The Subscription Payment Model In The Games Industry - MIKAEL SVÄRD - KTH SKOLAN FÖR INDUSTRIELL TEKNIK OCH MANAGEMENT
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EXAMENSARBETE INOM INDUSTRIELL EKONOMI, AVANCERAD NIVÅ, 30 HP STOCKHOLM, SVERIGE 2021 The Subscription Payment Model In The Games Industry MIKAEL SVÄRD KTH SKOLAN FÖR INDUSTRIELL TEKNIK OCH MANAGEMENT
Prenumerationsmodellen i Spelindustrin
av
Mikael Svärd
Examensarbete TRITA-ITM-EX 2021:78
KTH Industriell teknik och management
Industriell ekonomi och organisation
SE-100 44 STOCKHOLMThe Subscription Payment Model In The
Games Industry
by
Mikael Svärd
Master of Science Thesis TRITA-ITM-EX 2021:78
KTH Industrial Engineering and Management
Industrial Management
SE-100 44 STOCKHOLMExamensarbete TRITA-ITM-EX 2021:78
Prenumerationsmodellen i Spelindustrin
Mikael Svärd
Godkänt Examinator Handledare
2021-03-25 Pontus Braunerhjelm Jannis Angelis
Uppdragsgivare Kontaktperson
Sammanfattning
Det här examensarbetet ämnar undersöka hur affärsmodeller används bland utvecklare
i spelindustrin och hur prenumerationsliscensering mellan plattformar och utvecklare
fungerar idag. Med denna grund diskuteras i examensarbetet den möjliga framtida
påverkan av detta. Detta görs med hjälp av intervjuer med utvecklare samt en
litteraturstudie med data från intervjuer, artiklar och rapporter. Resultaten är att
affärsmodeller inom spelindustrin är spridda i spelindustrin och att de är bundna till
vilken slags spel de implementeras i, vissa modeller fungerar bättre i vissa spel och
plattformar. Prenumerationsmodellen mellan plattformar och utvecklare kretsar idag
kring vinstgarantier och förbetalning plus vinst inuti spel. Det finns en stor osäkerhet
kring hur förhållandet kommer se ut i framtiden och hur det ser ut kommer påverka
utvecklare och speldesign till hög grad.Master of Science Thesis TRITA-ITM-EX 2021:78
The Subscription Payment Model In The Games
Industry
Mikael Svärd
Approved Examiner Supervisor
2021-03-21 Pontus Braunerhjelm Jannis Angelis
Commissioner Contact person
Abstract
This thesis aims to examine the current state of business models among game
developers and how subscription licensing between platforms and developers currently
works. With this foundation the potential future impacts are discussed. The thesis
accomplishes this by interviewing developers and using literature data from interviews,
articles, and market research. The findings are that the business models of the gaming
industry are diverse but that they are tied to the type of game they are implemented in,
certain models work better on certain types of games and certain platforms. The
agreements surrounding the subscription model between developers and platforms are
currently about revenue guarantees or advance payments plus revenue inside games.
There is much uncertainty about how the agreements will look in the future. How the
agreements are designed will impact developers greatly and change how content is
designed and made.
Key-words Gaming, Subscription, Subscription licensing, Business modelsContents
1 Introduction 3
1.1 Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.1.1 Value chain & Actors of the gaming industry . . . . . . . 3
1.1.2 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.2 Problem definition . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.3 Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.4 Research questions . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.5 Delimitations & Scope . . . . . . . . . . . . . . . . . . . . . . . . 5
1.6 Theoretical contribution . . . . . . . . . . . . . . . . . . . . . . . 5
1.7 Disposition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2 Theory 6
2.1 Theoretical framework . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1.1 Digital Platforms and Ecosystems . . . . . . . . . . . . . 6
2.1.2 Digital ecosystems, platforms and complementors . . . . . 7
2.1.3 Business models . . . . . . . . . . . . . . . . . . . . . . . 7
2.1.4 Digital business models . . . . . . . . . . . . . . . . . . . 9
2.1.5 Gaming, technology and business models . . . . . . . . . 10
2.2 Literature review . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.2.1 Market structure . . . . . . . . . . . . . . . . . . . . . . . 11
2.2.2 Current state of gaming subscriptions . . . . . . . . . . . 13
2.2.3 Future of subscriptions . . . . . . . . . . . . . . . . . . . . 13
2.3 Motivation and positioning of this study . . . . . . . . . . . . . . 14
3 Methodology 16
3.1 Research design . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.2 Literature review . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.3 Interviews . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.4 Question sets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.4.1 Question set 0 . . . . . . . . . . . . . . . . . . . . . . . . 18
3.4.2 Question set 1 . . . . . . . . . . . . . . . . . . . . . . . . 18
3.4.3 Question set 2 . . . . . . . . . . . . . . . . . . . . . . . . 19
3.5 Reliability & Validity . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.6 Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4 Empirical results 21
4.1 Summary of interviews . . . . . . . . . . . . . . . . . . . . . . . . 21
4.1.1 Small developer for mobile - 1 . . . . . . . . . . . . . . . . 21
4.1.2 Small developer for mobile - 2 . . . . . . . . . . . . . . . . 21
4.1.3 Global games publisher - 3 . . . . . . . . . . . . . . . . . 22
4.1.4 Independent developer & Consultant -4 . . . . . . . . . . 22
4.1.5 Small developer - 5 . . . . . . . . . . . . . . . . . . . . . . 23
4.1.6 Small developer - 6 . . . . . . . . . . . . . . . . . . . . . . 24
4.1.7 Small developer - 7 . . . . . . . . . . . . . . . . . . . . . . 24
15 Analysis & Discussion 26
5.1 Digital Platforms and Ecosystems . . . . . . . . . . . . . . . . . 26
5.2 Business models . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.2.1 Strategic components . . . . . . . . . . . . . . . . . . . . 27
5.2.2 Customer and market components . . . . . . . . . . . . . 27
5.2.3 Value creation components . . . . . . . . . . . . . . . . . 28
5.2.4 Discussion of theories . . . . . . . . . . . . . . . . . . . . 28
5.3 Discussion of models . . . . . . . . . . . . . . . . . . . . . . . . . 30
6 Conclusions & Future research 32
6.1 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.2 Future research . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
21 Introduction
1.1 Background
The games industry is one of rapid growth, in Sweden companies involved in
it increased from 170 in 2013 to 384 in 2018 a staggering 226% increase (GDI,
2019), it is also an industry characterized by large differences, the sizes of de-
veloper studios range from individual programmers to thousands of employees,
development costs range widely mirroring this. The rise of the subscription
model has been a notable feature of many markets the last couple of years. In
the gaming industry however it remained fairly niche until recently and has seen
a great upsurge of new interest and entrants, Apple Arcade, Google Stadia and
Amazon’s Luna are all examples of fresh entrants in 2019 and 2020. Meanwhile
the comparatively old Xbox Game Pass which launched in 2017 hit 10 million
subscribers in 2020 (Kastrenakes, 2020). In contrast to this great interest there
are some who question the very fundamental problem of how easily digital sub-
scriptions will translate to video games. (Dan Singer and Enrico D’Angelo,
2020)
This thesis explores the current state of the games industry as well as the
potential impact of subscription services on developers.
1.1.1 Value chain & Actors of the gaming industry
The value chain in the games industry can be divided into three main stages:
development, publishing and distribution. Development of games is done by the
developers. They can either be independent, ranging in size from from a single
person to thousands or they can be part of the developing department of pub-
lishers or even the platforms themselves. Examples are independent developers
CD Projekt Red with over 800 employees (CD Projekt Red, 2020), developer
King, with around 2000 employees and 271 million monthly active users but who
are owned by the publisher Activision Blizzard (King.com, 2020) and developer
Bethesda which was bought by Microsoft, owners of the console Xbox and the
platform Xbox game pass (Hines, 2020).
Publishers generally cover financing, content procurement and/or license
management, management of physical copies, and marketing.
Finally, distribution can be done both physically and digitally. If digital,
distribution is often done through a portal or platform. The platforms might
be, but aren’t always, controlled by the device manufactures. (Wirtz, 2020;
González-Piñero, 2017) Examples of this is the console Playstation, made by
Sony who also control the sales platform to the devices. On the other side there
are platforms such as Humble Bundle on PC. Humble Bundle does not make
any hardware but provides a store front as well as a subscription offering to the
device.
31.1.2 Definitions
Before we continue we must define what we mean by subscription and platform.
A subscription is a service where users pay a recurring fee to gain access to a
service or product instead of for instance, a single purchase once. The latter,
buy and own, being the traditional video game model. Subscriptions in gaming
can look a bit different and for instance be either to a single game or to a library
of games. (Lisa Jaeger et al., 2020) In this thesis the term subscription refers
to the later.
The usage of the word platform can be confusing as it can refer to both
digital platforms such as Amazon or to different hardware platforms such as
mobile, console or PC. Unless otherwise specified ’platform’ in this thesis is
used to refer to digital platforms such as Xbox game pass or Apple arcade,
’device’ or ’hardware platform’ is used to refer to hardware platforms such as
mobile, console or PC.
1.2 Problem definition
The subscription model has made gains in many industries and is now being
pushed heavily in the games industry, there is however currently very little
research on the subscription model in gaming in general and how it affects
developer specifically. (Dan Singer and Enrico D’Angelo, 2020) Certain is that
there is a large push towards it from old and new players alike, this creates an
uncertain future that other actors such as developers will likely have to relate
to.
1.3 Purpose
The aim of this thesis is to map the current state of developer business models
in the games industry and how the subscription model currently interacts with
developers. With that as a foundation it further aims to look at future impacts
of the subscription model on developers, this is achieved through interviews with
actors in the industry as well as a literature review.
1.4 Research questions
This thesis first examines the business models of developers in the gaming in-
dustry and how they look. It further examines how subscription models work
and fit into that context. These two questions then form a foundation for an-
swering a third question of how the subscription model could affect developers
in the future. Questions 1 and 2 are thus in a sense sub-questions that serve
to form a structured background with which to answer question 3 which is the
main problem of the thesis.
1. What is the state of business models in the gaming industry from a de-
veloper perspective?
42. How does the subscription model work in the gaming industry from a
developer perspective?
3. How will the subscription model affect developers in the future?
1.5 Delimitations & Scope
The game industry is interconnected and changes in business models can affect
many actors. Due to issues of scope and time this thesis focuses on the perspec-
tive of the developers and how subscriptions affects their business models. It
does not take into account the perspectives of other actors and thus for instance
not look at how viable subscriptions are as a business for the platform owners.
In that sense this thesis is not trying to solve or examine the general viabil-
ity of subscriptions but simply treat it as an input into the business models of
developers.
This thesis also only looks at subscription models in the sense of subscriptions
to libraries, most often done by the platforms. It does not consider the model
of subscriptions in individual games. It is also worth noting that while this
thesis mainly view and refer to the subscription owners as platforms, publishers
too can have their own subscription service. This is not primarily discussed in
this thesis although the relationship between publishers and developers is briefly
examined, indeed a publisher too could be a platform owner in the context of
this thesis.
1.6 Theoretical contribution
The subscription licensing model is growing in the gaming industry and yet
there is not much published about it. This thesis aims to examine how the
subscription model works today and how the situation might look in the future,
hopefully providing scientific value, particularly in the current description of the
subscription model in the industry and future implications.
1.7 Disposition
This thesis starts with an explanation of the theoretical framework of business
models. It then describes the methodology of the study, and continues with first
a literature review and then presents interviews, the interviews are presented
individually. Using the theory and the data the study moves on to an analysis
and discussion of the current state of the market and how subscriptions currently
work and then discuss the future. Lastly it ends with some concluding remarks
and ideas for future research.
52 Theory
This section first presents the theoretical framework used and then presents
data and examples in the form of a literature review. It ends with a smaller
section on the positioning of this thesis.
2.1 Theoretical framework
This section briefly explains the DPE concept, what a business model is, presents
the framework components used in the analysis and ends with a motivation for
the theory used.
2.1.1 Digital Platforms and Ecosystems
Digital Platforms and Ecosystems (DPEs) can be viewed from various per-
spectives. Researchers from different disciplines such as economics, technology
management and information systems have used different angles to examine the
subject. Broadly platforms have three main parties, the owner, the complemen-
tors who co-create value on the platform, and the consumers.
A common features of DPEs is that they help complementors and consumers
locate and interact with each other, acting as an intermediary between the par-
ties. They extend technological, industrial and market boundaries, expanding
the reach and capacity of complementors to serve consumers. Ownership struc-
ture too has implications for the functioning of the platform and thus in turn the
relationship between complementors and consumers. (Hein et al., 2020; Nam-
bisan et al., 2019) There are centralized owners such as Facebook of Apple, this
centralization of power over the platforms can enable rapid changes in gover-
nance to best foster growth in the ecosystem. In cases where digital platforms
have come to dominate the market this centralization can become a problem
as owners can impose restrictions on the actors on the platforms or even for
instance exclude a complementor from the platform entirely. Ownership can
also be in the form of a consortium, here the rules are jointly defined and main-
tained, examples being the Cloud foundry formed by actors such as Dell, IBM
and SAP. Lastly there are decentralized platforms, managed by peer-to-peer
communities, this can empower users to directly influence management of the
platforms with the most prominent examples being blockchain platforms.
Complementors can have varying autonomy in regards to the platform they
act on. High autonomy complementors are independent and separate from the
digital platform, platform owners cannot directly control these complementors
but they can influence the design process of complements. Low-autonomy com-
plementors are tightly coupled that are mutually dependent and aligned. (Hein
et al., 2020)
In regards to value offering DPEs are a shift in focus from individual products
and services to the platform as a basis for the offering to the customer, on the
downside DPEs can increase complementors dependancy on others, creating
contagion risks from risks facing them as well as others. (Nambisan et al., 2019)
62.1.2 Digital ecosystems, platforms and complementors
Most studies in this area focus on the platform owners with less being writ-
ten about the complementors (Schreieck et al., 2016), Rickmann et al. (2014)
examined the goals of complementors when joining platforms and differenti-
ated between four goals: gaining better customer access by improved visibility
and credibility, better meeting customer demand, improving customer access
through integration and enabling growth into new functional areas or using
new technologies provided by the platform. Kude et al. (2012) found that the
platforms ability to provide integrated systems, innovativness and commercial
capital were large motivators for complementors to join a platform. When it
comes to the relationship between platforms and complementors Kenney et al.
(2019) describes it as uneasy, platforms have direct control over the distribu-
tion of value generated in the ecosystem, they have an incentive to bring the
business of successful complementors in-house and finally they work hard to
deter competition and are thus vary of complementors that get too big. While
suggesting more research into the power dynamic between platforms and com-
plementors the following they remark: ”Is the ecosystem metaphor in fact an
ideological construct that hides power dynamics that more closely resemble those
for serfs on a feudal manor – always at the mercy of the lord who can ex-
propriate their business without any compensation?”. Lan et al. (2019) find
that platforms with higher percentage of sales from complementary market seg-
ments have lower numbers of complementors. They underline the danger of
value appropriation by the platform owner at cost of the complementors and
further positing that the combination of network effects and the platform own-
ers strategic positioning could render complementors defenseless against such
intra-platform competition. They do point out that this is not inevitable as
illustrated by Microsoft and Intel on the IBM PC platform. When examining
complementor risk when innovating, Dellermann and Reck (2017) found among
other things that uncertainty in the platform owners behaviour was not in and
of itself a main driver of uncertainty and that working with reliable partners
and acting on platforms with low asset specificity, that is where assets such
as knowledge, technology etc. are not very specific or locked to the particular
platform, could reduce such risk. Technological or market instability however
were core drivers of risk.
2.1.3 Business models
The term business model is widely used and yet what exactly constitutes a
business model can be hard to pin down. The term has been used in scientific
discussions for over 50 years, appearing for the first time in Bellman et al. (1957)
(Osterwalder et al., 2005), but it only gained prominence more recently, gaining
significance with the advance of technological development and electronic busi-
ness (Osterwalder et al., 2005; Wirtz et al., 2016) it’s meaning morphing from
what initially was an operative activity for systems modeling into a way to view
a company’s organization (Wirtz et al., 2016). The exact definitions varied with
7no one common definition (Landoni et al., 2020; Wirtz et al., 2016), Michael E.
Porter (2001) critiqued the concept and wrote about it ”Instead of talking in
terms of strategy and competitive advantage, dot-coms and other Internet play-
ers talk about “business models.”[...] The definition of a business model is murky
at best Most often, it seems to refer to a loose conception of how a company
does business and generates revenue.”
This problem of murky definitions isn’t helped by the stated trait in some
literature that the meaning of a business model to a firm can be dynamic, it
can fill many functions and purposes for different firms and often fill multiple
roles at the same time. (Baden-Fuller and Morgan, 2010)
Nonetheless there were attempts made at explaining and developing the
business model concept, these include Osterwalder et al. (2005) which defined
business models as ”A business model is a conceptual tool that contains a set
of elements and their relationships and allows expressing the business logic of
a specific firm. It is a description of the value a company offers to one or
several segments of customers and of the architecture of the firm and its network
of partners for creating marketing, and delivering this value and relationship
capital, to generate profitable and sustainable revenue streams.” and Teece (2010)
which referred to business models as the following: ”A business model describes
the design or architecture of the value creation, delivery and capture mechanisms
employed.”.
In recent years there has been an increasing consensus on the basic under-
standing of the concept (Wirtz et al., 2016). Wirtz et al. (2016) proposed a
comprehensive integrated business model with the following three types of com-
ponents containing a total of nine dimensions:
Strategic components:
• Strategy model involves strategic positions and development paths as well
as business model value propositions.
• Resources model involves core competencies and competencies of a com-
pany and business model.
• Network model referring to business model networks and partners. This
thus includes the various mostly external interactions a business model
might have.
Customer & market components:
• Customer model referring to customer relationships and target groups as
well as channel configuration.
• Market offer model looking at competitors, market structure and value
offering.
• Revenue model looks at revenue streams and revenue differentiation of a
company and business model.
Value creation components:
8• Manufacturing model looks at manufacturing model and generally the
value generation of a business model.
• Procurement model looks at resource acquisition and information. This
portrays an input-based understanding of procurement.
• Financial model refers to financing models, capital models and cost struc-
ture models of a business model.
This model is a broad and general synthesis of previous work around business
models and as such it reflects a field in which some view business models from a
very narrow and close up perspective while some take a much wider approach,
the model thus represents a synthesis and overview of the different lenses used
to talk about business models in the literature of the field. The division into
different main components is mainly a way of presenting the information, the
different components can, and do, overlap and are interrelated.
Either way we can see that the business model concept can be very broad
and can be used to refer to many things in how a business operates.
2.1.4 Digital business models
The digital business model is a subcategory of business models and one which
carries some similarities to the concepts of DPE discussed earlier, hardly surpris-
ing considering that the underlying matter they examine, digital technologies
and businesses, is largely shared. It can broadly be referred to as a business
model that uses digital technologies to create, capture and deliver value, in that
sense most modern business models could in one way or another be said to be
digital (Bock and Wiener, 2017). More specifically Bock and Wiener (2017)
defined the meta-characteristics distinguishing digital BMs from other BMs as
those in which digital technologies carried a critical role in creating, delivering
and capturing value. Another common distinguishing made, is that between so
called ’digital natives’ and ’non-natives’, following the reasoning that business
models of ’traditional firms’ differ from pure internet firms (Bock and Wiener,
2017; Vendrell‐Herrero et al., 2018), digital natives simply having more experi-
ence and more appropriate skill set inside the organization than non-natives who
were designed for an analogue era (Vendrell‐Herrero et al., 2018). This points
to the common traits of technology and the organizational ability to make use
of that technology.
A related study to this topic is that of Kohtamäki et al. (2019) which exam-
ines digital servitization business models, it provides models fitting both digital
natives and non-natives although neither term is used. Among others it provides
the Product-oriented service provider model, that of a company which provides
standard products with basic add-on services, power lies with the customer and
switching cost is low. On the other end of the spectrum it, briefly, examines the
model of the platform provider, here it mentions the power position providers
gain from collecting data on service usage as well as the platforms role of reduc-
ing transaction costs. It goes on to state that the digital servitization literature
on that model is limited.
92.1.5 Gaming, technology and business models
Now that we have some sense of what a business model is, how do they look
in the gaming industry and can they change? As hinted at by the concept
of digital BMs it turns out business models and technology are linked, while
business model innovation without technological innovation is possible, such as
the Japanese ”just in time” concept, new technologies can also enable and drive
new business models, a prime example being the invention of steam power which
made possible a new business model of mass production, a more recent example
of this is that of Google which not only developed technology around a new
dynamic search engine but also developed a new business model of a scalable
dynamic two-sided platform consisting of advertisers and users. (Baden-Fuller
and Haefliger, 2013)
In gaming too we can see the impact new technological innovations have
on the evolution of business models. In the 1980s the business model was sell-
ing physical copies of games, it involved competing for consumer attention on
crowded shelf spaces and revolved around three specific actors which were con-
sole manufacturers, publishers and game developers. Consoles were proprietary
and manufacturers controlled who could and couldn’t make and publish games
on their consoles, self-publishing of games was rare. Developing games was both
costly and risky so publishers took on the primary role as financiers while often
demanding rights to the intellectual property in return, developer studios could
go bankrupt from publishers pulling out and canceling a game.
Then came digital distribution which opened up new opportunities as new
platforms and distribution channels opened up new markets. It enabled more
direct transactions between developers and consumers and more control, you
can now more easily self-publish and small developers can sell smaller games
without needing as large developing teams or extensive a development. Selling
complementary content and monetizing updates became easier with the use of
downloadable content (DLC), platforms like Steam can automatically manage
updates, patches and upgrades, this enables a more stretched out revenue period
where games can generate revenue for longer periods of time instead of briefly
appearing on shelves before being replaced by newer content. Other ways of
monetization have also become possible, games that have no up-front cost can
use other ways of creating revenue. At the same time new intermediaries re-
placed old ones and platforms on which games are sold can take a cut of sales.
(Sandqvist, 2015)
From this we can perhaps conclude that the business models of the gaming
industry have been changing to take advantage of new technologies and meet
new challenges. According to González-Piñero (2017) this is still ongoing today
”Business models for commercialising video games are constantly evolving to
fully adapt to the needs and preferences of users [...]”. It further argues that
monetization is key since it is the factor that makes a project sustainable, in
doing so different business models are often combined to suit different user
profiles of the same game. This in other words puts emphasis on the parts of the
business model concept which deals with monetization. It is worth noting that
10this is not so much a scientific paper as a report and as such does not provide
much to support the later statement in particular. Either way it describes
three main business models: Pay to play (P2P), this is the traditional model
of upfront purchase, free to play (F2P) and freemium, both models give access
to a free version of the game while using micro-payments in-app purchases to
create revenue and advertising, simply including ads in one way or other into
the game, either directly or indirectly.
White and Searle (2013) too describe a narrative where technological change
is driving business model change, for example developers who create physical
products for the retail market have access to a shrinking share of consumer
spending. They also highlight a world where the digital space has given access
to consumer data and improved ability to respond to user demand through the
usage of things such as DLC, this has created an industry highly sensitive to
consumer preference. These digital technologies have further enabled the usage
of very small transactions, micro-transactions and micro-payments, opening up
the market to small one-time transactions for digital content and goods in games.
This is the very same strategy used in what González-Piñero (2017) called F2P
and freemium. White and Searle (2013) conclude by highlighting the limited
predictive ability one can have in a fast-changing industry such as this, by doing
so perhaps also highlighting the possible datedness of the book.
Searle (2011) describes the case of game developer Dynamo which employed
three different models for its games, mobile games through publishers, self pub-
lished mobile games sold via iTunes and self-publishing online games on Face-
book. While the specifics might be dated this highlights the moves in business
models a games developer can make.
Davidovici-Nora (2014) describes a picture consisting of the same building
blocks as that of González-Piñero (2017). Among many other things it mentions
the role the evolution of services provided by platforms such as management of
updates, patches and easy access to sequels, add-ons and other content in the
evolution of pay-to-play business models. It also points to a trend of model
hybridization where F2P and P2P models mix, the same thing mentioned by
González-Piñero (2017), while at the same time underlining the complexities of
the F2P business model and how F2P games tend to have specific designs.
2.2 Literature review
This section presents the findings from the literature review.
2.2.1 Market structure
Depending on where you look the games industry can be fairly oligopolistic, a
few players account for most of the overall market. In the premium segment the
top ten franchises account for roughly half revenue. (Marchand and Hennig-
Thurau, 2013; Dan Singer and Enrico D’Angelo, 2020; Uhrinova and Locke,
2017) The market can be broken down into three main platforms, smartphone
games which commands a 36% market share, console which has 32% and PC
11with 23%. (Peter Warman, 2019) The importance of PC in gaming has dropped
the last few years with mobile taking an ever larger share. (Kevin Westcott et al.,
2019)
There is a notable disparity between how games are monetized and priced
between mobile and other platforms. Games cost significantly less on mobile
with many having no upfront cost at all, 95% of new games being free upfront
(Crecente, 2019). This is less pronounced on other platforms, console generate
a fraction of the revenue mobile does from free-to-play games, see fig 1. (Felix
Richter, 2020).
Figure 1: Revenue from Free-to-play games on different platforms. Source: Felix
Richter (2020)
Likewise game subscriptions for mobile tend to be cheaper than those for PC
or console, Apple arcade and Google Play pass both cost $4.99 a month with
Xbox Game Pass, Playstation Now and Google Stadia costing $9.99 a month. A
12number of variations prices and structures exists however. For PC and console
EA Play costs $4.99 with a $14.99 Pro version while Humble Choice for PC has
3 tiers ranging from $4.99 to $19.99 per month.
Movement between platforms among developers and games is varied. Some
developers develop for multiple platforms while some exclusively develop for
one, few develop for all . Games are sometimes released on multiple platforms
but not always, many mobile games are never released on a non-mobile platform
and vice-versa.
2.2.2 Current state of gaming subscriptions
In a Deloitte survey (Kevin Westcott et al., 2019) 30% of US consumers pay for
a gaming subscription service but over 50% of millenials.
In a later study done by Simon-Kucher & Partners (2020) on a representa-
tive sample of 13 000 individuals across 17 countries 35% of gamers had already
adopted the subscription model, numbers varying between countries and seg-
ments. Gamers that spent more time playing were more likely to be subscribed
than those that played less. Internationally 70% of gamers indicate that they
spend more time playing when on a subscription, in the US that number is half
of gaming subscribers. Among those that do currently subscribe to a service
80% indicated an interest in multiple subscriptions although only 9% currently
subscribe to more than one service. 71% are open to trying multiple subscrip-
tions in the near future.
Quality, number and diversity of games in a subscription were key buying
criteria before price. Casual gamers, defined here as playing five or fewer hours
per week, spent over 80% more if on a subscription compared to casual gamers
not on a subscription.
Serious gamers, defined here as playing 20 or more hours per week, would
be willing to spend 19 to 40 dollars per month for their ideal subscription,
casual gamers are willing to pay 10 to 30 dollars per month. (Simon-Kucher &
Partners, 2020; Lisa Jaeger et al., 2020)
Microsoft found that Xbox Game Pass users play 40% more games, including
titles not included in the library. 91% of subscribers said they had played a title
they would not have tried without Xbox Game Pass with Microsoft noting that
members were playing 30% more genres than they did before joining. (James
Batchelor, 2019)
2.2.3 Future of subscriptions
In a survey done by The Game Developers Conference (GDC, 2020) 21% of
developers thought Apple Arcade would be a long-term commercial success,
19% said no but a whole 61% answered maybe or don’t know (35% and 26%
respectively). Further, 8% said the current game they were developing was part
of a service like Apple Arcade or Xbox Game Pass. When it comes to the impact
on games developers are split, when asked if worried that subscription services
13would devalue games 27% said yes while 26% said no, 28% answered maybe and
18% were not sure.
This survey carries the inherent bias of only consisting of attendants to the
conference, nonetheless it did survey nearly 4000 developers.
Microsoft does not expect subscriptions to be dominant in the future and
their claimed motivation is not to turn everybody into a subscriber. (Brendan
Sinclair, 2018; McDaniel et al., 2020) Phil Spencer, head of Xbox, has acknowl-
edged questions such as:
Does it diminish the value of a game if people no longer pay for them?
If many people subscribe to these services, how do developers get games
approved?
What happens if the number of platforms that games are developed for is
reduced? (McDaniel et al., 2020)
For the launch of their Xbox Series S console Phil Spencer said that rather
than console sales the two metrics he looked at were the number of players and
how long they spend gaming, claiming that spending and revenue will follow
time. (Inagaki et al., 2020)
Juniper Research expects a growth of game subscriptions by 9% per year
the coming years while noting the gap between the retail cost of big games
and subscriptions, it taking an average of 10 months of subscription payments
to cover the retail cost of a single such game. The value of the platforms
rather being in keeping players within an ecosystem, capturing the revenue
from multiple games by a single platform.(Sam Smith, 2020)
Ex-CEO of Paradox Interactive Fredrik Wester noted in a panel discussion
that how licenses are designed matters a lot. Getting paid based on how many
times a product has been played, how many hours a game has been played or a
lump sum based on estimated worth are very different things. He went on say-
ing that money based on playtime was a good business model for Paradox since
people played their games for thousands of hours. About game pass he said
that it is decent for Paradox because people play their games more than single-
player driven narratives but still think they’re not getting paid enough. He
characterized the current market state as very lucrative for developers, compar-
ing investment in games for subscription services with a gold rush, but warned
for when the pendulum swings back in the future. (Evans-Thirlwell, 2019)
The Simon-kucher study expects flagship games in the future to become
available on subscription services after they have already been available for
purchase separately for a while. (Lisa Jaeger et al., 2020)
2.3 Motivation and positioning of this study
The subscription model on platforms is not new but not one which has been
much examined from a complementors perspective, the gaming industry is po-
tentially standing in the beginning of a transition to subscription, this thesis
thus aims to explain how the complementors are and could be affected by the
model.
14The DPE theory and concept works well as a lens and explanatory model to
describe the current situation but seems less fitting to describe and distinguish
changes in the businesses of developers within those ecosystems brought on
specifically by something like subscriptions, therefor this thesis uses the business
model concept as a way of viewing these changes to the business. A problem
with more specific literature on business models and subscriptions, of which
there is some, is that it tends to view the problem from the viewpoint of what
in this thesis would be considered the platforms and does not tend to consider
what happens to the complementors in a platform situation. This thesis thus
uses a more general business model concept as a way to view and frame the
changes to the business of developers brought on by subscriptions, for this the
broader components presented from Wirtz et al. (2016) is used. In doing so this
study hopes to explain and explore the changes introduced by the subscription
model to the games industry, a niche which has not yet been filled.
153 Methodology
3.1 Research design
This thesis is exploratory in the sense that it examines both a general topic from
a viewpoint which is not much used, that of the complementors, but also in the
sense that the specific application on the gaming industry is very new. The thesis
is further inductive with two main sources of data, interviews and a literature
review. The interviews consist of qualitative data and the literature review
has both qualitative data from interviews and quantitative data from surveys,
reports and news articles. Together this aims to provide data triangulation and
improve validity. (Collis and Hussey, 2013; Gibbert et al., 2008)
3.2 Literature review
There are few, if any, scientific papers on the specific subject of subscriptions
in gaming that can provide helpful data. There is however some that provide
information about the structure of the industry and they were used for a brief
overlook.
The rest of the review uses data from various sources such as interviews,
articles, surveys and reports from consultants and interest groups.
Keywords used: game development,game development value chain,games
subscriptions, video games subscriptions, gaming subscriptions, gaming subscrip-
tion services, subscription gaming developers,
Search engines used: Google, Google Scholar and KTH Primo.
The keywords game development and game development value chain were
used to find background about the industry and value chain. All other keywords
were used to find articles about the current state of subscriptions in the market
and the potential future of the ’Netflix-for-games’ model.
3.3 Interviews
A total of 7 people were asked in this work. Interviews involved participants
from all three major hardware platforms, mobile, PC and console as well as
participants from both small and large developers, this was intended to cover
the major developer positions and points of view. The interviewees were first
contacted by email, selection involved those in the industry that had spoken
about it in media and come up in the literature study, large companies in the
industry known to the author and using a list of Swedish developers from the
Game Developer Index 2019 published by the Swedish industry organization
Dataspelsbranschen.
The manner in which the questioning was done depended on the preferences
of the individual subjects. Two of the questionings were done over video call
16(interviews 1 and 4) and one was done over telephone (interview 2), these inter-
views were done in a semi-structured manner. Three other questionings were
done in a written form, one of these included an exchange with additional ques-
tions and clarifications in a semi-structured manor (interview 3), three had less
exchange and were more form-based (interviews 5, 6 and 7).
The first interview used a question set labeled as question set 0 in fig 2. This
set was later revised into sets 1 and 2 which were used for the rest of the subjects.
Question set 1 was used for those with more knowledge of subscriptions while
question set 2 was used for those with less.
Question set 1 focused more on the subscription model directly and aimed
at answering the questions of how specifically the subscription model currently
works and possible future implications.
Question set 2 was more general and inquired more about the relationship
between developers and platforms. This aimed at understanding the broader
current state of the industry regarding monetization and platforms and further
aimed at understanding future implications for developers.
The different sets were created because some developers found it difficult to
fully answer specific questions about the subscription model, thus a second set
of questions was more indirect with less focus on the subscription model and
more focus on the relationship between platforms and developers.
Together these questions aimed to explore the relationships between devel-
opers and platforms and answer how different models such as the subscription
model could affect development and developers. The focus on platforms was
motivated by the fact that platforms are the implementing and owning force
behind the subscription models.
Question sets were translated from Swedish to English as needed.
Figure 2: Matrix showing the manner in which the interviews were conducted.
173.4 Question sets
These are the question sets 0-2, question set 0 was the initial set from which
question sets 1 and 2 were developed. Question set 1 is more specific to sub-
scriptions while question set 2 is more general about the relationship between
platforms and developers.
3.4.1 Question set 0
1. On a scale of 1-5 how large part of the user base do you think will be on
a subscription service in 10 years?
2. On a scale of 1-5 how large share of the revenue for developers do you
think will come from subscription services in 10 years?
3. How does your relation with platforms look - how important are they for
your monetization?
4. Do you use publishers in mobile games?
5. How do you see subscription services today and what do you think about
their future?
6. How will subscription services affect game developers?
7. What advantages and disadvantages exist with subscription services for
developers?
3.4.2 Question set 1
1. On a scale of 1-5 how big share of the userbase do you think will be on a
subscription service in 10 years?
2. On a scale of 1-5 how large share of the revenue for developers do you
think will come from subscription services in 10 years?
3. How important are platforms for developers?
4. Do you see any advantages to the subscription concept for developers?
5. Do you see any disadvantages to the subscription concept developers?
6. Do you think the business models of developers will change if subscription
services become popular?
183.4.3 Question set 2
1. Do you have any experience with subscription services such as Xbox Game
Pass or Apple Arcade?
2. On a scale of 1-5 how large part of the user base do you think will be on
a subscription service in 10 years?
3. What role does platforms (Steam/Apple/Xbox...) fill for you?
4. How reliant are you on platforms business-wise?
5. How does the design of agreements with platforms affect you?
6. How would you be affected by the payment of games based on downloads
vs playtime vs a lump-sum up-front?
7. How do you think it would affect the business model for developers if
subscription services became very popular in the future?
3.5 Reliability & Validity
Gibbert et al. (2008) lists four criteria that are commonly used to asses the
rigor of this kind of field research; internal validity, construct validity, external
validity and reliability.
Internal validity refers to the causal relationship between variables and re-
sults. Is there plausible causal arguments that x follow y? This is addressed by
pattern matching between the literature review and the interviews.
Construct validity which is concerned with to which extent a procedure leads
to an accurate observation of reality is addressed by data triangulation, using
the different data sources of the literature and the interviews.
External validity or generalizability is the idea that theories must be shown
to account for phenomena in all settings, not just the one that is studied. This
is addressed by selecting an interview sample from multiple organizations and
places in the industry. And using literature from various different parties such
as consultants.
Reliability is the abscence of random error enabling other researchers to come
to the same conclusions following the same step, in other words transparency and
replicability. The nature of this thesis means that full replicability is difficult to
guarantee. For the literature review keywords are provided. For the interviews
questions and interview notes were kept, names and titles of interviewees is
provided to the extent desired by the individual interviewees.
3.6 Limitations
Despite the best efforts of the author this thesis does have some limitations.
It would have been desirable if the interviewee sample was larger and more
balanced, while it currently does include other parties it is currently skewed
towards small developers and the sample size is limited, this does affect both
19validity and reliability negatively as it could introduce bias into the data. It
would also have been desirable if more interviews could have been done over
call or even face to face, a written format does introduce problems into what
was intended to be a semi structured format and while still possible to follow
up and ask for expansion on answers it is still less conducive to it than a spoken
format.
204 Empirical results
This section presents information from the interviews done for this thesis, each
interview has its own subsection. The presentations are a synthesis of the inter-
views showing answers about the state of business models for developers (RQ1),
the relationships with platforms (RQ1 & RQ3), state of subscriptions (RQ2) as
well as showing thoughts about the future (RQ3). This is the data which will
be used together with the literature review to form an analysis. The choice of
synthesis is due to the semi-structured nature of the interviews, not everything
discussed was relevant to the question set and to fully reproduce a transcription
of interviews up to 50 minutes long seemed unnecessary, a synthesis was thus
undertaken in the interest of clarity, in an attempt to better present the data,
and to improve accessibility.
4.1 Summary of interviews
4.1.1 Small developer for mobile - 1
Interviewee 1 is a co-founder of a small developer for mobile, the interview was
conducted over video and took about 40 minutes, they had no experience of these
subscription models. For mobile there are a few main ways of monetization,
subscription, ad or purchase. It is very difficult to mix different models of
monetization, some games fit bests with some models, ad revenue is independent
from platforms, the platforms take a cut from everything else. They think
subscription could impact certain segments of games but not the one they are
in.
User acquisition is hard to do, publishers are helpful in doing this. They
don’t think it will become a situation where you only have subscriptions since
customers will want choice and subscriptions wont be able to carry all games.
There might be some trouble for some developers if you have to sell to the
Platforms instead of to users but he thinks the current ways will remain as well,
working outside of platforms is difficult however. Developing for subscription
services affects game design, subscription is focused on long term retention,
which benefits certain types of games.
4.1.2 Small developer for mobile - 2
Interviewee 2, Bastian Geissler is CEO of iGotcha studios, a small developer for
mobile. The interview was conducted over phone and took about 25 minutes,
he did not have any experience with subscription services. He thinks it could
become big in the future, although more as a supplement connected to other
services. As far as he sees it many players are testing many different strategies
in the field right now and we will see in a couple of years who and what remains.
Platforms mainly work as a tool for customer access and developers are
very dependent on them. Developers have a weak negotiating position with
platforms, only the really big players might have a chance but even then the
recent showdown between Epic and Apple show that not even that might hold.
21There are no real alternatives to the platforms and it is nearly impossible for
new players to compete with the established platforms, even really big players
struggle. It does matter slightly that there are multiple platforms because they
are different but in the end it only matters a bit.
Platforms today affect cash flow a lot, they have long payout times which
affects particularly smaller actors with smaller reserves the most. He also sees
changes in payment models and cash flow as affecting smaller players most.
Most developers need to work through a publisher to publish a game since
that is complicated and difficult. Most developers also access capital from pub-
lishers if they need, only bigger names and players can access venture capital.
Smaller developers can only make a game for PC, console or mobile. Larger
players however can and do release games on multiple devices.
4.1.3 Global games publisher - 3
Interviewee 3 is the Chief business development officer of a global games pub-
lisher that also houses an in-house development studio, the questioning was done
by mail.
The interviewee sees player base and revenue streams track each other, if
a majority of players come from subscription then a majority of revenue will
probably come from there as well. Generally they think the industry will need
to find new revenue streams but don’t think you will need to find entirely new
revenue streams outside of subscriptions to survive, it is however a plus if you
can reduce dependence on third parties. They see a great reliance on platforms,
much as a way of providing visibility of the products.
An advantage of the subscription model is lowering the threshold for new
games, opening up for more interested customers trying out their games. Re-
garding how the payment models from the platforms look they see it as early
days yet, it remains to be seen how it develops. Currently they have only seen
a model of revenue guarantees or advance payments plus revenue from inside of
the games. They think the subscription model will force refinement of products
as well as necessitate ways of distinguishing the product. They lift cost of cre-
ating new content as a key factor adding that companies will struggle if they
for example don’t use DLC (Downloadable content) today, if the only source
of revenue from subscription is one-time payments from the platform owners it
will become tricky when they stop paying those payments.
4.1.4 Independent developer & Consultant - 4
Interviewee 4, Rami Ismail, is an independent developer, consultant and public
speaker. He felt comfortable answering direct questions about subscriptions.
The interview was conducted by video and took about 45 minutes. He thinks
subscriptions will be used by the overwhelming majority of gamers in the western
world although as an addition not a replacement. Big players Apple and Android
will refine their offerings over time which will be very impactful. For him a big
question is if the subscription model is additive or acts as a replacement.
22Platforms are very important for developers, they set the terms and con-
ditions. Very few games have been sold truly independently in recent years.
Platforms control everything from discounts to presentation of games to pricing
and terms and conditions, technically no developer can sell to Iran for example.
The larger developers and publishers are trying hard to circumvent this. With
subscriptions platforms may become gatekeepers of content. There being mul-
tiple platforms acts as a band-aid, developers can sell to multiple parties but
from the view of the developers most services will probably not exist in a few
years. While more players should be better but in effect the only meaningful
competition is who runs out of money first. In the end platforms are only a way
to access customers, developers will use the ways available.
The advantages of the subscription concept depends on how it is constructed
in the end. As a big library he only think it will benefit the largest games
but if you as a game studio can receive direct subscribers that can be very
powerful. The current model is easier since you receive a lump sum up front,
with subscription it is still unclear how it will look. Will you get paid by
downloads or playtime for instance? Generally the current way is that you either
get paid based on how many play the game or get commissioned, getting paid up
front to develop a game. This current system only works so long as the platforms
are willing to pay for content. When it comes to disadvantages he notes that
all platforms have disadvantages, the current marketplace platforms take large
cuts instead. However, while platforms are funding developers now there is
a risk that they will become less willing to pay for content in the future. The
effects of subscriptions will ultimately hit developers similarly, regardless of size.
While larger players perhaps can get better deals few, if any, can circumvent or
compete with the current platforms.
Developers do have some leverage over platforms when it comes to the fans
which is a powerful force in the games industry but that is the only real lever-
age. In the end while he thinks subscriptions will stick around he sees it as a
pendulum where there will be a period where everyone will want to be on a
subscription with a following countermovement. There is a constantly changing
power dynamic between players in game development, making it difficult to say
who as power over whom.
Subscriptions will affect how games are developed, changing design more
than business models. Developers will still negotiate with whoever has access to
the audience. New content will be very important in this climate, if you don’t
do that you will struggle.
4.1.5 Small developer - 5
Interviewee 5 is a game designer for a smaller developer and does not have any
direct experience with subscriptions, the questions were done written over mail
as well as by form.
For them platforms are a sales channel and they are dependent on platforms
for how much they earn, how their games are distributed and functions such as
remote play. They are not a fan of the subscription model since it potentially
23benefits platform owners more than developers and see a scenario where the
main beneficiaries will be owners and larger developers while indie developers
(smaller independent developers) could have a harder time. The current cli-
mate is beneficial for developers and you can live on sales from a relative small
number of games, this might end if the subscription model is adopted. If the
payment model is shifted to money over time based on users rather than based
on purchases they think indie developers will struggle. They also worry that the
’Netflix for games’ model will hurt indie developers due to it’s focus on market-
ing and visibility over sales per game. If it does get popular the types of games
that are made will change to games where you spend a lot of time or return to
often.
They think the model could work if mostly casual players used it while
others used other channels such that the player base would widen but existing
customers are kept for the current developers, then it might even strengthen
developers since users might discover games and want more. They do however
consider that a bit utopic.
4.1.6 Small developer - 6
Subject 6 works at a smaller developer for PC, the questioning was conducted
in a written form. Due to it being very difficult to release games without a
distributor, particularly for a small company, platforms are crucial for them.
They have no possibility to affect their terms with the platforms, they just have
to accept them as is.
Their current model is per purchased copy which is straightforward and can
be overviewed easily, a lump-sum up front would be nice but on the other hand
you could lose money if the game turns out to be more successful than expected.
If the subscription to library model becomes popular it is possible that even
more developers will choose to make games with a long lifetime and high player
retention compared to games with finite experiences. Less story and puzzle-
games and more season based experiences.
4.1.7 Small developer - 7
Subject 7 is the CEO of Midjiwan, a developer for mobile and PC which has
one game as a part of Google Play Pass, the questions were done in a written
form.
For them platforms are business critical, to maintain a high visibility on them
is central to their company. They view the contracts and agreements between
developers and the different platforms as similar between the platforms, there
is next to no ability for them to affect them and simply have to accept them as
they are. They do however view the agreements as reasonable in their design,
they (Midjiwan) gain access to a global distribution and payment platform and
can reach many players without needing a publisher, they don’t have to manage
things like VAT and taxes for each different market. Their monetization model
depends on the platform, on mobile they use in-app purchases while on PC they
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