Why Take-Two Interactive does not need to adopt games subscriptions yet

Take-Two Interactive (T2) reported quarterly results, with revenue dipping slightly, but profitability improving. On the call, T2 reiterated scepticism over the future of the games subscription models. As pointed out by gamesindustry.biz:

"We're highly sceptical that subscriptions will be the only way or the primary way that interactive entertainment is distributed.

"That's because of the way people consume it. And the price point for owning a title, which is very reasonable and very, very low, actually, on a per hour basis."

It is not the first time T2 has made its opinion known on the matter. From its perspective, the thinking is commercially sound and valid. It controls some of the most valuable games franchises in the world including GTA, Red Dead Redemption and NBA2k. As seen with music and tv industries, subscription economics dilute the average revenue per user (ARPU) of traditional ownership and retail models.

Owning some of the world’s best-selling titles, T2 would have a lot of potential revenue to lose if it was to fully embrace subscriptions. Furthermore, the ‘play just a few titles per year at £70 a piece’ approach is favoured by T2 as it aligns with its market positioning. Without an all-access subscription, the £70 price point and large game file size limit the amount of titles consumers can seamlessly access at any one time. The most popular games have the best chance of retaining engagement in this environment – one where it is too expensive or inconvenient to try too many new titles.

For T2, this means less competition for engagement under the retail model than it would have under the subscription model. Under the subscription model, T2 competes with many more titles at once. This includes increased competition with free-to-play games like Fortnite. Offering games to consumers in the same context as free-to-play games further challenges the high AAA price points. The more titles accessible to each consumer, the more at risk is T2’s user engagement and time spent. As multiplayer games worlds increasingly gain importance in the games industry revenue mix, engagement is going to be key.

Top-end games titles will often favour subscriptions less, but the dynamics of subscription models are different for titles outside the highest end of the market. For titles with smaller audiences, the appeal of subscriptions is about getting in front of more eyes, which would not have engaged with the title otherwise, to increase their chances of engagement and monetisation. In other words, it is an opportunity to capture market share from the top-end titles.

Ultimately, there may be a point in time where subscriptions will grow large enough for it to make commercial sense for T2 to ‘flick the switch’ and embrace the subscription model, but this is several years away. The rate of uptake of new device-agnostic services such as Stadia or Luna is going to play a role in the timing. In the meantime, T2 can buy itself time in its currently more profitable realm. This includes further expansion of existing games worlds, deeper implementation of cross-entertainment monetisation, as well as similarly targeted acquisition of hit titles and games and entertainment companies.