Business aspects of Subscription Game Libraries [Xbox GamePass, PSNow]

[Deleted member 11852]

I don't see why tallying up a list of failed efforts is relevant.

It's not there is dump to Microsoft, it's there to demonstrate to folks who think Microsoft can just grow the GamePass subscriber base that it's not about desire, will, money or effort. Only time will tell if Microsoft can grow it but like Apple having difficulty selling more iPhones every year, they may be near their ceiling for people interested in the product. Netflix grew their customer base by changing what the product was to something that appealed to a much larger user base.

It feels like the traditional home console videogame is kind of hitting the point where it's difficult op grow it any further. I don't know why this is but as with any form of entertain, there will be a finite amount of people a) interested and b) willing to spend money to take part.

 

[Xbat]

Microsoft put a lot of money, time and effort into Azure and nobody quite knows how well it's doing other than in terms of market share it's a very distance third place behind Amazon and Google.

I thought Azure was only behind Amazon and actually well ahead of Google.

 

[mrcorbo]

It's not there is dump to Microsoft, it's there to demonstrate to folks who think Microsoft can just grow the GamePass subscriber base that it's not about desire, will, money or effort. Only time will tell if Microsoft can grow it but like Apple having difficulty selling more iPhones every year, they may be near their ceiling for people interested in the product. Netflix grew their customer base by changing what the product was to something that appealed to a much larger user base.

It feels like the traditional home console videogame is kind of hitting the point where it's difficult op grow it any further. I don't know why this is but as with any form of entertain, there will be a finite amount of people a) interested and b) willing to spend money to take part.

I don't really see anyone saying this, though. I've learned not to project my own perceptions of value or appeal for a product on the broader market. I have no idea what the potential for GamePass is. I don't know that anyone does at this point. The things MS are doing are pretty much exactly what they should be doing, though, for it to have the best chance to be successful.

 

[Deleted member 11852]

I thought Azure was only behind Amazon and actually well ahead of Google.

I think it's difficult to directly compare them because of the way Microsoft (and Google) report on their respective cloud platform business in terms of revenue, profits/losses and growth. There is also divided opinion on whether it's legit to include cloud storage and not focus only on cloud compute. From the perspective that storage is relatively easy and compute is more complex. Azure is technically the better platform by far.

 

[cheapchips]

Of course it does. If you releasing one or maybe two single player games a year that will probably sell closer to five million copies in a month and there's an option to play those games for one sixth of the price that will have a massive impact on the revenue those games bring in which will effect those games future viability.

It just means that if someone joins your subscription service it better be good enough that you retain them for 6mths+. Sony's first party titles are on their subscription service already, just not on day one and I think they rotate the library. They don't have to follow MS's playbook to the letter. HZD hitting PSNow 3 mths after release would be a big boost to the service, and if MS's experience is anything to go by, actually boost sales.

(I'm really curious as to what Playstations service look like going forward. They haven't talked about it and the Azure deal must be for something)

 

[goonergaz]

So, you'd be a fan of Gamepass, then, if it was a Sony product and had Sony first-party games?

Their games appeal to me more and they also hit the spot with my gaming habits. I can see why people get value from GP - I just don’t personally see it as value myself, I prefer more control over what I play as I have very limited play time.

Subscription type systems are very viable.

Ultimately as long as revenue exceeds expenses the service is working as expected.
On the subscriber side of things, the revenue can scale very high, as the number of subscribers can go up as the market increases. If you take a sample market penetration metric, say 1%, as long as the market continually increases, you own a portion of that increase.

the goal is to do this while keeping expenses somewhat fixed as much as possible. if expenses are increasing faster than revenue is increasing you have a business model that won't work. But if your subscriber revenue is increasing fast enough to outpace your expense count over time, then you just need to hold on long enough for that to happen.

So it doens't matter if XGP is $1 or $15 dollars. If it's $1 and there are 100M subscribers. That's 100M per month. Or 1.2B per year.
If it's $15 dollars a month and you have 10M subscribers that 150M a month, or 1.8B a year.
So as long as your subscribers rate is moving fast enough to break through the cost of your expenses, you're in a net positive.

The question that needs to be asked is whether there is another model that would generate the company more profit.
And I think in the short term, that answer is yes, the Sony model.

I think in the long term (very long term) the answer will likely be subscription.

So I’ll take your math and say how much will just LoU2 and GoT generate in the next 12 months? Which way is more sustainable?

I personally think there’s a halfway house where a game is released for a month as normal, maybe this version includes the pre order bonus type bits - soundtrack whatever- then after a month it goes onto a game pass type platform. This gives someone like me complete choice over games I buy and the knowledge of the option to wait for the ‘subscription’ version.

 

[AzBat]

How does the option of a subscription prevent you from buying a game at launch?

Tommy McClain

 

[iroboto]

So I’ll take your math and say how much will just LoU2 and GoT generate in the next 12 months? Which way is more sustainable?

Sustainability is about whether your revenue exceeds your expenses. Opportunity cost is probably what you're referring to, which is the cost of doing something and something else could have generated more.

The second is understanding that subscriptions do not take away sales from every single game. That is like saying that every single person on sony's platform purchases 100% of each exclusive that is released. That's frankly just not true.
If PS4 is at 120M units today, and they sold 12M, that's 10% market penetration. That would be very high for a single game. But they don't release one of those each month for a whole generation.

But if you have 25% subscriber penetration, in this case 10M subscribers to 40M xboxs. 25% of 120M is 30M subscribers.
30M subscribers at $10 per month is 300M per month. Or 3.6B a year.
If TLOU2 and GoT both managed to sell 10M lets say that's 690M each or 1.38B together.
That's not even 1/2 the amount that a potential subscription model could make.
So you would need 4 exclusive titles each year to sell 10M units, every single year, to equate to the revenue power of 30M subscribers.

 

[Xbat]

So you would need 4 exclusive titles each year to sell 10M units, every single year, to equate to the revenue power of 30M subscribers.

What about profit though?

 

[eastmen]

What about profit though?

How do you mean?

Its hard to know how much microsoft makes from each game pass subscription and I am sure its a sliding scale.

Lets say your subscribed and play different games all month long. Each developer of a game you played most likely gets some money from your subscription. But then there is a user like me who says only plays sea of thieves . thats one game that will get the lion share of the money. It also happens to be an MS game so MS will make all of the subscription sub. Then there can be someone like iroboto who has a yearly sub but maybe on some months he doesn't play anything at all on game pass.

Then there are people who might love a game on game pass but the game is leaving. So what does that person do ? They buy the game using the discount they get as game pass subscribers and maybe even discounted dlc.

I mean right now I'm looking at Fallout 76 for pc. I can play it with game pass. I can buy it for $40 but as a subscriber i get it for $32. But i can also buy a slew of other related stuff. There is a Appalachia starter that is $8 but $7.19 for game pass. There is also a raiders and settlers content bundle . Its not part of game pass but if i'm enjoying the base game I can buy it for $30 but its on discount for game pass members for only $27.
I can also buy in game currency at a discount.

There are lots of people who will buy stuff this way.

Sometimes giving away the base game will get people to buy more of the add ons. For instance Civ 6 was free on epic game store for a week , the it and some of its older dlc was 50% off on steam. Then it leads right into a new season pass they added and were advertising. So they knew the free and discount would drive people in who would then buy newer content to make up for the sale prices or free content

 

[Xbat]

How do you mean?

I mean compared to the games that sell 10 million through the usual means.
In other words it's not as simple as in iroboto post. If Gamepass was making a big profit Microsoft would be singing it from the tree tops.

 

[Eolirin]

How do you mean?

Its hard to know how much microsoft makes from each game pass subscription and I am sure its a sliding scale.

Lets say your subscribed and play different games all month long. Each developer of a game you played most likely gets some money from your subscription. But then there is a user like me who says only plays sea of thieves . thats one game that will get the lion share of the money. It also happens to be an MS game so MS will make all of the subscription sub. Then there can be someone like iroboto who has a yearly sub but maybe on some months he doesn't play anything at all on game pass.

Then there are people who might love a game on game pass but the game is leaving. So what does that person do ? They buy the game using the discount they get as game pass subscribers and maybe even discounted dlc.

I mean right now I'm looking at Fallout 76 for pc. I can play it with game pass. I can buy it for $40 but as a subscriber i get it for $32. But i can also buy a slew of other related stuff. There is a Appalachia starter that is $8 but $7.19 for game pass. There is also a raiders and settlers content bundle . Its not part of game pass but if i'm enjoying the base game I can buy it for $30 but its on discount for game pass members for only $27.
I can also buy in game currency at a discount.

There are lots of people who will buy stuff this way.

Sometimes giving away the base game will get people to buy more of the add ons. For instance Civ 6 was free on epic game store for a week , the it and some of its older dlc was 50% off on steam. Then it leads right into a new season pass they added and were advertising. So they knew the free and discount would drive people in who would then buy newer content to make up for the sale prices or free content

All of the indie developers who've talked about how game pass works for them have talked about a single up front flat pay out for a fixed period of being on the service. It's possible that Sega or Bethesda or SquareEnix can get better terms and get some sort of royalty in addition to that, but I wouldn't make that assumption.

MS seems to be operating just like Netflix; known up front expenditures for licensing and in house content production versus revenue from subs. And the third party devs can look at what is now a fairly decent amount of data around how Game Pass affects sales and weigh the up front pay out versus projected effects on game sales. Which is why indie devs tend to be day one launches; guaranteed money and more exposure. And also why bigger AAA games mostly show up well after they've passed their sales peak.

 

[Eolirin]

I mean compared to the games that sell 10 million through the usual means.
In other words it's not as simple as in iroboto post. If Gamepass was making a big profit Microsoft would be singing it from the tree tops.

They are, though they'll never talk about profit over revenue for something as granular as Game Pass.

But this is also the wrong way of looking at this. Cash flow matters a huge deal as does risk. That game that has a potential of selling 10 million copies is going to take 4 or more years to make. It has a chance of failing. All of the returns are back loaded and uncertain. You can't afford many misses and you need to make a lot of profit off of each release so that you can bridge the amount of time it takes to get to the next one.

Game Pass flips that. If you can keep people subscribed you're making money the whole time that team that's working on that potential 10 million sales game takes to finish. You can do it with multiple games that might only sell 2 or 3 million copies, but can be made much faster and more cheaply to fill in the gaps. And if that big game doesn't do so well, you haven't really lost that much as long as you've got enough other content that hits. It spreads risk around and it puts the money in the front rather than the back of the development process.

MS can know exactly what their outlays are vs the amount they bring in and size their spend accordingly, spending more to grow, but eventually stabilizing at a level that's sustainable. As long as they hit a minimally viable number of subscriptions to keep the new content pipeline flowing fast enough, they're golden.

 

[Xbat]

They are, though they'll never talk about profit over revenue for something as granular as Game Pass.

Have they said they profitable? I don't really follow these things but I thought or at least what I've read they very vague about it.

People must not forget that a lot of those subscribers got a year or more subscription for peanuts that in no way is viable over the long term.

If you can keep people subscribed

Well obviously but that's not easy and that's the crux of the whole thing.

 

[Nesh]

How does the option of a subscription prevent you from buying a game at launch?

Tommy McClain

He is explaining why he prefers as an individual consumer to buy a game than buying a pass.
But there is something to be said here. I am not sure about the sustainability of the game pass either. Or at least, for the health or sustainability of large game projects for game studios.
Gamepass gives you a plethora of games, of which the majority you will never play and the revenue is shared between cheap and expensive projects.
Games sold individually get a clean revenue throughout the course of their life cycle and a clear indication of appeal through units sold. It makes more sense for games that reached a point of stagnated sales to end in gamepass, not newly released AAA projects.
Which means, old games and new smaller projects. Which in turn doesnt make the gamepass very interesting.

 

[London Geezer]

They are, though they'll never talk about profit over revenue for something as granular as Game Pass.

But this is also the wrong way of looking at this. Cash flow matters a huge deal as does risk. That game that has a potential of selling 10 million copies is going to take 4 or more years to make. It has a chance of failing. All of the returns are back loaded and uncertain. You can't afford many misses and you need to make a lot of profit off of each release so that you can bridge the amount of time it takes to get to the next one.

Game Pass flips that. If you can keep people subscribed you're making money the whole time that team that's working on that potential 10 million sales game takes to finish. You can do it with multiple games that might only sell 2 or 3 million copies, but can be made much faster and more cheaply to fill in the gaps. And if that big game doesn't do so well, you haven't really lost that much as long as you've got enough other content that hits. It spreads risk around and it puts the money in the front rather than the back of the development process.

MS can know exactly what their outlays are vs the amount they bring in and size their spend accordingly, spending more to grow, but eventually stabilizing at a level that's sustainable. As long as they hit a minimally viable number of subscriptions to keep the new content pipeline flowing fast enough, they're golden.

Big games take years to make. That's not going to change unless the games become less big and less good, frankly. What you're describing seems to be a lowering of the quality of games, so that they don't take 4+ years to make. And that's not a gaming industry many of us want. It would be an industry without GTA, RDR, any of Sony's big hits, any of anyone's big games. Basically all games as we know them now, in favour of the quality we get on mobile games. No thanks!

Many of us do not play that many games per year, so when we do play we want those experiences to have an impact. Playing tens and tens of smaller, shittier games does not interest a lot of people!

 

[iroboto]

What about profit though?

Sony generates numbers that large with every single exclusive released every single year? I think you need to re-check your numbers.
If Sony was doing that well, perhaps this model wouldn't make much sense for them.
Certainly MS doesn't have 4 exclusive titles selling at full price at 10M units per title each year.

I mean compared to the games that sell 10 million through the usual means.
In other words it's not as simple as in iroboto post. If Gamepass was making a big profit Microsoft would be singing it from the tree tops.

Profit is still there. Penetration of your market is only 25%. Leaving 75% that is still available to purchase the title. I think you're pushing the sets together too much. The assumption is that once you have gamepass you aren't going to buy anything else. And yet, that's not likely to be true with 75% of the remaining owners not on gamepass. Gamepass is really going to largely be an additive of revenue than it should be a competing platform. You're picking up revenue off a lot of people that would not buy games they are on the fence on playing.

 

[iroboto]

Big games take years to make. That's not going to change unless the games become less big and less good, frankly. What you're describing seems to be a lowering of the quality of games, so that they don't take 4+ years to make. And that's not a gaming industry many of us want. It would be an industry without GTA, RDR, any of Sony's big hits, any of anyone's big games. Basically all games as we know them now, in favour of the quality we get on mobile games. No thanks!

Many of us do not play that many games per year, so when we do play we want those experiences to have an impact. Playing tens and tens of smaller, shittier games does not interest a lot of people!

nothing should change whether on gamepass or not. it ultimately depends on what each company is targeting with their subscription.

 

[Deleted member 11852]

Profit is still there. Penetration of your market is only 25%. Leaving 75% that is still available to purchase the title.

That's the second 25% you've thrown out recently. Do you think Microsoft has only sold 40m Xbox? That it's trailing PS4 by a sales ratio of almost 3:1? I thought the credible estimate was 50m back in November. Was this discredited?

 

[iroboto]

That's the second 25% you've thrown out recently. Do you think Microsoft has only sold 40m Xbox? That it's trailing PS4 by a sales ratio of almost 3:1? I thought the credible estimate was 50m back in November. Was this discredited?

not sure.. that was just the last number i recalled. 50M would still be 20% market penetration.
Which is still a very good number. Still much higher than I expected.