Joost van Dreunen of SuperData shares his thoughts on Apple Arcade announcement

With the announcement of Apple Arcade gaming subscription yesterday, a new era has officially begun. After initially making billions from freemium titles, Apple is intent on offering premium content for a monthly fee. As mobile gaming starts to reach saturation, platform holders seek for novel ways to differentiate.

Credit: Apple

Credit: Apple

A price point of $4.99 suggests that Apple is keen on provoking a land grab in subscription-based game services. It also builds on its experience with Apple Music: after initially offering a 3-month free trial period, it reduced this to one month in July this year. The Arcade comes with just one month from the start.

The optimist in me is excited about the growing availability of premium content at a fixed price. It makes the Apple Arcade less of a money-maker for large incumbents, and, as a result, I’d expect any innovation to come from the smaller fries, of which Apple has managed to round up plenty. It is not a play for the attention of the traditional hardcore gamer audience, at least not on the basis of the titles that will initially be available. The current offering should appeal in particular to parents because minors tend to be equally excited and confused about the costs of free-to-play games. As a parent, I welcome this model with both arms.

The cynic in me always worries about the negotiating position for, especially, small creative firms. As a general rule, the platform must come first. This means that Apple effectively owns all the cards in negotiating rates, and you either play along or perish. Despite Tim Cook’s clamoring for better care-taking of personal data, like its various competitors, Apple is aggressively expanding on its service revenues. Wall Street loves recurrent revenue and rewards this with a much higher valuation than companies that are primarily transaction-based.

It’s still an enormous win for a small outfit to sell the mobile rights to Apple and be featured prominently as it rolls out this new service. The Apple Arcade will largely serve as a marketing and brand-building tool for the game makers that are currently part of its service.

^Credit: Apple

^Credit: Apple

Even so, Apple’s list of publishers also includes several well-known names. In addition to Capcom and Konami, we saw Square Enix, Ubisoft, Gameloft and SEGA. While these firms have an impressive presence in PC and console gaming, they are not exactly hard-hitting content creators on mobile. The share of their overall revenue coming from mobile has remained well under 10% for all of them.* It’s fairly common for incumbent firms to release a port, or slightly updated or tailored version, of one of their major franchises on a new platform. But these firms also know full well that they cannot monetize audiences with micro-transactions and add-on content. As a result, the financial upside will remain relatively modest. This is similar to the cost-plus pricing we see in video (e.g. Netflix) and music (e.g. Spotify).

The challenge is to become the most popular title within a subscription in order to negotiate a better payment. But likely it will remain by and large a marketing effort for both the minor and major firms.

While the service provides some competition for Google Stadia and Microsoft xCloud, it doesn’t influence their efforts too much beyond normalizing the notion of buffet-style entertainment consumption. In this case, Apple has chosen to section off part of its content offering and free everyone–developers and consumers alike–from aggressive monetization tactics. That said, the Apple Arcade clearly targets a very different demographic and looks to engage a more mainstream audience with casual game play. Judging from the titles each have currently announced for their respective services, I expect Microsoft, Sony and Google to maintain their focus on more dedicated gaming audiences.

Ultimately whether Apple Arcade prospers or flounders will come down to its content offerings and consumer appetite for subscriptions. While we’ve seen tremendous monetization opportunities for developers in the free-to-play space, that model has mostly benefited just a handful of incumbents. Also, players generally convert into payers at a single-digit rate, so there is potential to access consumers who are fatigued by microtransactions. If Apple can play nice with its content creators, we could see as many as 50MM people to sign up within the first 24 months, provided Apple continues to add content, making this a pioneering service for a new future of gaming.

*According to its financial documents, Vivendi’s Gameloft generated $324MM in mobile revenue in 2018, which represents 2.1% of Vivendi’s annual earnings.

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