The recent announcement of the Nintendo Switch Online Service being pushed back to 2018 has caused a large ripple in the gaming industry. Many articles emerging are comparing it to Netflix in terms of being a game subscription service - however this is far from being the case. The Switch Online Service is NOT the Netflix for games and is actually quite different.
Let's start with explaining what the Switch Online Service is from what we know so far.
What is the Nintendo Switch Online Service?
The Switch Online Service is a paid subscription service that allows the user to access the online features in Switch games. This is the core feature of the service. Now to be fair we don't know all the exact details of the service - it was only just announced the pricing ($20 US or $29.95 AUD for a year) but we can speculate on some things.
In addition to the online core feature it has some extra benefits such as accessing online lobbies and being able to use a voice chat app. It also gives special exclusive eShop deals, which is probably the biggest draw to me and I'm sure many others. The last benefit is the classic game selection which gives you ongoing access (as long as you're subscribed we can assume) to classic NES (and in the future SNES) games albeit with extra functionality.
The difference between paid subscribers and non-subscribers
Isn't that kind of the same as Netflix?
If you look from a logistics point of view yes it is, kinda, after all you are paying an amount of money for access to a service that provides digital content, but really that's where it stops.
With the Switch Online Service you get access to what seems to be one to three classic NES games, however this isn't a library where you can access previous titles when you weren't a subscriber like you could with Netflix.The digital games included are not where most of the value will be derived from this service, yes some may primarily get subscribe for this reason, but it is not the core feature of the service.
The main selling point for the Switch Online Service is the online play, much like with Xbox Gold or PlayStation Plus, this is the core service and anything extra (extra games, voice chat, cloud service, discounts) are all all value-adding components.
So it's the same as Xbox Gold or PS Plus?
Yes. Some features and benefits might be different but it is basically a Nintendo version of these services. A more accurate subscription gaming service (that would be better compared to Netflix) is the recently launched Xbox Game Pass, the streaming service of PlayStation Now or the often forgotten EA Access. Each of these offer various games as part of their available library. These services have also been around for some time but some of the articles discussing the Switch Online Service are potentially written in a way so it seems that Nintendo is revolutionising the industry - and they might be in some ways but not when it comes to a gaming subscription service. Now it isn't impossible for Nintendo to transition to a subscription service (like Netflix) however right now the Switch Online Service isn't that, and don't expect it to be soon.
What challenges would Nintendo have with an online subscription service?
I, like many other gamers, would absolutely love a Nintendo subscription service but in reality it isn't feasible - yet. Nintendo has an absolutely large backwards catalogue of excellent first party titles and potentially third party titles (from the likes of Sega, Namco, Konami, Square Enix etc.) so creating a very robust selection to choose from would be comparatively easy, but in reality that is the only advantage Nintendo has.The issue is that a lot of these are older games and as such fit a model of being purely a product - not a service like other modern games.
Coming back to Netflix it has different variants of their service (three here in Australia - following the Goldilocks Principle) at different price points. One all-encompassing service price can have the upside of being easy to convey to customers (such as the Switch Online Service) however it has the challenge of losing potential revenue by not maximising the amount customer's are willing and happy to pay. Recent trends in gaming have really demonstrated the financial opportunity that can be made with diverse monetisation strategies and this is something Nintendo has only just started to properly dive into. If we take EA Access, for example, which has games like Plants vs Zombies Garden Warfare and Fifa 17 which can add in extra streams of revenue in the form of DLC and micro-transactions (I can hear the groans). Unfortunately (or fortunately) Nintendo does not have a huge catalogue of titles with alternative streams of revenue with only Smash Bros, Hyrule Warriors and Runbow (not Nintendo owned) coming immediately to mind.
Next we need to factor in that a subscription service could clash with their virtual console and Nintendo could potentially lose potential revenue. Comparing the Switch Online Service yearly price ($29.95 AUD and $20 USD) that is the same as the cost of around 3-4 classic titles (NES-SNES) available now on the Wii U or 3DS eShop. They would carefully need to calculate the cost they would potentially lose from people who buy nearly every game (admittedly me sometimes), factor in those that don't buy anything (but would pay for the subscription) and then everything in between to determine which option is best in creating revenue and profits (please note this is simplified and they will also need to account for other metrics such as lifetime value, branding etc).
We also need to factor in that these subscription-based models are obviously digital focused and take away from traditional brick-and-mortar and online sites that sell games (especially those that sell used games - think EB Games) as they will potentially lose money from software sales (although they may get them back in other ways - but that's another topic). Nintendo is perhaps the most reliant on traditional physical game sales as they have a large fan base who value traditional physical products (such as collectors and those who prefer them on display) and are more reluctant to choose digital (compared to PlayStation and Xbox) as well as a younger audience that would prefer something tangible (it's a bit hard to wrap digital games for a birthday).
Setting up a subscription based service can be quite costly. They need to add the infrastructure, educate their team members, especially educate their spokespeople and representatives, sort legal matters, set up a payment process, secure rights from first and third-party publishers, ensure the process is working correctly and correctly market the service. This may involve a hefty set-up cost as well as an on-going cost which needs to be factored into the overall decision process.
I suspect Nintendo would need to charge closer to $29 - $39 US (which would be around $45-$59 AUD) a month for a game service of their potential caliber and what would really be called a game subscription service, and as stated before one all-encompassing price isn't going to work well for Nintendo. This is especially highlighted by the fact many other companies seem to be tip-toeing into this potential model and if any act first they will be taking huge risks as the first mover, and that can be quite costly in this industry.
Chances are down the line (as in way down the line) Nintendo will have multiple subscription services better tailored to the needs of their various audiences. However once more reiterating the Switch Online Service is not that kind of subscription service - the classic games included are simply a bonus to the service.
What are the goals of the Classic Game Selection then?
1) Promoting. By carefully choosing the classic game titles available they can leverage these to promote their other upcoming titles. Such as when Smash Bros undoubtedly launches on the Switch they could do a title that matches with a character (or stage) and ensure their download page heavily promotes the upcoming game. They could also do this if they launch a new F Zero, Metroid etc. (Although might be dreaming a bit there).
2) Branding. One of Nintendo's strengths is just how well-known and liked their brands are. Even games that haven't seen a new addition in years still have a very strong following. The Classic Game Selection can be a way for keeping these brands alive and doing well.
3) Getting people to check out the eShop. Much like with PS Plus and Xbox Gold it is a way of getting people into their store. By increasing the frequency and the number of users that enter the Nintendo eShop they can generate more sales - although Nintendo could use some work on their eShop functionality, layout and promotions.
4) Providing extra value. If the Switch Online Service was kept at this price of $29.95 AUD / $20 USD (or reduced) then people would feel a bit ripped off at needing to pay for this service - after all it was free on previous Nintendo consoles.This at least alleviates some of those concerns and mitigates some possible backlash (and wow we saw quite a bit of initial backlash when the games included were proposed to only be available for one month at a time).
So why does this even matter?
Being compared to Netflix can draw a lot of attention to the Switch Online Service however the problem is that it raises people's expectations as many will just assume it to be just as beefy in content when in reality it will be most likely a game or two each month. This creates what is known as a customer service gap where the perception of the customer has during or after the service differs from their expectation. Think of it as being over hyped and then the end game or service under delivers. This then results in a lot of negativity during the launch of the service and naturally that's not a good thing. Luckily Nintendo does have (a lot) of time up their sleeve in order to remedy this and to change customer expectations, and hopefully they can do just that.
I suspect within ten years we will see subscription-based services be the dominant form of gaming entertainment. We've seen a huge push from developers and publishers that the games we purchase are no longer 'products' but more so ' services' - ones that include additional content and regular updates but we never truly own (although there is a recent legal ruling which may change things). So although we all thought World of Warcraft's subscription model was dead we might be surprised to see something similar re-emerge but admittedly on a much larger scale... although that is for discussing another day. ;)
Here's hoping to a successful launch for the Switch Online Service in 2018!
Also Nintendo if you don't mind can you please try and get permission to add Clash at Demonhead, thanks.
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Written by Kaydos
Kaydos has recently been playing Puyo Puyo Tetris
on the Switch.
If you want to talk video game marketing hit him up at email@example.com