Apple

Though it will probably appeal more to certain types of mobile gamers than others for now, Apple's (AAPL - Get Report) Arcade game-subscription service does offer a lot of bang for the buck.

And considering what mobile gaming experiences are often like for the typical smartphone or tablet user, playing Arcade titles will likely feel like a breath of fresh air for a lot of its initial subscribers.

Arcade, which is promised to offer 100-plus exclusive games on iPhones, iPads, Macs and Apple TV set-tops, officially became available on iPhones on Friday, in tandem with the rollout of iOS 13 and Apple's latest iPhones. The official iPad launch will occur on Sep. 24, when iPadOS is released to the public. However, Arcade games can already be played on iPads by those who have installed the iPadOS beta.

Apple announced during its Sep. 10th iPhone event that Arcade will cost just $4.99 per month, following a 1-month free trial. Notably, like its TV+ streaming service, one Arcade subscription will cover the accounts of up to six family members. For the near-term at least, the service appears priced not to become a major profit engine in its own right, but to quickly build a large user base and boost Apple's ecosystem stickiness.

Apple Arcade's Value Proposition

I've tried out about a dozen Arcade games on my iPad Pro after signing up for the iPadOS beta. And while a couple were disappointments and a couple others were promising but had some glitches and/or connectivity issues to work out, there was a lot to like on the whole....particularly given the price.

Among the downloaded titles that stood out for me: Overland, a turn-based game in which the player has to guide characters through a post-apocalyptic environment; Oceanhorn 2: Knights of the Lost Realm, a Zelda-like role-playing game (RPG); and Super Impossible Road, a difficult but engaging space racing game with immersive visuals. Other titles to receive praise from reviewers include Sayonara Wild Hearts, an arcade-type game in which a character navigates a dream-like environment while pop music blares in the background; Where Cards Fall, a puzzle game in which a player constructs houses made of cards; and Assemble with Care, a game which puts the player in the role of a repairwoman who has to fix a number of broken items.

As others have noted, Arcade doesn't currently have many games that could qualify as big-budget AAA titles. While it does include some games from larger game developers such as Ubisoft, Konami and Sega, as well as some titles with impressive graphics, much of the library currently consists of either casual games or titles that emphasize strategic thinking and creative game mechanics. And indie developers are responsible for a lot of this output.

But regardless of who developed a game or what type of gamer it's aimed at, all Apple Arcade titles are free of both ads and in-game purchases. For any mobile gaming enthusiast who has grown frustrated at having to constantly deal with in-game video ads (often for other mobile games), or is tired of having to make in-game purchases to progress within a title he or she is hooked on, the fact that Arcade isn't monetized via anything besides its subscription fee is bound to be a selling point.

Apple is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells AAPL? Learn more now.

It's worth noting here that according to research firm SensorTower, 99 out of the top 100 grossing U.S. iPhone games are free to download and thus wholly monetized via ads and in-game purchases (Minecraft, which came in at #48 and costs $6.99, was the one exception). Moreover, per App Store charts, even a solid majority of the most popular paid iOS games feature in-game purchases. By contrast, developers make money on Arcade titles simply by licensing them to Apple, which might be spending over $500 million on Arcade's library.

In that context, should it take off, Apple Arcade could prove to be a game-changer for both mobile gaming user experiences and the industry's economics. And for that reason, the service arguably has a bit in common with video streaming services in their early days.

Parallels with Streaming Services?

Before Netflix's (NFLX - Get Report) streaming service (and for that matter, Hulu) launched in 2007, consumers wanting to obtain popular movies and TV shows via the Internet typically had to either make one-off purchases and rentals or had to pirate the content. Netflix, whose streaming service was initially tacked onto its DVD-rental service, changed the rules of the game by providing legal, ad-free access to a library of licensed movies (and subsequently, TV shows).

Though Netflix's streaming library was initially fairly small and didn't feature many recent hits, its service took off all the same thanks to its pricing and the convenience it provided. And we know the rest.

As subscription-based Internet video streaming took off, content budgets soared with them, and in time major streaming services would feature both many hit licensed movies and shows and numerous originals that the streaming services themselves financed. And Netflix, for its part, was able to carry out price hikes over time, with the company using the revenue those price hikes provided to up its content budget.

Importantly, the economics of subscription-based video streaming had (and continue to have) a lot in common with Apple Arcade. Just as Apple pays game developers up-front for Arcade content and doesn't have to spend a lot to support additional Arcade users, Netflix and its rivals typically pay for streaming content up-front and incur relatively limited marginal costs for streaming that content.

Time will tell just how much Apple Arcade's trajectory resembles that of Netflix's streaming service -- whether, for example, Arcade's game budget will soar as its subscriber base rises, more big-budget games will appear on the service, and meaningful price hikes will be carried out. However, like Netflix's streaming service in its early days, it does have some key selling points that leave it well-positioned to be a success and potentially shake up the broader industry it operates in.

This article is commentary by an independent contributor. At the time of publication, the author held TK positions in the stocks mentioned.