PlayStation Now and Xbox Game Pass Increase Subscribers, But Recovery Will Favour Disruptors

Both PlayStation (PS) and Xbox have recently announced significant increases in their games streaming service user bases. Xbox Game Pass now has 10 million subscribers and PlayStation now has 2.2 million subscribers. While this makes up for a good news story of high percentage increases and the inevitable ‘who got more faster’, the overall audience size is still very much niche, i.e. in early adoption stages. In Q1 2020, only 11% of monthly active console gamers use Xbox Game Pass weekly, compared to 8% using PS Now as stated by MIDiA Research’s Q1 2020 Survey of 4000 respondents across the US, UK, Australia and Canada). Despite some games streaming services existing for years, gaming is behind on the streaming service adoption curve, compared to music and video.

There is a good commercial reason behind it – simply put, consumers are educated to spend significantly more money on games titles than they ever did with music or video. The ‘all you can eat’ proposition for a limited price makes it harder for the unit economics to encourage pure-play games companies to take the leap. No wonder behemoths like Take-Two interactive are comfortable holding back on games streaming.

The point is that the majority of the games streaming addressable audience is not yet 100% secured for either Xbox or PS. Arguably, a large part of this addressable audience is still up for grabs, not just in the console space but also in the pc and mobile gamer segments.

Cue the disruptors, who in this case are not plucky start-ups, but some of the most powerful companies in the world—fully financially capable of sustaining loss-leading projects to create synergies elsewhere in their business model. Their financial and strategic positioning alone makes them considerable competitive market participants going ahead. With the current crisis dynamics and oncoming recession, games streaming adoption will likely only be catalysed, potentially at the cost of margins for pure games companies in the near- to mid-term:

• Games streaming subscriptions act as money savers for gamers: With the rise of games streaming subscription services, consumers now have a way to enjoy more games for a significantly lower price. Simultaneously the oncoming recession will cause a decrease in disposable income. Consumers who used to buy more than one or two games per year, will perceive switching to streaming subscriptions as a money saving endeavour.

• Saving on games dedicated hardware: Another money saving consideration likely to be boosted during the recession is the fact that consumers now do not have to pay $500 for a games dedicated piece of hardware to enjoy high-grade games experiences. Google Stadia offers an alternative without the need for a console or a high spec  gamer PC, with Amazon’s ‘Project Tempo’ to come in 2021.

• Timing will be key for the Xbox and PlayStation’s market share outlook: Lags between lockdowns and the recession, as well as lags between effects on various industries, coupled with disrupted timelines of product launches could shuffle up the current competitive landscape of the games industry. The outbreak has already forced Amazon’s games streaming service Project Tempo to be delayed until 2021. Both PlayStation and Xbox have said that the outbreak should not impact on their release timelines. However, both $500 products will still have to face adverse consumer spending conditions this winter holiday season. A weakened position at the start of 2021, combined with Amazon launching a games service alongside Stadia could create significant commercial pressure on both Xbox and PlayStation.