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Market Insight

Apple Arcade: Curated play to take larger share of games value chain on iOS

March 26, 2019

Piers Harding-Rolls Piers Harding-Rolls Director – Research and Analysis Director, Games, IHS Markit

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IHS Markit data shows the world iOS games market was worth $33.5 billion in 2018. 95% share of this spending was on in-app purchases, with premium games increasingly marginalised.

Apple is making its biggest commitment to games

Apple’s decision to move up the games value chain with a new curated subscription service and to support the development of exclusive games for its Arcade platform is a significant escalation of the company’s commitment to the games market. Apple joins the other technology companies Microsoft, Facebook, Google, Amazon and others in investing directly in games content and services. The commitments by these companies underline the importance of the games market as a central pillar of the broader entertainment opportunity.

A new wave of cloud-enabled subscription services represent a competitive threat

Apple has watched the steady evolution of the games subscription services from Microsoft, Electronic Arts and Sony, and understands that with the introduction of cloud gaming services, these services will increasingly expand onto a broader collection of connected devices including smartphones, tablets and streaming STBs. Apple has also watched the emergence of cloud gaming start-ups such as Hatch, which is taking a similar approach to the Arcade subscription service focusing on premium games. Hatch has signed deals with a number of mobile operators looking to force a bigger role in the games market.

Apple is making an early strategic move to both protect its app store revenues as these new services increasingly target iOS devices and to increase its potential margins from what will be a first-party games service. As a download service, Apple Arcade is built to be relevant now not several years into the future when cloud-based services become more available, scalable and commercially viable. Arcade will be available in 150 countries, far more than cloud gaming services at launch. Apple's Arcade supports its ecosystem play and tightly binds together first-party hardware, software and services. It will offer some of the features of cloud-based services in terms of platform support and the continuing of play on different devices but will be not be hampered by poor internet connectivity.  

Who is Apple Arcade for? Is it niche?

For developers, the two most troubling aspects of the games app market is getting content discovered and acquiring users. With 300,000 games on the App Store, this is especially true for developers making premium games, which are increasingly marginalised due to the overwhelming amount of free to access content. Arcade aims to solve these issues for premium game developers and offer a route to a more successful launch on iOS devices. However, the curated nature of Arcade means that actually only a handful of companies will benefit from this strategy. What happens to premium games that sit outside Arcade? A curated area for select premium titles may make it harder to be discovered for these other games.

With Arcade, Apple has identified a gap in the market for a curated subscription product which supports unique and exclusive content, is not monetised through IAPs or ads, and that is particularly suited to specific demographics including younger players, family audiences and cross-section of users that like to play premium games.

Although Hatch is aiming for a similar strategy albeit focused in on the cloud, Apple has a huge advantage over this type of third-party subscription service as it will have its own tab on the App Store and will be tightly integrated into its own hardware and operating system. In addition, all content on Apple Arcade will be exclusive, which will make it more attractive to users considering which services to sign up for in the future.

These conditions mean that Apple Arcade is likely to carve out a meaningful opportunity with select demographics, the scale of which depends partly on its pricing, which has yet to be announced. However, Apple’s ability to grow Arcade beyond a large niche is likely to be hampered by the continued dominance of free to play games apps and IAP monetisation, the types of games offered as premium experiences, and the barrier to entry due to the service’s subscription charge.

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