Electronic Arts (NASDAQ:EA) is not the same business it was just a few years ago. Over the last two years, net bookings from in-game spending and subscriptions increased from 59% of the business to 71% on a trailing 12-month basis. The recurring nature of this live services revenue led Electronic Arts to initiate its first dividend toward the end of 2020.
While subscriptions are still a small part of the company's live services, it's in the early stages of growth. EA previously offered two subscription services with EA Access on console and EA Origin on PC, which are now part of EA Play.
Now, after launching EA Play on the Microsoft (NASDAQ:MSFT) Xbox Game Pass cloud gaming service, EA expects to gain millions of new subscribers.
Subscriptions open the door to more players
With EA Play, the company wants to reduce the costs and friction of playing games such as the need to even own a video game console. Making games more accessible for more people around the world is one of the reasons why cloud gaming is such a big opportunity for the video game industry.
So far, EA Play has attracted 6.5 million players, which is a solid start. "Our EA Play service is the most successful multi-platform subscription in the industry," CEO Andrew Wilson said on the company's fiscal second-quarter conference call in November. "[W]e believe we have the opportunity to double our subscriber base over the next 12 months."
Players want to be able to access games anywhere on any device. Game companies don't have the capability to offer a play anywhere cloud service, but that's where Microsoft can help.
Xbox Game Pass officially launched in September and provides the ability to play Xbox titles on PC and Android mobile devices. Microsoft reported on a conference call in late October that Game Pass had 15 million subscribers.
Microsoft's gaming service should reach millions more players, given that Xbox Live had nearly 100 million users at the end of Microsoft's fiscal 2020 (which ended in June). That's a deep pool for EA Play to tap into.
Building awareness for the EA brand
Some might think that EA's deal with Microsoft is a sign of weakness due to the appearance that EA is surrendering its intellectual property to the tech giant, but that's not the case. EA Play operates like a store within a store on Game Pass. By offering a select catalog of titles on a widely-used platform like the Xbox, EA can build a close connection with millions of new players.
Gaining more exposure through Xbox Game Pass means everything, because most of EA's bookings are coming from in-game spending, not game sales. It's only after players are in the game that EA really begins to make some serious money. Over the last four quarters, EA brought in nearly $4 billion of net bookings from live services, including in-game spending and subscriptions.
EA Play is also available on Steam, one of the most popular platforms for buying and playing PC games. Last year, Steam's parent owner Valve disclosed that it had more monthly active users than the Xbox or Sony PlayStation with over 120 million players.
By offering EA Play through these platforms, Electronic Arts can reach a much bigger audience than it could on its own. It can leverage the wider reach of Steam or Xbox to build a bigger audience for its own future releases and continue growing its live services business.