Are Subscription Payments the Way Forward for Gaming?
With consumers spending more time and money than ever on games, the opportunity for gaming companies is vast. But monetizing digital games and creating sustained customer loyalty are complex issues. Subscription models are a key area now being explored by gaming companies, but the industry is still working on how to make these models compelling and profitable.
Getting the payments experience right is now a vital part of addressing these challenges.
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Consumers are game for subscriptions
According to Stanford Business, the subscription model is a booming field. In recent years, this market has grown by more than 100 percent annually and is now worth billions every year.
The adoption of subscription-based streaming services in the digital entertainment space has massively disrupted forms of entertainment that have been traditionally based on physical goods. A recent report by McKinsey revealed that 46 percent of consumers now subscribe to an online streaming-media service, such as Netflix. The widespread and rapid disappearance of the CD and DVD, the arrival of the age of the downloadable, and the growing number of digital subscriptions of all kinds clearly show the shift in consumers’ perception of ownership.
Subscriptions are good for business
From a business point of view, subscriptions are valuable beyond the pure amount of each transaction. Subscription-based services encourage longer-term relationships, improving customer lifetime value through better retention and encouraging customers to broaden their range of interactions with each business.
According to Investor’s Business Daily, “these annual or monthly payment plans provide companies with a predictable revenue stream and the potential for greater lifetime sales from each customer.”
They also imply that the launch of subscription services by a growing number of established companies has had a direct impact on share prices, driving stock prices up considerably in a little over five years.
But the gaming industry is lagging behind
It’s certainly true that subscriptions enable recurring revenue via a concrete financial commitment. Gaming journalist Bryant Francis (@RBryant2012) writes in this article on Gamasutra: “I think that gets to the heart of why subscriptions are so appealing when your business relies on the repeated success of selling $60 games en masse.”
However, subscriptions are in fact currently the least popular way to spend money on digital games. Our research with NewZoo showed that only 29 percent of paying PC/console gamers spend some of their current gaming budgets on subscriptions. Interestingly, the report also revealed that 44 percent of paying gamers think that the payment experience within games can be significantly improved.
Another recent article suggests that the gaming industry is playing catch-up to its digital entertainment counterparts when it comes to developing mainstream subscription models: “2019 marks the first year that multiple companies will attempt to offer players a full library of games all at the low low price of $15/month (ish).”
Surfing the tidal wave of the subscription economy
Where they previously focused considerably on physical stores, gaming merchants must now look for new ways to engage with customers and drive revenue growth. Some gaming businesses are looking to bring pay-to-play areas within stores, based on a ‘membership’ model. In the online environment, gaming companies are starting to expand these memberships into streaming service models.
Alex Wawro (@awawro) predicts in the same Gamasutra article that the trend around streaming and subscriptions will continue to grow: “It's exciting to see competition heat up around game streaming and subscription services. It's a veritable one-console future, except your console is on a rack in a server farm somewhere, streaming games to your phone or your TV or your laptop.”
Bryant Francis also believes that “the future of profiting off of the games business for these companies isn’t just selling individual boxes and taking a cut of sales, it’s building the financial reliability of subscribers into their portfolios.” He also suggests that gaming merchants have an opportunity to build this financial reliability by “pulling them into some microtransaction-driven live games where they'll convert into paying players.”
Could subscriptions be a win-win for gaming merchants and their customers?
“The need to own is being supplanted with a need to experience things and a desire to try,” says EA Senior VP of Player Network Michael Blank, in this feature in Variety. “And as a result, we’re seeing this shift in consumption patterns where access is being valued greater than ownership.” EA notes that their subscribers were playing more games, playing for longer, and most importantly for EA, spending more money in those games.
Looking at subscriptions from a business point of view, there are even more benefits to reap. Recurring payments can help reduce declines, control fraud and ensure that the gaming experience remains uninterrupted. These factors certainly benefit both gamers and game developers.
To make subscriptions work, the payments process needs to be slick and easy – and it needs to meet consumers’ needs. Our research shows that 75 percent of gamers find it frustrating if their preferred payment method is not available, and 72 percent of gamers are open to saving payments details for their preferred method of payment for future purchases. This demonstrates how vital it is to keep up with consumer payment preferences and their desired experiences. The exponential growth of alternative payment methods and cross-border eCommerce makes the acceptance of the ‘right’ payment methods in each geography an absolute must.
Flexibility, strong security and holistic fraud prevention measures are also important to ensure gaming merchants can make their subscription payments work seamlessly, cost effectively and with low risk exposure.
Looking to the near future, as gaming experiences become increasingly immersive, and available across multiple end-points, new forms of authentication may need to be used for payments. An open, flexible payment platform that allows new technologies to be easily integrated into the existing infrastructure will allow gaming companies to capture the revenues.
However, given that nearly half of the paying gamers consider that the paying experience could be significantly improved, there is still plenty of room for improvement as subscription models take hold.
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