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The Next Subscription War Will Be Sony vs. Microsoft -- Here's Why

Motley Fool - Fri Jul 15, 5:47AM CDT

The rise of digital media has spawned the age of subscriptions, where the biggest companies in the world are at war for the literal hours of a consumer's day. The video streaming industry is often at the center of this discussion, but recent events have put Sony(NYSE: SONY) and Microsoft(NASDAQ: MSFT) at the forefront of the subscription wars -- here's why.

The rise of game subscriptions

Microsoft introduced its video game-subscription service Xbox Game Pass in June 2017, and its immense success has changed the industry. For $14.99/month, the company grants members access to an extensive library of games playable with an Xbox or PC -- streamed or downloaded. In a similar style to Netflix Originals, Microsoft releases its in-house developed titles on the service day one, with Halo and Forza Horizon just a couple of Xbox exclusives immediately available to subscribers. Five years on, and Xbox Game Pass continues to see tremendous growth. From 2020 to 2022, the platform's subscribers increased by 150%, growing from 10 million to 25 million members.

Xbox Game Pass has retained its position at the top, even while tech giants such as Google's parent company Alphabet, with its cloud gaming service Stadia, entered the market. Stadia launched in 2019 and has had trouble convincing consumers to adopt its platform. Google hasn't revealed subscriber numbers since hitting 1 million in 2020, but insiders reported Stadia missed user targets by "hundreds of thousands" in 2021.

Sony now has plans to give Xbox Game Pass a run for its money with its revamped PlayStation Plus service. Sony previously offered two subscriptions: PlayStation Plus, primarily for online capabilities, and PlayStation Now, which provided subscribers with a streaming library of over 700 games. The updated PlayStation Plus combined these services into one platform and launched on June 13.

PlayStation owners can now choose from three different PlayStation Plus tiers: "Essential" is primarily online access, but the second tier is titled "Extra" and brings the service much closer to Game Pass. For $14.99/month, members can download and play games from a library of popular titles, such as Marvel's Spider-Man (2018) and Ghosts of Tsushima (2020). The final tier is "Premium," which adds on the ability to cloud stream games for $17.99/month.

A war over time

The streaming and subscription wars are often discussed in the context of video platforms such as Netflix and Disney+. However, in addition to video streaming, the fight also involves gaming, sports, audio subscriptions, and social media. Research has shown that households use an average of 12.5 different sources of entertainment, with about half considered "must-haves" and therefore less likely to be dropped. The same study found that about 66% to 67% of consumers view game subscriptions as a must-have. While that is positive, it is imperative for these platforms to offer engaging content to stay competitive.

One of the biggest draws for Xbox Game Pass subscribers over the years has been the ability to immediately play Microsoft's exclusive games through the service, saving $60 or more on a new title. Because of this, Sony and Microsoft have recently acquired multiple game developers to increase their libraries of exclusive games.

In March 2021, Microsoft acquired ZeniMax Media, the parent company of game developers Bethesda Softworks, for $7.5 billion. The Xbox company also plans to purchase Activision Blizzard, home to the Call of Duty franchise, for a record $68.7 billion. Additionally, Sony has acquired a few developers over the last year, including the original creators of Halo, Bungie Inc., and Haven Studios.

Who will win?

Stadia has effectively backed out of the competition, announcing in February that it would no longer be developing exclusive games for its platform. Sony and Microsoft arguably have equally attractive game libraries, although it remains to be seen how PlayStation Plus will treat Sony's in-house developed games and whether subscribers will be able to play them on launch day. However, a PlayStation-exclusive game called Stray from a third-party developer will release on the service day one in late July, a positive indication that other games could do the same. If they do, PlayStation Plus would become an even closer rival to Xbox Game Pass.

Microsoft may have time on its side, as Game Pass has been around long enough to gain consumer trust, but Sony is a worthy competitor. Going forward, it will be crucial to note what further developer acquisitions each company makes. For instance, there is still time for Microsoft's Activision deal to fall through, which could be an indicator of the direction the subscription race is headed. As with all subscriptions, consumers will flock to the service that can provide the best products for the best price.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet (A shares), Alphabet (C shares), Microsoft, and Netflix. The Motley Fool has a disclosure policy.

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