Subscriptions and games as a service will dominate console gaming’s future

I expect the gaming landscape for console games will be radically reshaped in a few years. The existing $60 AAA game market will mostly collapse. Indies, stifled by saturation across every market, will turn to subscription services as their only viable path forward. Everyone will still chase Fortnite (or its successor) to become the next free-to-play hit.

Gaming trends today portend significant changes on the horizon. For years we’ve seen the same $60 titles — mostly first person shooters (Call of Duty, Destiny) and big sports franchises (FIFA, Madden, NBA2K) — dominate NPD and digital sales charts. But more recently, these perennial best sellers have shifted into effectively “games as a service” platforms. Studios increasingly focus on new functionality at a core fan base that readily laps up micro-transactions. This ensures revenue stays flowing in well past the upfront sticker price. Look at FIFA and how so many improvements lead back to Ultimate Team. The Call of Duty: Modern Warfare reboot added a Fortnite-inspired battle pass and a prominent shop rotating in and out costly cosmetic gear. This is rampant speculation, but I could see the anticipated Halo Infinite moving in a similar DLC-heavy direction, reliant on a narrowing core base to push the game’s initial investment into the black.

As top sellers shift into new economic models to stay obscenely profitable, other big budget titles are struggling. Many games drop to half price a mere month or two into the market. That same sort of change would have taken double or triple the time as little as a year or two ago. And this is in the face of rapidly escalating budgets to stay competitive at the AAA level. As budgets increase, bombs carry greater impact.

On the other economic end of the scale, small budget indies are getting lost in the shuffle on online stores. There are too many titles for gamers to wade through. Manual and algorithmic curation remains terrible. Granted, a game like Dead Cells or Stardew Valley can catch enough critical attention to break through and become a bestseller, but massive success stories are rare exceptions.

Aside from the traditional a la carte model, recently we’ve seen the rise of two new ways to play: free-to-play games as a service, and flat monthly subscriptions. For the former, the cartoonish shooter/builder Fortnite remains a singular phenomenon with virtually every studio big and small trying to replicate its success. There have been many high profile failures, but several free-to-play games are staying alive: EA’s hero shooter Apex Legends is doing well, and other titles are connecting with niche audiences like Valve’s auto battler Dota Underlords.

The flat subscription model appears to be connecting with audiences in the form of Xbox Game Pass. Profitability figures remain vague, but something is clearly working because it feels like Microsoft is shaping their entire gaming business around it through game expansions, advertisements, and the bold promise to include all first party titles on the service. Game Pass also fits well into Microsoft’s ecosystem first, hardware second charter. Today Game Pass is available on not just Xbox consoles but any PC, tablets, and smartphones through xCloud and maybe someday on even rival hardware.

You can summarize the console gaming landscape today to a few bright spots, which generate huge revenue, some new economic models like free-to-play showing promise, and more failures everywhere else. For every Apex Legends or NBA2K, there are many costly bombs and thousands of indie titles that fail to recoup costs. And the distraction of so many other forms of on demand home entertainment will only exacerbate the downward spiral. As part of the streaming wars, we see huge media companies spend hundreds of millions to shore up a wide variety of original content (Disney+, HBO Max, Peacock, Netflix). Some of that content will inevitably pull attention away from console gaming.

The increasing failure rate, rising budgets, and a narrowing of hitmakers at the top will lead the existing AAA market, at least that’s tied to an a la carte $60 entry fee, into collapse. Many studios will find chasing games at the high end level not worth the investment and revamp their strategy accordingly. Existing best sellers like FIFA and Call of Duty may alienate a younger audience with the upfront $60, when the competition is free-to-play, or a flat gaming subscription, or of course any other multitude of streaming offerings for movies, TV, and music that can be a worthy substitute. Put another way, a year of Spotify, Disney+, or Game Pass is the cost of two AAA games; I suspect a younger audience will find the any of the three streaming services far more of a value than two boxed titles.

There are creative ways for the big studios to stay afloat, but it means embracing lower upfront fees in favor of even more free-to-play GAAS functionality. Perhaps FIFA charges $20 or $30 for a boxed copy that amounts to little more than graphical and roster updates with Ultimate Team at its center. Additional single player modes cost extra, and the package is chock full of cosmetics and other micro-transactions to generate more money.

I also predict many indie titles will run away from a la carte shops like PSN and the Nintendo eShop in favor of a more reliable payout as part of a subscription service like Game Pass. We already see hints of this in the iOS App Store and the new Apple Arcade service; Apple saw over saturation and crummy business models, so they subsidized a curated set of titles in the form of Arcade that help buttress recurring services revenue. I assume Microsoft today sees similar value for Game Pass, happy to pick up a sizable number of smaller indie titles in exchange for loyal long term customers to the Xbox ecosystem. It’s only a matter of time before Sony starts up their own subscription service to take Game Pass head on.

There are additional economic forces that should accelerate the rush to a new, free-to-play inspired AAA model and rise of subscription services. Each could be its own essay, but I’ll briefly touch on them here. First, next-generation hardware will inevitably inflate game budgets, making studios even more risk adverse to a potential bomb. There are also signs of a potential 2020 or 2021 recession, making the traditional $60 upfront model especially unappealing compared to free-to-play and subscriptions. Add to that an explosion of more digital “distractions” that will siphon attention away from consoles, from streaming movies to social media.

Big changes are coming; it’s not a matter of if, but when. I suspect by late 2021, the console gaming market will be unrecognizable to what it is today.