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Xbox's new Netflix-style subscription service could have 'unique advantage'

Microsoft Corp.'s forthcoming subscription-based video game service for the Xbox One could threaten traditional video game retailers that have long relied on preowned and used game sales for revenue.

Set to launch late this spring, Xbox Game Pass will cost $9.99 a month and will give subscribers unlimited access to a rotating library of more than 100 titles. Unlike Sony Corp.'s PlayStation Now service that lets subscribers stream games to their devices, games offered via Game Pass can be downloaded directly onto the subscriber's Xbox One console, allowing both online and offline play for as long as the subscription to the service stays active.

Notably, video games giant Electronic Arts already offers a similar service on the Xbox One called EA Access, which lets subscribers play a selection of titles for $4.99 a month or $29.99 a year.

Video game retail chain GameStop's shares fell significantly after the EA service was unveiled in 2014 and again when Game Pass was announced in February. Investors seemed concerned that these services would negatively impact GameStop's lucrative used-games business, which is already being encroached upon by the rapid growth in digital sales. While EA's offering, which is now also available on PCs as Origin Access, did not prove as disruptive as investors initially feared, Game Pass might, as it is set to offer a wide range of titles from a variety of third-party publishers.

"Being from a major console manufacturer that can aggregate content from multiple publishers and market directly to their user base gives Xbox Game Pass a unique advantage over similar services," said Greg Potter, an analyst with S&P Global Market Intelligence.

The service represents a new way for both Microsoft and third-party publishers to squeeze money from older titles, Potter said, since they do not see additional profit from used-game sales.

Microsoft tried to restrict the used-games market once before with a highly controversial system that prevented the usage of used games on the Xbox One. That plan, however, was dropped after it sparked intense backlash.

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Source: Microsoft

The new Game Pass service will include a range of Xbox One and Xbox 360 games, including exclusives, such as "Halo 5: Guardians," and third-party titles such as "NBA 2K16" and "Payday 2." Notably missing from the service, however, are games from some of the biggest publishers in the business, including Ubisoft, Square Enix, Activision Blizzard and Electronic Arts.

Microsoft declined to comment on whether titles from these companies would make their way to the service in the future.

"Whether that comes to pass will depend on take-up of the service and the actual revenue stream enjoyed by publishers and developers," said Dorian Bloch, an analyst at market research firm GfK. "It is also something of a tightrope when you consider that traditional stores provide the discoverability and the launch pad or 'event' for major games or new hardware/accessories. Microsoft may not wish to move too quickly, or risk upsetting the current traditional retailer business model."

According to Bloch, the absence of major titles from some of these third-party publishers, such as "Call of Duty," "Battlefield" and "FIFA," stands to impact the service's potential subscriber base considerably since a large group of gamers play these annual franchises.

"Also, these games are usually played over long periods of time, meaning that a typical gamer may not view Game Pass as cost effective simply because they do not have any spare time to play 'nonessential' titles,'" Bloch added.

Xbox head Phil Spencer, meanwhile, envisions a more ambitious future for Game Pass. In a recent Xbox podcast, Spencer said he would like to grow the service into a program for completely original games, much like how Netflix Inc. and Inc. offer original programming exclusive to their OTT services.

Francesco Radicati, a senior analyst at research firm Ovum, argued that from a publisher's point of view, the possibility of earning regular monthly revenue from subscribers, rather than having it tied to their own launches, could be an advantage for the service.

Potter, however, thinks this initiative would work better for smaller studios and independent game-makers looking to try a new distribution platform for first-run titles.

"Like film and TV studios, control of the distribution of their content is key for game publishers, and ceding that content to a service like Game Pass would cede too much control and revenue to a competitor," Potter said. "If major publishers do come to the service, it could be similar to how HBO, Showtime and other channels are sold on Amazon or Hulu as an additional add-on to the subscription."