Xbox announced a Game Pass deal with Riot Games (my previous employer, I left in 2019). The deal covers all of the live service games in Riot’s portfolio, across PC and mobile platforms.
I have a few thoughts in reaction to this news. The first is the surprisingly large value Riot is putting on the table. This is not a small experiment; Riot didn’t go the safe route of starting with one game and deciding to expand or not based on the metrics. And even if it were just one game, say League of Legends, the monetary value of “All champions unlocked” is not trivial. As a quick “valuation” exercise:
- Buying them all outright (even though few players do this – you can earn soft currency and unlock champions by playing) is easily hundreds of dollars – you can google for various answers, players have done this math before.
- An alternative comp is to look at Asia, where “all champions unlocked” is a B2B product that PC cafes in Korea and China pay Riot for. If you assume Riot charges a Korean PC cafe $0.2 for every hour of this service, and on average players play 30 hours per month (both of these are like 10-year-old stats in my head), then “all champions unlocked” is by itself a $6/month service.
However you look at it, it seems that Riot is offering a ton of value here – so much so that, if you are a dedicated fan of Riot’s games, you should sign up immediately for Xbox Game Pass just for the Riot benefits alone.
This sparks an interesting offshoot question – instead of working with Microsoft, why didn’t Riot roll out its own “Riot Games Pass” instead? I would imagine this scenario had to have been part of the internal strategizing. And that would feel more in line with the M.O. of the Riot Games I know circa 2015 – doing it alone, desiring total control of the player experience.
I don’t have any inside knowledge, so I can only venture some guesses based on looking at the exchange of value in this deal:
- From a player acquisition perspective, it seems more likely that Riot is funneling players to Microsoft – League announced 180M MAU last year, although a significant portion are players from China, which Xbox Game Pass doesn’t officially serve; while Xbox Game Pass last announced 25M subscribers. But Riot does also gain a new channel where new players could flow in, and it may be a previously underserved (more console-oriented) player-base. Thus Riot stands to benefit from all future Xbox Game Pass marketing, as a % of future Game Pass subs could convert to Riot players.
- Based on the above, I would imagine there’s a sizable monetary component to the deal, flowing from Microsoft to Riot. I’m not a BD person, I don’t have a good sense where to start to try to model this component. It could be a fixed per-year amount. It could be calculated based on actual player engagement (some sort of revenue share / pre-defined payout based on metrics). It could be a combination of the two.
- To Microsoft, I also think there’s a Game Pass content strategy component to this deal as well – having popular live-service games, like Riot’s portfolio, acts as a natural buffer against AAA seasonality, and probably helps with smoothing out churn.
Another interesting part of this deal is the mobile games included. This has the effect of providing an off-platform (iOS / Google Play) way to monetize a mobile game’s content, though in the past this was usually done by the game’s publisher directly, as opposed to another platform like Microsoft here. It will be curious to see if there’s any response from Apple & Google, especially if Microsoft starts rolling up additional mobile games into Game Pass and could threaten to end-run IAP regulations.
From Riot’s perspective, I can also think of a number of risks to this deal that needs to be managed:
- The monetary math: does the inflow from Microsoft cover the possible loss of all future champion revenue (to use League of Legends as an example)?
- The game economy and player behavior implications: during my time at Riot, I felt the long-held internal view was that providing all champions for free (which is what DotA 2 does) has negative effects on players’ onboarding flow, matchmaking quality, sense of ownership and progression. This deal seem to override these concerns.
In summary: this deal took me by surprise, but I think it could make sense for both parties. It would be fascinating to follow how this impacts both companies going forward.