Why PlayStation is working on a GamePass competitor
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For several days now, reports to the effect that Sony is working on a service similar to Xbox’s GamePass for the PlayStation have been spreading like a wildfire.
In the past, former Sony Interactive Entertainment (SIE)America CEO Shawn Layden said this:
It’s very hard to launch a $120M game on a subscription service charging $9.99 a month. You pencil it out, you’re going to have to have 500 million subscribers before you start to recoup your investment. That’s why right now you need to take a loss-leading position to try to grow that base.
Current PlayStation boss, Jim Ryan said the following:
We are not going to go down the road of putting new release titles into a subscription model. We want to expand and grow our existing ecosystem, and putting new games into a subscription model just doesn’t sit with that.
Given the 2 statements that outright labelled such a service as unsustainable, the rumours coming out of Sony this week should come as a surprise to gamers and industry observers.
What we know so far
Beyond the fact that Sony has decided to make a U-turn on the GamePass model, what other details have been revealed about the looming PlayStation subscription service?
Bloomberg reported that the service codenamed Spartacus will allow PlayStation owners to pay a monthly fee for access to a catalogue of modern and classic games.
This service will be available on both the PS4 and new-gen PS5. This isn’t dissimilar to GamePass which is also available on the Xbox One and Series S/X consoles.
Given that the article suggests a Spring launch timeline, gamers should note that the service is around the corner and might launch between March-May of 2022.
The end of PS NOW
No one can describe PS Now as an overwhelmingly popular service so it’s no surprise that the streaming service will be merged with PS Plus into Spartacus.
Documents reviewed by Bloomberg suggest that Sony plans to retain the PlayStation Plus branding but phase out PlayStation Now. The new streaming service is expected to have 3-tiers that will be structured as follows
- First Tier — existing PS Plus benefits (2–3 free games every month + ability to play online)
- Second Tier — First Tier benefits + a large catalogue of PlayStation 4 and, eventually, PlayStation 5 games
- Third Tier — First & Second Tier benefits + extended demos, game streaming and a library of classic PS1, PS2, PS3 and PSP games.
As highlighted earlier, PlayStation Boss Jim Ryan previously highlighted they had no intention of putting PlayStation titles onto a streaming service on day one. It will be interesting to see if Spartacus will maintain this stance given that Xbox’s GamePass makes many of their biggest titles available on GamePass on their release day.
Why has Sony changed tune?
The biggest question for me is, what has changed since Jim Ryan & Shawn Layden labelled GamePass as unsustainable? Have they realized they were wrong? Do they still believe the viability of GamePass is problematic but are unwilling to let Xbox get all the plaudits and good PR for GamePass?
Well, in regards to sustainability GamePass hasn’t been proven to be highly profitable. In fact, Xbox Marketing boss Aaron Greenberg confirmed that the service is not a big profit play at the moment. This validates what Sony execs have said regarding sustainability, but it highlights how Sony is missing the point.
For a long time, Sony failed to understand how subscription services work. You have to spend a ton of money acquiring users before you actually make significant returns on your investment.
In Q4 of 2017, Netflix gained 8.3 million subscribers but their annual marketing budget ballooned to $1.3 billion. At some point in 2017, the user acquisition cost of a single user had gone above $100.
So yes Jim Ryan, might have been correct in saying the economics of GamePass didn’t make sense. The problem is that he failed to see Microsoft’s play. The goal at Microsoft isn’t to make GamePass profitable today. Microsoft’s goal is to make huge profits years from now on games released years prior. The growth trajectory of GamePass suggests if Sony doesn’t act they are in danger of being left behind.
Microsoft already has over 18 million people on GamePass. If those 18 million subscribers were to pay the $14.99 monthly sub, Microsoft would make $270 million a month and $3.2 billion annually.
That Microsoft already has such a lead on whatever Sony decides to launch as a competing service creates a problem for Sony. Ryan and Sony finally noticed that it might be in their best interest to follow suit and make a subscription service as well…
