Apple spends hundreds of millions on Arcade video game service

Gaming could generate more revenues than TV or news subscriptions

Apple Arcade was unveiled last month at the TV+ event. Photograph: NOAH BERGER/AFP/Getty Images

Apple Arcade was unveiled last month at the TV+ event. Photograph: NOAH BERGER/AFP/Getty Images

 

Apple is spending hundreds of millions of dollars to secure new video games for its forthcoming Arcade subscription service, according to several people familiar with the deals.

The substantial outlay to developers shows how seriously Apple is taking games as a new source of subscription revenues, despite the public paying more attention to its star-studded push into television and news.

It also reflects the increasing competition in Silicon Valley for exclusive rights to the best content, as the iPhone maker bids against other new games platforms from Google and Tencent, as well as the console makers Nintendo, Sony and Microsoft.

Apple Arcade was unveiled last month at an event in Cupertino, California, where Hollywood celebrities including Oprah Winfrey and Steven Spielberg touted its TV+ platform. Apple is hoping to drive new and more predictable sources of revenue from online services as sales growth wanes for the iPhone.

Some analysts predict games subscriptions could become a multibillion-dollar business for Apple within a few years. But to establish itself in the market, Apple is having to make substantial upfront investments without knowing whether Arcade will be a success.

Several people involved in the project’s development say Apple is spending several million dollars each on most of the more than 100 games that have been selected to launch on Arcade, with its total budget likely to exceed $500m. The games service is expected to launch later this year.

That compares with the $1bn that Apple was said in 2017 to have budgeted for original content for TV+, though analysts believe that its video spending has already exceeded that level.

Apple is offering developers an extra incentive if they agree for their game to only be available on Arcade, withholding their release on Google’s Play app store for Android smartphones or other subscription gaming bundles such as Microsoft’s Xbox game pass. But after a few months of exclusivity, developers will be free to release their games on PCs or other games consoles such as Nintendo’s Switch or Sony’s PlayStation.

Apple declined to comment.

Titles already announced for Apple Arcade include well-established brands such as Sega’s Sonic the Hedgehog, Cartoon Network and Lego, as well as new games from independent developers such as ustwo games, Annapurna Interactive and Bossa Studios. Most of those selected have previously proven successful on the iPhone’s App Store. Apple’s advances more than cover the cost of developing a typical indie game, according to people familiar with the terms.

Apple Arcade’s focus on indie games contrasts with the big Hollywood names attached to TV+, and has left some developers cautious about how many people will subscribe to the service.

“It’s Sideways, not Marvel,” said one games industry executive, referring to the Oscar-winning independent film set in California’s wine country.

Still, with games now the most lucrative part of the entertainment business, Arcade could become bigger than TV+ in the coming years.

Apple has not said how much it will charge subscribers for Arcade or TV+, but analysts at HSBC have estimated that Apple Arcade revenues will grow from $370m in 2020 to $2.7bn by 2022 and $4.5bn by 2024, by which time HSBC predicts it will have 29m users paying $12.99 each month. Those figures are greater than its revenue estimates for Apple TV+, at $2.6bn by 2022 and $4.1bn by 2024, and Apple News+, which it predicts will generate $1.7bn and $2.7bn respectively.

As well as giving a boost to its services business, Apple’s main ambition with Arcade is to win back the advantage in games that it used to hold over Google Play.

For many years after the App Store first launched, mobile games would debut on iPhones in order to reach Apple’s higher-spending customers. Developers also hoped they would be rewarded by Apple for prioritising its devices with prominent placement in the App Store’s marketing.

Today, Android’s much larger share of the global smartphone market means that big developers typically launch their titles on both stores simultaneously. That is especially true for free-to-play games such as Candy Crush Saga, Clash of Clans or Fortnite, which make most of their revenues from advertising or from in-app purchases of power-ups, extra lives and character personalisation.

“Paid games are often critically acclaimed and beloved by the people who play them, but competing with free is hard, so even the best of these games have only reached a smaller audience,” Apple said as it announced Arcade. – Copyright The Financial Times Limited 2019.