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

[Deleted member 11852]

The service is only going to continue growing and we've already seem developers reporting great success with it.

Nobody doubts the popularity of Game Pass from the user's perspective, but this is the business thread. It's the service's ability to grow without also disproportionately growing costs - because business that can do that are a rare unicorn indeed. Profit doesn't equate to customer base. Just look at Apple - they have tiny market share but a disproportionate amount revenue and profit. There is no doubt GamePass is raking in a lot of revenue but we also have Microsoft saying it's "not a big profit play". For businesses predicated on cloud infrastructure, costs do not scale proportionately, they get more expensive.

 

[mrcorbo]

Nobody doubts the popularity of Game Pass from the user's perspective, but this is the business thread. It's the service's ability to grow without also disproportionately growing costs - because business that can do that are a rare unicorn indeed. Profit doesn't equate to customer base. Just look at Apple - they have tiny market share but a disproportionate amount revenue and profit. There is no doubt GamePass is raking in a lot of revenue but we also have Microsoft saying it's "not a big profit play". For businesses predicated on cloud infrastructure, costs do not scale proportionately, they get more expensive.

Which is why think the Azure tie-in is key. The hardware being able to generate revenue by multiple means will mitigate at least that cost to some degree.

 

[mrcorbo]

I don't think the repeated comparisons to Netflix are useful.

I disagree. There are differences, and these should be considered, but there are also many similarities. Enough that the comparisons are useful as long as they focus on those commonalities.

 

[Deleted member 11852]

Which is why think the Azure tie-in is key. The hardware being able to generate revenue by multiple means will mitigate at least that cost to some degree.

I see people talking about Azure like it's a free joker card, almost like the Azure division of Microsoft do not account for Azure use by other Microsoft divisions. I've seen people do this with Sony, like Sony's phone division doesn't have to pay Sony's CCD division for cameras.

I disagree. There are differences, and these should be considered, but there are also many similarities. Enough that the comparisons are useful as long as they focus on those commonalities.

On the economics side, I see few similarities because but fundamental economics are so vastly different. To repeat what I already wrote, the global market for TV can be measured in billions, the global market for console games is a tiny, tiny fraction. TV shows can be delivered to any TV. Games cannot. It's really chalk and cheese.

 

[orangpelupa]

With xcloud included in gamepass, isn't all smart TV should work?

Or Microsoft limits xcloud only to some specific platforms and brands?

 

[eastmen]

Nobody doubts the popularity of Game Pass from the user's perspective, but this is the business thread. It's the service's ability to grow without also disproportionately growing costs - because business that can do that are a rare unicorn indeed. Profit doesn't equate to customer base. Just look at Apple - they have tiny market share but a disproportionate amount revenue and profit. There is no doubt GamePass is raking in a lot of revenue but we also have Microsoft saying it's "not a big profit play". For businesses predicated on cloud infrastructure, costs do not scale proportionately, they get more expensive.

Just like other services they can charge more as time goes on. Remember the first iphone and its total failure until prices were slashed and the app store came about ? Then slowly over the generations as it developed a large following they increased prices and increased the amount of diffrently priced models to keep people in the ecosystem and bring more in at different price points ?

Apple is enjoying a special place that wont always exist where people are paying for a status symbol much like purchasing a high end purse

I see people talking about Azure like it's a free joker card, almost like the Azure division of Microsoft do not account for Azure use by other Microsoft divisions. I've seen people do this with Sony, like Sony's phone division doesn't have to pay Sony's CCD division for cameras.


On the economics side, I see few similarities because but fundamental economics are so vastly different. To repeat what I already wrote, the global market for TV can be measured in billions, the global market for console games is a tiny, tiny fraction. TV shows can be delivered to any TV. Games cannot. It's really chalk and cheese.

People talk about azure because MS has local data centers. A data center in NY is unlikely to service a customer in LA or Europe or Asia. So MS can easily see through trends that the typical work day is 8am till 6pm on the east coast. They know during that time the majority of customers will be using SharePoint , web office apps , power bi and other stuff and as 3pm rolls around school children will start to hop on for gaming services. SO MS will have a large portion of its hardware and bandwidth taken up during the day for one purpose be repurposed for another one.

I don't know what your talking ab out when you bring up TV. I have a tv here and without specialized hardware I can't get any channels. Its just a tv. Now I can use an antenna and get 7 or 8 channels but thats hardware i have to buy. I can get a traditional cable /dish/ fios provider but thats additional hardware . I can use a firestick or other streaming service or i can use the hardware inside some tvs but that all costs more money

 

[Deleted member 11852]

Just like other services they can charge more as time goes on. Remember the first iphone and its total failure until prices were slashed and the app store came about ? Then slowly over the generations as it developed a large following they increased prices and increased the amount of diffrently priced models to keep people in the ecosystem and bring more in at different price points ?

I would expect GamePass prices to increase but I don't see how the cost of the first iPhone is relevant? The iPhone was expensive by smartphone stands and lacked third part apps. What are the parables you're trying to connect?

People talk about azure because MS has local data centers.

Amazon have more and none of the rest of your post addresses my point so I've cut it.

I don't know what your talking ab out when you bring up TV. I have a tv here and without specialized hardware I can't get any channels.

I didn't bring up TV; others raised the comparison to Netflix. I don't know what TV you have or where you live but many modern TVs do not need "specialised hardware" consume more channels or content, just an app/subscription. It's low friction and requires no other investment. No additional box, or controller or whatnot. Here in the UK I can get pretty much anything in minutes. Maybe it's just better here than where you are, but equally I don't think the situation here is that different to the rest of Europe, or what what I understand, North America.

 

[eastmen]

I would expect GamePass prices to increase but I don't see how the cost of the first iPhone is relevant? The iPhone was expensive by smartphone stands and lacked third part apps. What are the parables you're trying to connect?

new things often times require discounts and incentives at first and as time goes on you can charge a premium for it.

Apple for instance discounted the original iphones and now makes money on current iphones but they make even more money through the app store. MS right now is discounting game pass but as time goes on they will cut incentives to join and raise prices. They also want people to pay for services through the games be it dlc or a games own subscription costs or in game currency.

Amazon have more and none of the rest of your post addresses my point so I've cut it.

Both are growing quickly. What should my post address ? Amazon itself is entering streaming games correct ? so even they are finding themselves with excess capacity and are trying to find ways to fill it. Work isn't 24/7 for the majority of people but you still need to build for peak usage and beyond and when peak usage isn't happening your going to have to figure out how to make any money off hardware and bandwidth that is just sitting there

I didn't bring up TV; others raised the comparison to Netflix. I don't know what TV you have or where you live but many modern TVs do not need "specialised hardware" consume more channels or content, just an app/subscription. It's low friction and requires no other investment. No additional box, or controller or whatnot. Here in the UK I can get pretty much anything in minutes. Maybe it's just better here than where you are, but equally I don't think the situation here is that different to the rest of Europe, or what what I understand, North America.

My tv is about 5 years old. It would require specialized hardware to get anything content. I assume you bought a smart tv which will typically cost more than a non smart tv would. I have a smart tv also but i don't connect it to the internet.

It has taken 13+ years to get to the point where the majority of tvs support streaming video content and still things like firesticks , roku and chrome sticks are popular.

Also 10s of millinos of people continue to pay to add cable / fios / satellite to their tv for service. Something that has been around for 40+ years

 

[Deleted member 11852]

new things often times require discounts and incentives at first and as time goes on you can charge a premium for it.

It think it's generally accepted that the value proposed of the iPhone, and it's eventual ecosystem, was not remotely represented by the RRP that Apple stuck on the tag.

MS right now is discounting game pass but as time goes on they will cut incentives to join and raise prices. They also want people to pay for services through the games be it dlc or a games own subscription costs or in game currency.

I agree. If they want Game Pass to make a decent profit, they never ti insert margins where profitability is leveraging, i.e the subscription price. It's doesn't need to be massive and the current goal - I would say - I about getting people to the point there the value proposition transcends the price to a degree so that when/if they increase it, people will still pay the increased price.

My tv is about 5 years old. It would require specialized hardware to get anything content. I assume you bought a smart tv which will typically cost more than a non smart tv would. I have a smart tv also but i don't connect it to the internet.

This year we got an LG C9 (which is a year old model) and we deprecated a 2014 Sony Bravia model that had Netflix, Amazing Prime, Now TV (Sky) and Disney+ apps, along with Twitch and YouTube.

 

[eastmen]

It think it's generally accepted that the value proposed of the iPhone, and it's eventual ecosystem, was not remotely represented by the RRP that Apple stuck on the tag.


I agree. If they want Game Pass to make a decent profit, they never ti insert margins where profitability is leveraging, i.e the subscription price. It's doesn't need to be massive and the current goal - I would say - I about getting people to the point there the value proposition transcends the price to a degree so that when/if they increase it, people will still pay the increased price.


This year we got an LG C9 (which is a year old model) and we deprecated a 2014 Sony Bravia model that had Netflix, Amazing Prime, Now TV (Sky) and Disney+ apps, along with Twitch and YouTube.

Yea there is a lot of issues with support on that stuff. I had a sony bluray player that netflix and hulu no longer works on.
https://www.businessinsider.com/disney-plus-not-working-vizio-smart-tvs-chromecast-2019-11

you also have issues like this no matter the platform.

its only going to get worse. Wonder how interested Amazon has in an xcloud app on firesticks which are really big in the states.

Going to be interesting to see what MS's plan is to enter the living room at a lower price point with xcloud. Even a $300 xbox series s is high when amazon should be able to get in with a $30 fire stick

 

[Silent_Buddha]

So, it seems I just found out possibly why people play more games when the have GP compared to previously (or rather another reason outside those I already said).

I get forever pestered to play x game - on my phone, on the console - suggested games which I would never even look at. This combined with a little thing called reward quests. So, I generally almost never play any games, now I spend some time just playing a game to get points which all add up to getting free game pass...I've subjected myself to 10 minutes playing this awful game just to get 25 points!

Now, if that's not skewing the figures I don't know what is!

If you only played it for 10 minutes, it likely didn't even register. If someone plays a game for 10 hours, that likely does register.

As well the point of GamePass and those quests isn't that everyone will like every game that they play or to somehow inflate the numbers (developers have access to a breakdown of time played as well as how many are playing their games and more information). But MS has attempted to put as many different genres of games as they can in the limited number of titles that they host on the platform. So, there's likely to be something there that someone might like but that they've never tried before either because they didn't know about it or they didn't think it was worth money paying for it. Of course, there's always a chance that someone won't ever find something enjoyable to play, but if there is, I haven't seen it yet. Perhaps you'll get to be the first one?

There's enough people on Game Pass now that not only are developers getting money from MS paying them to be on Game Pass, they are now also making money from people buying their games because they got to try them on Game Pass.

I'm sure at the start most developers didn't think that Game Pass would actually generate sales for them, but it has ... at least for AA and indie developers. I haven't heard much from AAA developers who don't talk about these things nearly as much as indie devs do. Oh and it has also generated sales for Microsoft. As someone pointed out earlier, MS titles that are on Game Pass regularly top Steam sales charts. I know a few people who bought Grounded only because they got to try it on Game Pass, but wanted it on Steam because they prefer playing it there. Hey, MS, you really need to improve the Windows Store which Game Pass is leveraging.

That's a clear win for developers and consumers.

Now the question that many are wondering is how and whether MS can turn this into a significant profit generator. They've already done that for AA and indie developers, can they also see a similar return on their investment? Or will it end up only being developers that profit from this?

Regards,
SB

 

[Johnny Awesome]

Once MS has 100+ million subscribers (something they seem pretty committed to with all the studio acquisitions they've been making) they will be generating $12 billion in annual revenue + microtransactions.

I can't imagine them not making money at that point. People can dog MS's business decision all they want with regard to GamePass, but I'm pretty convinced it's a winner. We won't know for sure for about another 5 years IMO. It's not inconceivable for them to reach 200 million subscribers 10 years down the road when you consider the number of devices they will be targeting.

 

[Deleted member 11852]

Once MS has 100+ million subscribers (something they seem pretty committed to with all the studio acquisitions they've been making) they will be generating $12 billion in annual revenue + microtransactions.

What do you estimate their operating costs will be? This is the important factor. Taking money is the easy part of any business, there is always money. It's running your business for below what it costs that is the incredibly tricky part otherwise everybody would have a successful business.

 

[eastmen]

What do you estimate their operating costs will be? This is the important factor. Taking money is the easy part of any business, there is always money. It's running your business for below what it costs that is the incredibly tricky part otherwise everybody would have a successful business.

I'll jump in real quick with my thoughts if you don't mind.

I believe they are investing large sums now on content generators so they can tightly control the costs. The more content they themselves create and put on game pass the less time people will engage other companies content and thus MS will pay those companies less. Long term GAS and MMO type games will keep people coming in and spending cash with lower dev costs .

The main costs really are

1) Bandwidth (download and streaming)

2) Hardware cost

3) Content.


I already talked about content. With bandwidth it is what it is , however they just announced on the xbox that you can install only the parts you want thanks to smart delivery. If someone on game pass only wants multiplayer for halo infinite then MS can save 10s gigs of data on that user. As for xcloud they will just continue to improve the compression. New stuff is always coming down the pipe
https://www.datacenterknowledge.com...-hardware-using-its-new-compression-algorithm
https://www.dpreview.com/news/82192...mpression-will-reduce-video-sizes-by-up-to-50

So its really just hardware cost. I don't think actual storage for the games is going to be an issue. Hard drive space continues to go up while costs go down. and well the xbox series x can run multiple 1080p streams for xcloud at once and its hardware cost is low at $500 and will only drop as time goes on.

 

[zed]

One thing I dont understand fully does everyone thats on gamepass, always pay fullprice?
Are there no deals? no $1 for 3 months or use the bing browser to get a discount etc

 

[eastmen]

One thing I dont understand fully does everyone thats on gamepass, always pay fullprice?
Are there no deals? no $1 for 3 months or use the bing browser to get a discount etc

So i will break it down

1) There are various promotions like 14 free days or $1 for a month or something. But these are once an account or an account is locked for x amount of time before it can use a free trial promotion. Now some people will take the time to make a new gamer tag with a new email to get the deal again.

2) The standard pricing has a discount For Ultimate its 1month $15 or 3 months $45 there is no discount at this time from what i can tell there, this includes PC/ Console and Live along with xcloud beta. Game pass is $10 for either the pc or console and this doesn't seem to have a discount by buying more. So outside of sales there isn't much of a discount.

3) You can use Microsoft rewards (used to be bing rewards) For A level 1 user its 7000 points for 1 month or 21,00 points for 3 months. You get a 200/600 discount if your level 2 on that. Gamepass ultimate is 14,000 points / 4200 points for the 1/3 month. You get a 2000/7000

You get reward points from searching on bing , playing game pass titles or shoping at diffrent websites kinda like an ebates set up .

The trick as always is to get people to sign up and forget it. You want to keep games hitting the service every month that will drag someone in. You figure its what $120 for game pass for the year so thats just 2 $60 games. convince someone that they are getting that value each year and they are unlikely to stop paying.

Rewards are great , i know a few people buying the xsx with reward points.

 

[Johnny Awesome]

It's worth noting that I assume most of the promotions will end at some point. They obviously aren't going to be letting people get GamePass for $1 for months on end and such in year 5 of the service...

 

[zed]

there are people on this forum that say they never have paid full price for years

 

[Jay]

there are people on this forum that say they never have paid full price for years

That's a fraction of the amount of subscribers though. Not saying you said otherwise, just using you as jumping off point.

As it increases to more and more of the joe public it becomes an even smaller percentage.
Wouldn't even surprise me if the majority pay full price for gold.
Compared to having to do all the reward points messing around to get it for free, or even the buy gold and convert. Most probably don't know or could be bothered as its a good deal anyway.
Once/if the projections shows its having bad impact or no longer needed they'll stop it.

At the moment, like GP its probably a net benefit with those small core people being free marketing saying that GP is great.
Really needed that initial critical mass of adoption to get it rolling.

 

[eastmen]

there are people on this forum that say they never have paid full price for years

You can always wait for a sale and stock up. Live and PSN go on sale all the time. So it wouldn't be inaccurate. But sale doesn't mean loss. I am sure on black friday there will be sales on game pass