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Subscriptions are not the future, they are the past

By on February 10, 2012
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This post was published on Gamasutra as part of a regular series. It is cross-posted with kind permission.


Competing with the gym is not healthy business

Last month, Strauss Zelnick, CEO of Take Two, said “I’ve said for years the Holy Grail of our business is to take a packaged goods release and turn it into a subscription model.”

Zelnick may have been saying it for years, but it seems a shame that he is really pushing it (as are EA and Activision) just as a new proven business model comes along that is better for consumers, makes more money for companies and is better suited to providing choice and diversity in games.

I think that the best time to make games into subscriptions was about five years ago. That time has now passed.

The trouble with subscriptions

When you work in the packaged goods business (and video games is a packaged goods business, at least the type of games that Take Two makes), subscriptions seem wonderful. Take a consumer who might spend $40 on a game and turn them into a customer who spends $15 every month for years – who wouldn’t see that as a better, more predictable revenue stream. It reduces the reliance on new releases, it makes it easier to forecast revenues and profits – the Holy Grail for a public company – and it allows the company to plan with the certainty of a monthly cashflow.

But for all of these advantages, subscriptions have several major disadvantages. I’ve written 10 reasons why I prefer microtransactions to subscriptions before, but here are some of the key points:

One-in, one out: Humans have a finite short-term memory. For most of us it is seven items, which is why U.S. telephone numbers have seven digits (without the area code). When you feel that your to-do list is impossibly long and write it down, only to discover it has only ten items on it and you suddenly feel that it is manageable, that is this memory phenomenon at work. A list feels endless if it has more than seven items in it because when you remember the eighth, it knocks the first one out of the list.

How does this affect subscriptions? It means that when you mentally run through the list of subscriptions you are paying, if you have more than seven, you are prone to thinking that you have too many. “I can’t value that service if I can’t even remember it.” Now imagine that you have a gym membership, an Xbox Live membership, a magazine subscription or two, cable TV, Netflix and so on. Pretty soon, you’ve filled up your short-term memory. So as a subscription-games-marketer, to make your prospective user sign up for your game, you will probably have to convince them to cancel one of their other services.

There is a finite number of games that people are prepared to subscribe to at once. It’s fabulous if you’re in the list – I’m looking at you, World of Warcraft — but as endless companies have proven, making a subscription business that is good enough to persuade people to cancel their WoW allegiance is very tough.

Barrier one – the entry: A subscription is a pretty high bar. As a consumer, you have to decide if you are going to get value for money from this game for a very long time. You might think “Well I’ll be on holiday for most of next month, so it’s not worth subscribing right now” or “my dissertation is due” or “work will be really busy”.

It doesn’t really matter what these excuses are: the point is that from a marketing point of view, a subscription makes it really easy for the consumer to just say no. You are making a big ask, so you have to expect a difficult conversion.

(Note that I don’t think 30 day trials entirely solve this problem either: as a consumer, you have to commit time and effort knowing that that effort will be wasted if you decide not to subscribe. I always prefer a business model that allows users to play for free forever, rather than giving them 30 days to experiment and then saying “you’ve had your fun, now pay up or bugger off”.)

Barrier two – the upsell: I believe that the true demand curve for media products is a power curve: most people want the product for free, some are happy at exactly the current price ($40 for a game, $15 for an MMO subscription), and a few would happily spend more money. Much more money.

The subscription fee is not just a barrier to getting people into your game: it is a barrier to letting the people who love what you do pay lots of money for the value they are getting.

You don’t have to take my work for it. Subscription businesses like Dungeons and Dragons Online, Lord of the Rings Online and DC Universe Online have gone free-to-play and are reportedly making significantly higher revenue as a result. Companies that never started with a subscription model like Bigpoint are making $200 million in annual revenue and sell items that can cost as much as €1,000 like the Tenth Drone.

Subscriptions are limiting because they cap your revenue per user, and in a digital world, I think that is a bad thing.

Are subscriptions dead?

I’m not sure that I’m ready to recommend that the cash-generation machine that is World of Warcraft should go free-to-play any time soon.

I do think that you can only think that subscriptions are the Holy Grail of the industry if you have failed to notice the profound changes that the Internet has wrought on our industry. By enabling free-to-play games that allow people to play cool games for free, forever and choose – flexibly, with no commitment – to spend a little money or a lot of money on things that they value in the game, I believe that you give your consumers a better experience and make more money than you would with subscriptions.

I think that Star Wars: The Old Republic will be the last, massive, subscription MMO because new models have been proven to be better business, especially for games with a niche audience.

What do you think?

About Nicholas Lovell

Nicholas is the founder of Gamesbrief, a blog dedicated to the business of games. It aims to be informative, authoritative and above all helpful to developers grappling with business strategy. He is the author of a growing list of books about making money in the games industry and other digital media, including How to Publish a Game and Design Rules for Free-to-Play Games, and Penguin-published title The Curve: thecurveonline.com
  • Pingback: 5 interesting articles on game monetization, subscriptions and more | Game Analytics Blog()

  • Zoya Street

    ‘Put your score on the leaderboard’
    ‘Compete in the tournament’
    These can be monetised as single purchases rather than demanding a subscription.

  • Regeta7

    “How does this affect subscriptions? It means that when you mentally run through the list of subscriptions you are paying, if you have more than seven, you are prone to thinking that you have too many. “I can’t value that service if I can’t even remember it.” Now imagine that you have a gym membership, an Xbox Live membership, a magazine subscription or two, cable TV, Netflix and so on. Pretty soon, you’ve filled up your short-term memory. So as a subscription-games-marketer, to make your prospective user sign up for your game, you will probably have to convince them to cancel one of their other services.”
    How do businesses know that they have to “make your… user… cancel one of their other services.”

    I see no actual evidence in this article or in reality to suggest that people are naturally limited to 7 subscriptions.

    In fact, contrary to your article I find that in real life those who pay attention to their bills have all their monthly occurring costs categorized in some form (paper, excel, etc.) and are more concerned for the COST of all combined subscriptions (and individual ones when and IF budgeting) than the number of subscriptions.

  • Regeta7

    Actually, I can’t even finish the rest of this article.

    You propose the following paragraph (see end of comment) yet provide absolutely no evidence or research to support it. You merely say “This is how it is.” Quite the contrary to evidence, the only thing you actually provide to the reader is an incorrect understanding of short term memory. So not only do you NOT provide any evidence to support your idea (which comes off in the article as if fact) you provide evidence to suggest you are most likely wrong, given how you were wrong in understanding the concepts used to create the idea.

  • Regeta7

    Now imagine that you have a gym membership, an Xbox Live membership, a magazine subscription or two, cable TV, Netflix and so on. Pretty soon, you’ve filled up your short-term memory.

    This isn’t short term memory, it is long term memory…

    I think you are extremely ignorant as to what short term memory is, and I suggest actually studying it.

    When you access a mental list of all your subscriptions, it is from your LONG TERM MEMORY, not your short term. Your short term lasts for mere seconds, if that.

    I think what you are wanting to learn is WORKING MEMORY, not Short Term memory.

    http://en.wikipedia.org/wiki/Working_memory 

    It’s hard to read through this article and trust your opinion when you keep on making references to a term you don’t understand, are misinformed on, and keep misrepresenting (short term memory).

  • Regeta7


    It means that when you mentally run through the list of subscriptions you are paying, if you have more than seven, you are prone to thinking that you have too many.”

    It would be wonderful to see some evidence (research) which backs this up.
    Unless of course you don’t actually know about psychology (memory) and instead just learned the words “7 + short term memory” and then make assumptions on our mentality based on this list.

  • I think that not all sort of games could follow F2P model to monitize on items. Board games for example with well defined rules – you do not have that much of stuff to sell, apart from game attributes or visuals. You are probably not in the position of masses per game. But including an option to subscribe for service including few such games i like, giving me tournaments, leaderboards and simply fun time – is not such a bad option which is IMHO not going to die.  

  • I think that subscriptions are at their weakest when they require mass volume to work – if you can achieve that (as Activision has done), you’re in a brilliant place, but it’s hard to do so and your upside revenue is capped.

    I do like the hybrid model, although I suspect it makes less money than the non-hybrid. It is attractive to some players, which makes it important.

  • Yes, pure subscription models are on the way down. In MMO terms, the vast majority of players have a sub to one game and one game only – if your sub-based title isn’t better than the market leader, then you don’t get any of that money.

    Also important is that most sub-based titles require an outlay of $50 to $60 up front (at launch) to buy it as well. That’s a barrier to even getting players to start the title.

    F2P gives the client away for free and then works to earn a dollar or two on average from each trialist. Players can have 4 or 5 F2P titles on the go at once where they’d only have one sub.

  • Rastermax

    Good stuff as always. I will not try star wars until free and never downloaded Rift before they had a trial.
    Now maybe there is a difference between 14.99 a month and 4.99…

  • Sanjay Sarathy

    Nicholas – it would be more accurate to state that subscriptions as the sole gaming business model might be dead.  There are certainly plenty of instances of companies who have a F2P model that monetize just via subscriptions and are quite successful at it.  The Call of Duty Elite service – if reports are true – have 1.2M subscribers paying $4.99 a month. Most companies using just a microtransaction model would die to have that consistent revenue stream.  I would also argue that the examples you use in the model (DDO, etc) have generated a huge part of their increased revenue via subscriptions, not just microtransactions, and we’ve seen that in our own experience with clients.