the post-launch revenue generation of many AAA games, but, even so, to deliver significant revenue a subscription service needs to reach substantial scale.
- Leveraging Microsoft’s cloud infrastructure to enable an on-demand proposition: Microsoft is building a platform and service strategy that works across different devices and screens. Eventually, these services will rely more heavily on cloud infrastructure to deliver true on-demand consumption of games content. Sony already has its cloud-based service – PlayStation Now – and EA has been experimenting in cloud games for some time. Microsoft’s strong position in cloud service provision means it should be well placed to evolve an on-demand service compared to its competitors.