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

egoless said:
So Game Pass isn’t making much money as suspected. Considering Microsoft’s actions under Satya on any consumer front, and on anything not doing gangbusters, the concerned consumer including those in this thread have every right to push back at the PR, the cheerleading, and the hand waving.

https://wccftech.com/microsoft-admits-xbox-game-pass-isnt-really-making-a-lot-of-money-right-now/
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I don’t think anyone here said it was profitable yet.

the question is whether it would become profitable. This is a loss leading service. The insinuation by some is that this will never ever be a profitable service. I challenge that statement; corporations are by design to generate profits. They are not a non-for profit. And they are not a government entity providing a service to its people.

profit is very much a major motive for them. The model will account for it, in eventuality.
 
DSoup said:
Your mind would be blown if you knew how costly it is serving sufficient bandwidth for millions of people downloading tens/hundreds of gigabytes of data. :yes: Depending on how people are consuming/trying games, xCloud may be the cheaper solution because for shorter games or where people are trying games for an hour and deciding they don't like them, it could well be less overall bandwidth to stream the content than download the whole game.



Indeed. Few companies intend to lose money, even in a business which is predicated on loss-leading economics, but the game subscription business isn't really an established or proven business, Microsoft are trying to forge a business model out of it - and I admire that. That's ballsy as anything and it is great to see Microsoft try to build a new business rather than enter/re-enter an established one and not succeed commercially. (e.g. Zune/Plays4Sure, Mixer, WindowsMobile etc).

As I've said above, this is not will, desire, intent, effort or investment, sometimes the economics just aren't sustainable - or they are but the economics of the parties you rely on to fill you service change and your business is no longer viable.



What Microsoft paid for Minecraft and Nokia is far from frugal! They are not afraid to invest big on acquisitions and are pretty good at giving projects a fair shake at the stick before canning them. Some of their pet R&D projects are kind of nuts but you never know what technological dividends experiments like Surface (the tablet computer), Kinect and HoloLens will pan out down the line.
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This is what I also don’t get, I’m sure the very people who justify the high digital prices due to the cost of digital distribution are completely glossing over this part of the pie. All these games that people would never try but now can are costing MS even if ether hate the games.

iroboto said:
You cited Apple in another thread. There are more iphones out there than _any_ number of consoles. And you discuss network costs. But serving Apple Music, Apple TV, TV+, and Arcade will have way more financial impact from an operations POV than the game pass service does. But I don't see a single person pointing out how Apple, a non Cloud provider, is servicing the whole world at once with significantly less money than MS, but suddenly gamepass is unsustainable, but everyone else's subscription services totally are.

There is a heavy undertone of overestimating the costs here to make gamepass appear completely and financially unfeasible. Games on average cost 200M to make. That's over the course of 3-4 years. That's 3 Billion dollars, over 4 years. It's not 3 Billion per year for their 15 studios, it's less than 1B per year. Somehow the model doesn't work, but it works for everyone else. For some reason just because a subscription service exists it will make purchases approach 0. We just don't see that. There are artists that need subscription services to even float. And there are those like Taylor Swift who profit more without them. That's for each game and company to decide. Those are the economics that matter.

But everyone seems to be applying the thinking that somehow there's no way that this service could possibly be sustainable or that games need to somehow be complete shit for it to be a feasible model.

If you want to discuss gamepass, put down some understandable stakes on the floor and go from there. If you don't understand how the subscription model works, and I don' think most of us do, then it's okay to admit: hey I don't understand it. But just because we don't understand it, doesn't mean it can't work. There are whole fields of study on things we don't understand, but we take them to be true. Most people don't understand how gravity works, but everyone understands it does work. The tone of this thread has largely been: I don't understand how gamepass works, therefore it must not work.

I'm sorry, I'm not calling anyone in particularly out on it, but that's why this conversation can't seem to proceed in any direction.
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iroboto said:
I don’t think anyone here said it was profitable yet.

the question is whether it would become profitable. This is a loss leading service. The insinuation by some is that this will never ever be a profitable service. I challenge that statement; corporations are by design to generate profits. They are not a non-for profit. And they are not a government entity providing a service to its people.

profit is very much a major motive for them. The model will account for it, in eventuality.
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I’m mostly struggling with the lack of info on your spreadsheet- that’s not a dig, but it’s just that I’m not sure it brings much to the discussion - it seems to just be how you personally envisage how it might play out, which explains the way you feel but those of us on the other side of the fence disagree.

I mean, the assumption within your spreadsheet is PC gamers will be gobbling this up, do we have any stats on platform usage of subscribers?

I’d still be interested to see how MS conclude that people once subscribed all of a sudden play and buy more games - what is that measurement against? There’s just too many unknowns and I’m sorry but I’m not buying PR talk...of course they will pick out the positive spin .
 
goonergaz said:
still be interested to see how MS conclude that people once subscribed all of a sudden play and buy more games - what is that measurement against?
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Everything players play and buy is tracked by Microsoft. They know if Gamepass players are buying more, what % buy after playing on Gamepass Vs what % of the non Gamepass buy a game etc.
 
goonergaz said:
I don’t want to see PR, you can make stats say anything you want - I want to see the hard figures and how they can measure such things.

Also you (like me ) are not paying full price - how many are? Would you if push came to shove? How long can this go on?
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I pay full price. I just don't have any desire to "bing" my way to a lengthy subscription. But I haven't had to buy my son any games since.
 
goonergaz said:
If I was a subscriber and paid full price for 5 years and they pulled the plug I’d have nothing to show for it. Those games are gone and you have to start again.
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The average gamer does not think like this. Everybody isn't buying games to hold in perpetuity in some giant ever-expanding library just like most TV viewers don't have large libraries of DVD and BluRays.

Most people are just purchasing an experience and the value of that experience severely degrades after a single playthrough for most single-player titles. Most of the value of multiplayer titles disappear once a newer iteration appears or a newer and better competing title is released.

The used game market is built on this concept. Where the used titles are way less valuable to the gamers that played those titles in comparison to those that haven't.

The success of Netflix shows that quite a lot of people have no qualms about not owning the content their subscription buys. If people cared so much about ownership why isn't BluRay and Game Stop thriving? Why is traditional ownership (physically owning the content and the license) for most media dying?

My digital library is huge but is so only because I can't readily give away, throw away or sell away those titles. My buying habits haven't changed but I never grew a large physical library because I didn't need to play MGS, Zelda, SM Bros, Metroid, GTA3 and Halo five to 10 years into the future.
 
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We have 3 competing subscription services on console with PS Now, Game Pass, and EA Access. These services aren't relatively new. PS Now and EA Access have been around for 6 years (Game Pass is just 3 years old) with EA extending the service to the PS4 just last year. MS aggressiveness is probably is due to being the newest service on the block and has to make up a lot of ground to catch up. And it's probably why Sony hasn't been as aggressive marketing-wise as they completely owned their market and saw revenue growth without the need for a lot of marketing.

If these services were lossy, why haven't any of the major players dropped their service?

https://www.gamerevolution.com/news/486527-playstation-now-revenue-ea-access-xbox-game-pass

These services aren't like a Netflix or a Hulu where content costs are driven up by the competition. There is no real competition for PSNow, Game Pass, or EA Access. EA doesn't pay a dime for their content other than the traditional costs of developing and marketing those titles which they would have incurred anyway. MS or Sony has very little to no competition because outside of EA there is no competition to drive up the cost acquisition for Xbox or Playstation titles.

There is little reason for these services to be unprofitable. There are a ton of titles that aren't selling whose devs are elated to have the recurring revenue or the big upfront check that MS or Sony can provide. Its easier to manage cost versus profits when the content doesn't have alternative revenue streams to leverage.

And yes MS's first-party titles are available at launch on Game Pass. But MS isn't dependent on Game Pass to recoup the total cost of development and marketing. Traditional game sales still make a hefty portion of revenue.
 
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Also, people shouldn't forget that while AAA games might entice people onto the service it's the breadth and variety of indie and AA games on Gamepass that in many cases surprise people and keep them on the service.

When thinking about the cost to MS then, keep in mind that the majority of titles on Gamepass aren't AAA games, hence the cost to MS of having those on Gamepass is lower. Of the AAA games on the service most aren't released on there day and date. By the time they make it to the service, they're already being discounted on Steam (I use Gamepass PC only so I don't track pricing for console games). Again, this means that the cost to Microsoft at that point is lower than if they attempted to get the publisher to put it on the service day and date with the game's release.

While having 3rd party AAA games come to the service later might be seen as a negative for the "core" console players or "console warriors" it isn't when it comes to your average gamer or family who can't afford to buy most or even a handful of AAA games per year at launch.

Most of them will buy AAA games later or buy used or in most cases never buy them at all. Gamepass opens up more games for those people than their yearly gaming budget allows at a cost that is likely lower than their yearly budget for games.

That's a plus not only for consumers but for publishers as well. In most cases (possibly the vast majority of them), developers are likely seeing revenue for their game that would never exist outside of Gamepass because those people likely never would have bought the game in the first place.

Sure they may lose some revenue from "core" gamers not buying their game, but the argument can certainly be made that a "core" gamer is more likely to want the game at launch regardless of whether they think it may come to Gamepass or not. And if that "core" gamer doesn't get it at launch? They may get it used (no revenue to the developer) or on sale at a deep discount (possibly lower than whatever percentage of the money they are getting from MS is for people playing their game).

Regards,
SB
 
dobwal said:
The average gamer does not think like this. Everybody isn't buying games to hold in perpetuity in some giant ever-expanding library just like most TV viewers don't have large libraries of DVD and BluRays.
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How do we know this? If this is the case, why aren't GamePass subscriptions higher because the phrase "too good to be true" seems aptly applied. :???:
 
cheapchips said:
Everything players play and buy is tracked by Microsoft. They know if Gamepass players are buying more, what % buy after playing on Gamepass Vs what % of the non Gamepass buy a game etc.
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Yes, but how is it measured? What is it against. "I watch cars drive down my road, I notice most are speeding and using my road as a short-cut". My statement means nothing. Now, if I add some details like how long I watched my road and when these things tend to happen we could get more info from a generalised statement..."I watch my road every Monday from 8 to 9 and then from 2 to 3, there's hardly any traffic from 2 to 3 but 8 to 9 I get a lot of traffic, most of which is speeding, I know this because I happen to have sign on my road which lights up when people are going too fast". From this we may be able to deduce that the road is used for a short-cut to a workplace where people start at 9.

What I want to know is why it's changed, could if be that the console was bought as a gift and set up - you have one or 2 games and then slap in your free GP subscription and play the shit out of it and use it as a kind of 'short term demo system' to try out games, buy the ones you want and then never use GP again. Could it be that I hardly ever play games because I don't have the time, but I find I have the time so I buy GP and use that as my way of playing. That's not GP changing my way of gaming.

There's lots of variables that are not being talked about, as I've said countless times - you can make statistics fit any arguement you want, you really can.

dobwal said:
The average gamer does not think like this. Everybody isn't buying games to hold in perpetuity in some giant ever-expanding library just like most TV viewers don't have large libraries of DVD and BluRays.

Most people are just purchasing an experience and the value of that experience severely degrades after a single playthrough for most single-player titles. Most of the value of multiplayer titles disappear once a newer iteration appears or a newer and better competing title is released.

The used game market is built on this concept. Where the used titles are way less valuable to the gamers that played those titles in comparison to those that haven't.

The success of Netflix shows that quite a lot of people have no qualms about not owning the content their subscription buys. If people cared so much about ownership why isn't BluRay and Game Stop thriving? Why is traditional ownership (physically owning the content and the license) for most media dying?

My digital library is huge but is so only because I can't readily give away, throw away or sell away those titles. My buying habits haven't changed but I never grew a large physical library because I didn't need to play MGS, Zelda, SM Bros, Metroid, GTA3 and Halo five to 10 years into the future.
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The average gamer does not subscribe does he? If he did the number of subscribers would be higher. Comparing DVDs to games is apples to oranges, streaming offers more than just films it offers TV shows and box sets that will cover the whole family. With GP you could be serving just one family member.
 
goonergaz said:
Yes, but how is it measured?
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I won't expect it to be one measure. Since MS can see every purchase on the Xbox (including someone putting in a retail disk for the first time) I'd expect them to be tracking trends in all sorts of ways. The most based rolling of purchase data would tell them if Gampass subscribers:
  • Start buying more games once they've become a Gamepass subscriber
  • In general buy more games than non-Gamepass users
  • Buy particular title at a higher rate than non-Gamepass users
  • Purchase rate on the end of Gamepass deals
When trying to sign new titles to Gamepass, MS can pull out these sorts of trends when making those deals. "See what fighting game A sales did six months after release when it appeared on Gamepass for 90 days"
 
cheapchips said:
I won't expect it to be one measure. Since MS can see every purchase on the Xbox (including someone putting in a retail disk for the first time) I'd expect them to be tracking trends in all sorts of ways. The most based rolling of purchase data would tell them if Gampass subscribers:
  • Start buying more games once they've become a Gamepass subscriber
  • In general buy more games than non-Gamepass users
  • Buy particular title at a higher rate than non-Gamepass users
  • Purchase rate on the end of Gamepass deals
When trying to sign new titles to Gamepass, MS can pull out these sorts of trends when making those deals. "See what fighting game A sales did six months after release when it appeared on Gamepass for 90 days"
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X1 DRM was originally supposed to read individual physical game IDs. I wonder if MS are still gathering data on second hand game usage and trends?
 
cheapchips said:
I won't expect it to be one measure. Since MS can see every purchase on the Xbox (including someone putting in a retail disk for the first time) I'd expect them to be tracking trends in all sorts of ways. The most based rolling of purchase data would tell them if Gampass subscribers:
  • Start buying more games once they've become a Gamepass subscriber
  • In general buy more games than non-Gamepass users
  • Buy particular title at a higher rate than non-Gamepass users
  • Purchase rate on the end of Gamepass deals
When trying to sign new titles to Gamepass, MS can pull out these sorts of trends when making those deals. "See what fighting game A sales did six months after release when it appeared on Gamepass for 90 days"
Click to expand...

I appreciate that, but my point still stands. There's nothing meaningful other than PR fluff which can be spun how you want it. MS want to push GP so they won't be talking about anything negative or including details that might show maybe it's not the GP effect. Also, these bullet points seem to all indicate high use gamers - which we know is a minority. How big can that minority pot grow? How sustainable is it? Those are the questions which no-one is able to answer.

@iroboto had a reasonable stab but it's really just a spreadsheet showing how he thinks MS could eventually make money. This seems to be based on the assumption that they are prepared to spend 10bn to start making a proft and that by that time there will be over 50m subscribers (if I've read it right and memory serves) - that to me is totally unrealistic...and I can't even see where server/bandwidth costs are accounted for (that's probably just my lack of understanding his s/s TBH).

The general concern from myself and some others on the thread is that you have a pot of gold that is incredibly thinly spread - something has to give, either prices go up (once people are 'locked in') or quality has to come down...or maybe, just maybe, it does start to take off with people paying the full subscription.
 
goonergaz said:
I’m mostly struggling with the lack of info on your spreadsheet- that’s not a dig, but it’s just that I’m not sure it brings much to the discussion - it seems to just be how you personally envisage how it might play out, which explains the way you feel but those of us on the other side of the fence disagree.

I mean, the assumption within your spreadsheet is PC gamers will be gobbling this up, do we have any stats on platform usage of subscribers?
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Well we moved the licensing fee to 2B this year, with 1B on studio fees. That's extremely high, probably well over what they pay right now. 2B a year is equivalent to funding 30 studios, combined with 1B on their own studios, that's like funding 45 studios for AAA titles.
They aren't funding them the average 50M/year spend of development for a AAA studio title, so that shouldn't be the price they pay; it's going on game pass, it's not exclusivity.

They're not giving them 50M because most AAA titles aren't on for 12 months nor is it likely they paying for new AAA titles to launch on gamepass at that rate.
Nor are there even that many AAA titles on gamepass. There are a good amount (largely older ones), but not that many (new ones that launched into the service). Most of the titles are in AA category on spend. Most of XGS are AA on spend.

It really should be 1B per year on licensing fees.
By moving it to 2B I increased the yoy subscriber increase that should follow with increased licensing fee spend. You're buying more and better titles, this would make sense for their to be additional growth.

This september xcloud is linked directly with game pass ultimate. So that opens game pass to anyone - laptops, mobile etc. You no longer need a console to play these games. So the subscriber growth is a combination of Xbox users, PC users, and non-hardware platform users accounting for the increase year over year.

I'm not envisioning how this plays out, I'm starting with a simple baseline. If you think I'm missing something, we can layer it in. I can look into layering in DSoup's operational costs, but I need a number that's going to be a separate line item from Azure's typical spend.
 
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