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Apple (NASDAQ: AAPL) announced a number of new products at the event on Tuesday, including one that could disrupt the video game industry. Apple Arcade will bring a new model of game by subscription to Apple devices, which could be advantageous for players and for some developers. This will level the playing field for small developers who have difficulty loading games and report regular income.
For big game companies like Activision Blizzard (NASDAQ: ATVI), Electronic Arts (NASDAQ: EA), and Take-Two Interactive (NASDAQ: TTWO)However, the news might not be so positive. They have never had problems getting paid for their games and collectively dominate the gaming industry. This could be a disruption they do not need.
Source of the image: Apple.
What is Apple Arcade?
Apple Arcade, which should be released in the fall, will be a subscription service offering unlimited playing time and no advertising in a suite of games. Some of these games will be funded by Apple and others will be exclusive to the Apple Arcade platform. We do not know how much Apple Arcade will cost, what kind of revenue reduction the developers will get, nor too much about the titles.
What Apple seems to tip is the curation of games. "Apple Arcade games will redefine games and be organized on the basis of originality, quality, creativity, fun and appeal to players of all ages," the company said in a statement. Press release.
The selection will be made not only through a funding, but also by the method of promoting games within Apple Arcade. If a game is the subject of a significant promotion on the Arcade platform, it could be a success, but as in the App Store, it could be buried without the proper promotion. As this is the first subscription of its kind to many developers, the way games are promoted will be essential for developers.
The game of Apple to go up the game
Apple Arcade has similarities with the music industry, which Apple has greatly disrupted two decades ago with the introduction of iTunes. Previously, customers bought full albums, so most music players made money. Single album purchases have not been predictable for record companies, leading to the explosion and collapse of small record companies. Then Apple arrived and introduced the download of individual songs – and possibly streaming.
Record companies may have been dragged into streaming, but customers of companies like Spotify (NYSE: SPOT) and the 56 million paying subscribers of Apple Music generate consistent revenue that has propelled the profits of the music industry to new heights. Apple Arcade could do the same for game developers, who could go from a fierce struggle to build scale on a freemium model to become part of the Apple Arcade ecosystem. The popularity of the game, without prompting customers to buy gems or coins, could generate profits for developers, which would be a welcome change.
On mobile devices, Apple Arcade could ultimately be a way to bring more consistent revenue to the video game industry, for example through monthly subscription services. That alone would be a big change for the game.
Where music and video games diverge
Despite the similarities, there are essential differences between music and video games. Only three companies control about 60% of the sales of the music industry today. They hold the keys and the bargaining power with distributors such as Spotify and Apple, who would see their subscriptions lowered if they left the service.
Video games are a little different. Activision Blizzard, Electronic Arts and Take-Two Interactive are the main players in the market. They control tens of millions of active users per month on games such as Call of Duty, Madden, Grand Theft Autoand World of Warcraft which builds many users who buy games and upgrades regularly. But they have generated only about 35% of the $ 43 million revenue generated by video games in 2018 and many other developers, especially on new platforms such as mobile, are looking for a way to distinguish themselves. In this respect, Apple is better able to create a platform and control the customer relationship rather than let the developers follow this direct path. This could deprive big game manufacturers of some of their power.
If the incentive is to use the Apple Arcade platform and not a particular game, it could also reduce the stickiness of successful titles. At present, the investment in game creation is supported by the developers. They realize a return on investment through in-game purchases on hit titles that help users return to games. Their goal is to keep customers in their gaming ecosystem through their commitment and investment in time and money. If Apple Arcade becomes the platform and there is no financial investment in each game, the rigidity of each game will be reduced. And the cost of switching to a new game could almost disappear.
The gaming sector changes again
Video game makers have already seen changes in distribution, and one of the reasons why Activision Blizzard, Electronic Arts and Take-Two Interactive are as important as they have been is that They managed to manage the changes of the sector. This could represent another major change for game makers and could reduce the need for a PC or gaming console, especially if there was an element of cloud computing , such as the one recently launched by Google, to improve performance without increasing the operating requirements of smartphones or tablets.
Until we have more details about Apple Arcade as a service and how consumers use it, it's hard to predict the impact on games, but I think we're going to have another big one interruption, with Apple in the lead.
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