Subscriptions are not the future, they are the past

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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?

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