Apple turns to gaming to crack subscription conundrum – sources

Apple has been searching far and wide for alternative revenue streams to reduce its reliance on the plateauing devices market, and the latest venture might take it into the world of gaming.

With content being an incredible bust for the business, Apple is reportedly in hot pursuit of the blossoming gaming segment. This is an area which would seemingly tick all the boxes for the iLeader; recurring revenues, a chance to grow organically and in before the segment has become popular and saturated.

According to Cheddar, Apple is in discussions to create a gaming platform which would bundle various titles together behind a paywall. It sounds like it could be a Netflix for gamers and would certainly give the status quo of gaming a bit of a poke.

Looking at the gaming segment, this is an area which is becoming increasing popular with users while profitability is certainly heading in the right direction for the developers and platform owners. There is already a lot of money flowing around this space, but as more games evolve away from single- to multi-player, internet focused experiences, popularity seems to be growing in the mainstream markets.

Recent figures from the Entertainment Retailers Association (ERA) in the UK suggest gaming now accounts for just over 51% of the three segments in the entertainment world (video and music being the other two), doubling in revenues since 2007. Netflix and Amazon have proven the subscription OTT segment has legs, normalised the idea in the mind of the consumer, so why shouldn’t a gaming platform work as well.

Of course, for this to work Apple would have to convince the developers to join hands behind the paywall. This is where Apple’s venture into the world of content has failed before; it didn’t create good enough content to be considered a realistic player. This will certainly be a big change in the status quo for the developers and it will be interesting to see what the results are. Apple not only needs high quality content, but a broad enough portfolio to make it value for money.

Here is where Apple is swimming against the tide. Single purchases might have been the way developers made money in the past, but the popular route is now free-to-play with in-game purchasing options. It has proven to be very successful and there might be some resistance to move to another business model. Don’t fix what isn’t broken might be a relevant phrase here. What Apple is suggesting in a completely new approach to revenue sharing as the games are bundled together behind a paywall. Theoretically it can work but change scares the majority.

If Apple can balance the equation, it would certainly be a relief for CEO Tim Cook who must be feeling some pressure right now. A less than enthusiastic earnings call demonstrated Apple is floundering in the software and services segment. Yes, it is growing, but not at the rate of knots which Apple investors have come to expect. Apple hasn’t really done anything exciting or applaudable in this segment yet, most of the gains are through iTunes or Apple Care for example; differentiation and diversification are desired above all else.

Apple is certainly stepping out of its comfort zone here, and we strongly suspect it might fail because of this. However, it might just lead the way for a fast follower (Netflix perhaps?) to reap the rewards.

In fairness though, you have to give Apple credit for creative thinking and an interesting idea. Those recurring revenues might not be that far away for the iGiant.