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Look, I get it. There’s something about these subscription services that people can’t help but find enticing.
$10 here, $15 there, and suddenly fans have access to thousands of games, songs, and movies, all with the swipe of a thumb or the twiddling of a control stick. Wanna play Persona 3 Reload? Fire up Game Pass! Wanna take an Arwing for a barrel roll? Boot up Star Fox in Nintendo Switch Online! Feel like listening to some City Pop while you pick up groceries? Tap that Spotify app!
The allure is clear, but as I’ve pointed out in the past, it’s at best a dubious arrangement for fans, at worst a predatory scheme to keep your wallet pried open every month and a way for corporations to spy on your every move. However, I’m not here to harp on that again, because I instead want to focus on how this subscription hysteria is looking more and more like it’s also not going to be the best thing for media companies themselves in the long run, either.
If you’re a fan of Disney, for instance, the House of Mouse recently revealed that it had finally turned a profit on its Disney+ service—to the tune of $47 million. That sounds great, but given the platform lost $587 million a year prior, and that $47 million is just about the cost of producing two episodes of She-Hulk, well, “profit” in this case starts to look a bit spurious.
Disney isn’t alone when it comes to floundering streaming services, either. Back in November, Warner Bros. rebranded its service to MAX and promptly lost 700,000 subscribers, while Universal’s Peacock platform dropped $825 million down the incinerator in the final quarter of 2023. What do all of these services have in common? Massively expensive original programming that is intended to both draw in new subscribers and keep current ones around. When neither of those things happen, the result is millions of dollars practically flushed down the toilet.
This problem appears to be extending into the world of video games, where companies like Nintendo, Sony, and Microsoft all have services that offer subscribers catalogues of games to play. In recent years, Microsoft went on a buying spree to snag studios in an attempt to bolster its Game Pass service. More studios means more exclusive games, which in turn means more subscribers. Except, Xbox Series X and S aren’t selling very well, and with hardly any notable games coming from Xbox (and notable under-performers like Starfield), Game Pass isn’t exactly growing at the rate it needs to in order to sustain itself longterm. And to make things worse, earlier this month, Xbox closed four Bethesda studios in an effort to cut costs.
Since 2019, Microsoft has spent over $70 billion on these studio acquisitions, while Game Pass brings in about $3.7 billion annually. How, then, is Microsoft expecting Game Pass to turn a profit? Microtransactions and other monetization schemes. It’s at the heart of what the game industry wants in regards to these services. A low-cost buy-in via monthly subscriptions (guaranteed monthly revenue from gamers) gets consumers through the door, then the temptation of endless microtransactions and DLC brings more money in besides.
And this can work, certainly—if games with DLC and microtransactions are at the heart of your plan and they have a huge following. But what about those AAA games that studios like Bethesda put out? How do those get paid for if the subscription service becomes static and, even worse, sees subscribers drop off? Therein lies the issue. Starfield is estimated to have cost about $400 million to produce across seven years. That’s a ton of cash to burn through to then immediately throw the game onto Game Pass and hope it kicks subscription numbers through the roof.
Sadly, Starfield did not light the world on fire, and as a result that’s $400 million that has yet to be recouped. Think about it: if you have a pool of X number of subscribers to your gaming service, and that pool pays a regular fee every month for access, then you can reliably predict that your service will pull in Y amount of dollars every 30 days. Cool. If your new $400 million game doesn’t increase the amount of subscribers in any significant way, then that Y amount of dollars from users is only going to pay for the base catalogue of games that was available before the shiny new AAA title got added in.
Now, imagine going through this cycle over and over. Where do the profits come from? Where I’m sitting, I don’t see any to speak of. There are no profits, at least not until the subscriber numbers grow large enough, and stick around on top of that. For Game Pass to really become profitable, especially with those 40-plus studios Microsoft bought for over $70 million, the service needs have a user base in the hundreds of millions. Why hundreds of millions? Because recent leaked court documents revealed that the average Game Pass subscriber generates less than $10 of revenue per month.
There are currently around 34 million Game Pass subscribers. Yikes.
This is why studios are being shuttered. Microsoft is desperate to cut costs. And they’re not alone. This is a trend all across the industry. Even companies that don’t have a subscription service to speak of are still aiming for so-called live service games, where there’s either a single purchase to play (like $70 for Suicide Squad: Kill the Justice League) or free-to-play access (think Fortnite) and then a subsequent unyielding flourish of microtransactions on top of that to buoy profits. Even in this scenario, where microtransactions have to keep a single game afloat, it doesn’t always work. Epic has seemingly admitted as much with claims that it isn’t turning the profits it needs to despite having the live service darling that is Fortnite under its umbrella.
In the case of Nintendo, the company is in the fortunate position of being able to leverage its Nintendo Switch Online service with an immensely rich catalogue of legacy games. Outside of some labor to port the software to NSO, these are 20, 30, and in some cases even 40-year old titles that don’t cost any extra money to produce. They’re also immensely desirable to play by fans both new and old. As is often the case, Nintendo is situated in a way that few developers could dare dream of thanks to so many years producing great software. Unlike the competition, the House of Mario doesn’t need to put its AAA software on NSO to lure in subscribers, meaning those games just get sold directly to consumers and the company gets to collect all those profits.
Still, outside of the unicorns like Nintendo, it’s evident that the subscription model is a pie in the sky fantasy that demands too much of consumers to ever be feasible in any substantial way. As media companies continue to turn to this model, the result is skyrocketing costs for customers who are being repeatedly asked to shell out $10 to $15 per month for multiple music, game, and video services. Despite what the pundits claim, it seems apparent to me that this paradigm is unsustainable. Especially if developers are keen to produce more live service games. They expect consumers to subscribe to a service in order to play games that constantly ask them to spend money, besides? It’s preposterous. It’s the future!
But is it the future you want?
