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

[Deleted member 11852]

No it makes it so that you can continue to fund 4+ year games.

I think depends on your accountancy and cash flow. For some, having a regular and semi-predictable infection of cash every month is preferable to having to bankroll a multi-year project up front. But if you can afford to just bankroll the project and ringfence those finances up front, you don't become obsessed with how international exchange rates will impact those month payments from around the world. When I was in aerospace, this was always an issue with our service plans for aircraft.

Sony don't seem to have an issue with bankrolling stupidly long game development; Uncharted 4, The Last of Us 2 and every Gran Turismo game springing to mind, not to mention The Last Guardian which they effectively parked for a number of years. For smaller third party devs, depending exactly how their games are monetised, GamePass could well be a blessing.

However you do it, you're paying staff to develop the games, licensing the technology/art/music and distributing and charge for the game, best a sale of inclusion in a subscription.

 

[Silent_Buddha]

some weird love there. MS as a company to work at has only appealed to me after Satya took over.

If you look at when Gabe Newell left, he left near the end of the "golden age" of working for MS, when basically anyone working there could get fabulously rich due to stock options and the price of MS stock.

Those stock options were a big part in funding the creation and operating expenses of Valve while they developed Half-Life before they hit critical mass and Steam became what is today.

Regards,
SB

 

[goonergaz]

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

Tommy McClain

It hinders anyone with a budget.

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.

What % of subs are paying full price? Sony also make money from smaller games, my point was to say if you added up all the potential of the games on GP it would likely exceed the income from GP - especially as everyone goes on about how much digital costs and how many games people with GP just try because it’s there vs the more streamlined old school way of buys games.

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.

This is my point, there’s a finite pot of gold which is being spread thinly paying for games which could be money put into something else. GP whilst being good for an indie might not be great, what if a cheap game became massive - the dev lost a lot of sales.

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.

Indeed

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!

Exactly

On MS model. If you still want it. You buy it. They offer a 20% limited time discount. Or you wait for a sale and buy it then.

167M subscribers at $10/mo is 1.67B per month. *12 months and you’re ahead of their expenses. 20B in revenue.

Great, so I can buy it anyway...thanks. (Again loving the thought everyone pays full price)

I just made a spreadsheet.

I think this is reasonable. It's just easier than going back and forth on this.

https://1drv.ms/x/s!Arh_9w0iEIQBhIcTSA3K8Pyfw3BGiQ?e=xHbORF

They would be profitable in year 7 using these numbers. At a profit of 97M. Let me know if you can't access the spreadsheet

I can only assume that MS has a much better projection spreadsheet than this with actuals below. As long as they are hitting their expected numbers, they'll reach their goal.

So they only have to pump in 2bn? Over 6 years for 100m - they should take this idea into dragons den!

 

[goonergaz]

I think depends on your accountancy and cash flow. For some, having a regular and semi-predictable infection of cash every month is preferable to having to bankroll a multi-year project up front. But if you can afford to just bankroll the project and ringfence those finances up front, you don't become obsessed with how international exchange rates will impact those month payments from around the world. When I was in aerospace, this was always an issue with our service plans for aircraft.

Sony don't seem to have an issue with bankrolling stupidly long game development; Uncharted 4, The Last of Us 2 and every Gran Turismo game springing to mind, not to mention The Last Guardian which they effectively parked for a number of years. For smaller third party devs, depending exactly how their games are monetised, GamePass could well be a blessing.

However you do it, you're paying staff to develop the games, licensing the technology/art/music and distributing and charge for the game, best a sale of inclusion in a subscription.

How did you miss Dreams!? Lol

To me, the Sony model is doing the same thing but gives you greater flexibility to decide how the pie is sliced up

 

[iroboto]

What % of subs are paying full price? Sony also make money from smaller games, my point was to say if you added up all the potential of the games on GP it would likely exceed the income from GP - especially as everyone goes on about how much digital costs and how many games people with GP just try because it’s there vs the more streamlined old school way of buys games.

Great, so I can buy it anyway...thanks. (Again loving the thought everyone pays full price)

So they only have to pump in 2bn? Over 6 years for 100m - they should take this idea into dragons den!

Review the spreadsheet again - sorry I made a small formula error. I made it more clear now.
That's 2B as starting point increasing 10% each year, so 2.2B the next etc, then 10% ontop of that the following. By Year 7 MS is paying nearly 3B in just fees.
The % price of subs paying full price is accounted for in the spreadsheet by cost of acquisition.
I made the price of the sub $10, the COA is $6 per month. Meaning I wrote of 60% of the subscribers as paying 0. and 40% paying full. That's very generous.
I made subscriber growth 20% YoY, that's also likely very conservative.

Games will cycle in and out of game pass, that's normal for every subscription service.

 

[Deleted member 11852]

To me, the Sony model is doing the same thing but gives you greater flexibility to decide how the pie is sliced up

I don't know if Sony's model is better but I know that I have no idea how Microsoft's model works. But a model that only has good profitability at certain scale(s) could be problematic.

 

[Xbat]

And the cost stuff doesn't work that way either. MS isn't paying the full cost of development to those other devs, while Sony is paying a massive amount of money to keep their studios staffed and working for a very long time before they see any returns.

Maybe during the PS3 generation but most Sony's big first party games have made enough to fund there next games and probably with a bigger budget than ever before.

Microsoft is paying full price for there first party devs just like Sony and I'm sure there games aren't making the same profit currently as Sony's because of Gamepass.

 

[Eolirin]

What % of subs are paying full price? Sony also make money from smaller games, my point was to say if you added up all the potential of the games on GP it would likely exceed the income from GP - especially as everyone goes on about how much digital costs and how many games people with GP just try because it’s there vs the more streamlined old school way of buys games.


This is my point, there’s a finite pot of gold which is being spread thinly paying for games which could be money put into something else. GP whilst being good for an indie might not be great, what if a cheap game became massive - the dev lost a lot of sales.

Game Pass usage cannot be straightforwardly assumed to lower sales of games on the platform. It's an additional fixed revenue stream for developers that has a complex interaction with sales rates that can only be assessed with data that only MS and their partners have. Devs will figure out what makes sense for them on that basis.

We know that Game Pass has resulted in increased sales, beyond just usage, for at least some games; some games will become big because of Game Pass.

Also to note, whether Game Pass reduces overall spend on games is not something we can evaluate, but that MS can. It's cheaper than buying the games if you're using the service, but that doesn't mean the average spend per user doesn't go up. Some people end up saving money, but there are also people who end up spending more either because their normal spending is lower than the sub or because they get upsold on dlc or sequels that aren't on game pass more from the increased exposure and engagement, or even just because they still buy pretty much the same set of third party games they were before, but they're filling the space between those releases with a Game Pass sub, so the sub becomes purely additive. MS is going to care far more about that, and rightfully so, than whether any individual game maximizes potential revenue.

We know that at the very least, people with Game Pass spend more time playing games and less time watching Netflix. We know that they play a more diverse set of games than they otherwise would. Both of those things have the potential to lead to increases in spending, but they also have knock on effects for the rest of the platform.

Multiplayer usage goes up, word of mouth goes up for titles but also for Xbox and Game Pass, more streaming and social media posts happen, titles get more visibility from increased reviews in the store. They get a lot of positive feedback loops for the increased engagement. That all increases the health of the Xbox ecosystem.

 

[Eolirin]

Maybe during the PS3 generation but most Sony's big first party games have made enough to fund there next games and probably with a bigger budget than ever before.

Microsoft is paying full price for there first party devs just like Sony and I'm sure there games aren't making the same profit currently as Sony's because of Gamepass.

Sony had some pretty high profile misses this gen, like The Last Guardian, and Horizon Zero Dawn's initial sales were pretty low. If Sony wasn't able to backstop things like that they wouldn't be able to grow into promising new franchises. The first half of the PS4's life was really lackluster in terms of first party output. The big successful games for this gen have only been in the last few years. But yeah, they've got great studios pushing out really high quality games to a massive install base. They had to invest a ton into getting there, and they still post less than the better performing multi plat titles. They're releasing Horizon on Steam for a reason.

But you know, Sea of Thieves just sold a million copies on Steam, and hit 15 million users, and I'm not sure it would have survived the initial middling reviews if they hadn't been on Game Pass. That's pretty close to God of War level numbers, though not all those users are sales. Still, with there only being 10 million game pass subscribers and it being pretty implausible that everyone with a Game Pass sub has tried SoT, that's a pretty healthy number of direct sales.

Gears 4 and I think 5 had better sales rates than previous titles, despite launching into Game Pass.

It's not that straightforward.

 

[Xbat]

Horizon Zero Dawn's initial sales were pretty low.

This is news to me. Wasn't it the fastest selling new ip by Sony ever or on PS4 at least?

 

[MrFox]

This is news to me. Wasn't it the fastest selling new ip by Sony ever or on PS4 at least?

Yep. Back to reality:
https://www.polygon.com/2017/3/16/14945792/horizon-zero-dawn-launch-sales-ps4
Horizon Zero Dawn sales top 2.6M units in under two weeks
Guerrilla’s best launch ever

The gen is coming to an end, and they have multiple 10M sellers, and a dozen 90+ metacritic from their 1P. Considering those are console-seller titles, a PS4 sale is worth a lot more to them than just selling them the first party games.

 

[Eolirin]

This is news to me. Wasn't it the fastest selling new ip by Sony ever or on PS4 at least?

At the time, it was, but that doesn't say as much as you might think. It went on to sell over 10 million copies, so it was ultimately very successful, but its sales path was a lot slower burn than something like Spiderman or God of War or even Ghost of Tsushima, and when you compare the initial launch numbers to something that was multi plat, those early numbers were mediocre; that was to be expected, so it did well in its context, no Xbox and no PC cuts out at least half of the addressable market.

That Sony has managed to pull off numbers comparable to third party multi plat titles at all is impressive, and that they've been able to do so with initial sales on titles like Spiderman and God of War even more so, but that's only possible because they've got their current install base. Horizon launched with something like half where they are now.

 

[disco_]

Gears 4 and I think 5 had better sales rates than previous titles, despite launching into Game Pass.

It's not that straightforward.

Did they release gears 5 sales numbers? I remember MS saying 3mil people played it on GP during the 1st weekend but reports from eu/uk were stating gears 4 sold several times more in the 1st few days. This of course could somewhat be affected by higher digital sales than before.

 

[Eolirin]

Did they release gears 5 sales numbers? I remember MS saying 3mil people played it on GP during the 1st weekend but reports from eu/uk were stating gears 4 sold several times more in the 1st few days. This of course could somewhat be affected by higher digital sales than before.

I was not trying to imply that Gears 5 did better than Gears 4, just that the series post game pass was still performing well relative to the pre game pass successes during the 360 era. But yeah I'm only so so on my recollections of Gears 5 info.

 

[AzBat]

It hinders anyone with a budget.

I have a budget. It hasn't hindered me. In fact, with my low budget I'm able to play way more games then I ever did before. Again, an additive service should not hinder anyone from purchasing their games individually. BTW, the 20% discount on purchasing games while in Game Pass is only for titles that have been available for longer than 90 days. Games available 31 to 90 days from launch are eligible for a 10% discount. No discount for titles less than 31 days old. I don't know of any third party games that launched day 1 that were not on the service than 30 days, maybe even 60 days.

BTW, I will echo @Eolirin comments Micrsoft has stated multiple times, people in Game Pass play more games & game sales have INCREASED. In fact, there are a lot of games that I played in Game Pass that I purchased too. You don't have those titles forever. So it's nice to be able to buy them at a discount before they leave the service. I really hope we get the ability in the future to select a Game Pass game & make it "Gold" where you get to keep it even after it leaves the service. I think that would be a great way to evolve the Games with Gold service where you don't get a choice.

Tommy McClain

 

[Xbat]

At the time, it was, but that doesn't say as much as you might think. It went on to sell over 10 million copies, so it was ultimately very successful, but its sales path was a lot slower burn than something like Spiderman or God of War or even Ghost of Tsushima, and when you compare the initial launch numbers to something that was multi plat, those early numbers were mediocre; that was to be expected, so it did well in its context, no Xbox and no PC cuts out at least half of the addressable market.

You keep shifting the goal posts. Now you comparing it to multi plat titles of which it out performs most that aren't the biggest which in itself is impressive.
Sony's first party more than pays for itself now in profit made and more importantly in getting people to join the PlayStation eco system.

I am also not a big believer in having a big pool of money shared between the studios because it doesn't reward excellence and I think there is a friendly rivalry/competition between Sony's first party studios which pushes them even more. I feel that would be diminished in a subscription situation.

 

[BRiT]

Is there a financial breakdown for game studios with how much they cost to operate and how much revenue they earned? About the only time I see financial numbers tied to studios is when they fail or close down.

Tieing it to cost of a game is a bit rougher as you may have parts of a company that are not tied to one particular game, so the accounting numbers get funny.

 

[zed]

Note personally I think gamepass is great for the consumer, if I played games I'ld prolly get it.
But as a business model? I have doubts

I think this is reasonable. It's just easier than going back and forth on this.

reasonable? How many games are on gamepass? looks to be about 200 https://www.eurogamer.net/articles/xbox-game-pass-games-list-this-month-price-6400

a billion licensing fees shared out amongst 200 games = 5 million per game, a year. OK for old games this would be great but new games, you wanna offer them 5 or 25 million.
A million sales of game is pretty normal (games usually sell between 100k and 10million), 1,000,000 x $30-60 = 30-60million revenue (not profit) so why on earth would they want $5-25million.
i.e. I think you are severely under estimating the licensing fees amount MS would have to pay

 

[iroboto]

Note personally I think gamepass is great for the consumer, if I played games I'ld prolly get it.
But as a business model? I have doubts

reasonable? How many games are on gamepass? looks to be about 200 https://www.eurogamer.net/articles/xbox-game-pass-games-list-this-month-price-6400

a billion licensing fees shared out amongst 200 games = 5 million per game, a year. OK for old games this would be great but new games, you wanna offer them 5 or 25 million.
A million sales of game is pretty normal (games usually sell between 100k and 10million), 1,000,000 x $30-60 = 30-60million revenue (not profit) so why on earth would they want $5-10 million.
i.e. I think you are severely under estimating the licensing fees amount

That's average distribution. You're probably looking at less than 1M for most of the smaller titles, I mean, I'd be working on indies right now is MS was paying out 1-4M for an indie!
I only got $9K for my last one, its pure shit, but I guess that is besides the point. 200K-400K for a indie seems like the normal price, I'm not sure most indies will ever make that amount through regular sales.

New games will probably be 5-25M as you said, if not more.

I'm not sure, you think more than 1B in licensing? I already set aside 1B for internal studio fees as well. That list isn't correct in size, it's much less than 200 titles. I can make some changes here, but I'd up the subscriber rate at more than 20% YoY, more like 30 then.

edit: I updated for a 2B spend on licensing fee, and increased fee spending by 10% YoY. I changed the subscriber count to being 30% YoY, they would hit 179M subs in year 14.

Moving to 20% increase YoY for licensing is pretty dramatic, takes a while to get to profitability

Mobile and PC would have to be fairly successful to hit this number I think. Or if it starts showing up in TVs

 

[Esrever]

People here seem to have a bad understanding of why subscription models are making huge money in all businesses it's been applied. People look at Netflix and Spotify but at the end of the day, MS makes huge money selling subscriptions to MS office and most software has moved towards a SaaS model because of how profitable it is. The reason is that people are willing to pay small reoccurring fees because to people it's not as much as a commitment when you go in but it's actually very hard to stop paying for it comparatively. From the other side, the money people pay on subscription is a lot easier to account for and you can really target your marketing to grow 1 metric, the subscriber count. It's why paying for PS+ and XBL is even so successful. People are willing to do it but most people won't stop paying for it even if they aren't actively using it unless they stop for months. Even if you use the service like once a month, you won't want to stop using it completely because the perceived value of the whole platform.

On the business side for what MS has to pay for it, it will take some getting there but there is no reason to expect them to fail since they are probably the first to really drive this. So long as they can scale this to a big enough subscription base, it will be profitable as long as there isn't much competition in the space and even if competition comes out, they are in a good spot to compete from their size and their first party studios they been buying up.

The amount they'd have to pay for licensing is negotiable with the number of user they currently have. The counter party isn't going to ask for $100M for licensing if they know the platform is likely going to only lower sales by 0.1% because the number of users there. Licensing actually works very well for MS as long as they are the only game in town since they can dictate what they are willing to pay and give all the metrics to third parties and give them just enough incentive to be on the platform. Also this system is very good for smaller indie games as they can get a flat payment for their game at launch instead of never knowing how much they would be able to sell. I think people here are focusing too much on the big AAA games and not looking at where the value and money will come from. It's really a change of business of game production from the top down. While Sony is offering their games for $60 on their console and focusing on selling a console so their games can get to the consumer, MS is looking to put their subscription service on all platforms. This by itself will be revolutionary because people who don't even own a console can still pay a subscription and play some of the games they can on PC, xbox, maybe even mobile and when streaming gets fully underway, they can even play AAA games without a console. This opens up a much larger user base that can not be matched by just selling consoles and games to those consoles. Families can buy a subscription without even buying a console and not worry about buying many games, this is a pretty big thing. In the mean time they offer the traditional experience of the console as well. It all will come down to perceived value and they are probably working to increase subscribers even if it costs a lot of money initially.

Netflix doesn't really make money from licensing blockbuster movies. People pay for Netflix to get access to some blockbusters but a lot look at what Netflix offers in the shows they do watch on there made by Netflix. MS doesn't really have to offer all the AAA games on release on the platform for it to succeed. Just need a couple to make the value proposition be worth it to grow the platform. The power of subscription is, the user gets a lot of content which they pay for the option of having but they will only use a small segment of it anyways so it's just more efficient to give user access to what they want while still getting money even if they don't want everything, at some point, you capture enough casual users that spend more on subscriptions than they would on the old system. The number of AAA games people own on averaged per console is probably low single digits, all that has to make business sense is if MS can convince people to pay more than the cost of a couple AAA games for a whole console generation while on their service to make business sense. Once the platform grows large enough, even indie games become a huge draw because if your friends all play some games, it's easier if you were all on the same service and have access to the same games.