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

[dobwal]

People know what budgets are. Nintendo had a budget for the Wii U. Sony had a budget for the PS3. Microsoft had a budget for Windows Phone. None of these products were a commercial success when each company were operating in a well-established area of business in which they had a tremendous amount of experience. Budgets don't mean jack, other than you are aware of your costs. Budgets are estimates - never more so than when you are doing something new for which there is no actual data on which to make budget predictions.

If all the third party publishers start demanding more compensation for their products inclusion in the subscription and Microsoft stick to their budgets, there will be less variety in GamePass. Microsoft have no control over this.

Microsoft has no control over what publishers may demand. But there is no competing service for Xbox titles (outside of EA games). And MS does know exactly how much revenue any game has experienced on the Xbox overall or over a specific time period.

All MS has to offer game devs is more than they would make if they weren't a part of the service with enough of a premium to encourage their participation. Some may demand more in return, but MS has 1000s of games to choose from. I'm sure most devs are reasonable.

 

[Deleted member 11852]

Microsoft has no control over what publishers may demand. But there is no competing service for Xbox titles (outside of EA games). And MS does know exactly how much revenue any game has experienced on the Xbox overall or over a specific time period.

For older games, sure. But I'd suggest that putting older games into the service may not be as popular as new games. First, you're missed the new game launch buzz. But with older games you're likely including a game that a segment of your subscriber has already bought.

All MS has to offer game devs is more than they would make if they weren't a part of the service with enough of a premium to encourage their participation. Some may demand more in return, but MS has 1000s of games to choose from. I'm sure most devs are reasonable.

I think the "All" somewhat diminishes Microsoft's incentive for doing this, they want to make this service more profitable, not less. They need to get their costs under control. And while Microsoft have be the only company offering a subscription service now, they are still competing with other platform holder for exclusivity periods.

 

[AzBat]

So... "Do better". I think 10 million subscribers is not bad coming from the end of the generation.

Tommy McCain

 

[dobwal]

For older games, sure. But I'd suggest that putting older games into the service may not be as popular as new games. First, you're missed the new game launch buzz. But with older games you're likely including a game that a segment of your subscriber has already bought.


I think the "All" somewhat diminishes Microsoft's incentive for doing this, they want to make this service more profitable, not less. They need to get their costs under control. And while Microsoft have be the only company offering a subscription service now, they are still competing with other platform holder for exclusivity periods.

How much revenue do you think the average game makes on a monthly basis? The vast majority of game sales come in the first few months. On top of that the historic attachment rate for consoles is roughly around 10 even though consoles’ libraries can run into the 1000s.

So unless you a popular GaaS or a AAA title, you are not generating a ton of revenue 12-18 months after release. On top of that there is less than 1% chance that any one gamer owns your game.

10 million paying subscribers with a $10 monthly fee will generate $1.2 billion dollars annually. How much do you think MS needs to spend to maintain a curated library of 200-400 titles?

If you have 10 million subscribers paying $10 a month, paying a dev $1.2 million a year for a license will cost 1 penny per subscriber per month. 20% of your sub fee could support 200 such licenses.

Most devs are used to a reality where two years after a new gen releases most last gen titles simply stop generating any revenue. Now with BC those titles are still viable but what’s the market for last gen titles. How many can still depend on generating major revenue well into next gen? Most gamers haven’t played 95% of last gen’s libraries. Those titles are perfect for inclusion in a streaming service.

The largest cost to MS will be investment into its streaming hardware. The cost of the streaming library should be the least of MS’s worries.

 

[Deleted member 11852]

How much revenue do you think the average game makes on a monthly basis? The vast majority of game sales come in the first few months. On top of that the historic attachment rate for consoles is roughly around 10 even though consoles’ libraries can run into the 1000s.

I've seen lots of recounting by indie devs saying being included in sales spurs sales later on. Can you provide some actual data on this? I don't have any but it sounds like you do.

10 million paying subscribers with a $10 monthly fee will generate $1.2 billion dollars annually. How much do you think MS needs to spend to maintain a curated library of 200-400 titles?

Why are you making argument but me expecting to provide figures to support your position? Is this some new form of debate style I've not encountered? I don't know what Microsoft's margins are but Aaron Greenberg said that Xbox Game Pass is "not that profitable".

Why are you seemingly dismissing Microsoft's own statement?

 

[AzBat]

but Aaron Greenberg said that Xbox Game Pass is "not that profitable".

Actually here are the quotes from Aaron's appearance on the What's Good Games podcast...

“We always kinda laugh, we just [say], ‘Listen, please don’t worry about us. Microsoft is gonna be alright,'” Greenberg laughingly said.

It’s a different mindset, because if you do optimise for profit… you can either say, “How do we get as much profit out of each customer?’ Or, do you pivot that [to its] opposite and say, ‘How do we add as much value to our fans, how can we actually over-deliver on value?'” he pointed out. “And if you do that, you build fans for life.”

“Ultimately, we think long term that’s the right thing for the business, and will have long-term benefits for us. But, in the short term, yeah, it’s not a big profit play.”

https://twitter.com/i/web/status/1286441038077243392

Transcription from here...

https://www.vg247.com/2020/07/29/xbox-game-pass-long-term-play/

This fallacy that every part of your business has to be profitable is ludicrous. The Game Pass business is only one part of their Xbox strategy & even the Xbox business is small part of Microsoft's overall business. If were talking about Nintendo who's only business is games, then you might have a point to be worried about long term profitibilty. Like Aaron said they're "gonna be alright".

Tommy McClain

 

[iroboto]

This fallacy that every part of your business has to be profitable is ludicrous. The Game Pass business is only one part of their Xbox strategy & even the Xbox business is small part of Microsoft's overall business. If were talking about Nintendo who's only business is games, then you might have a point to be worried about long term profitibilty. Like Aaron said they're "gonna be alright".

lets be real; even if the service dies under its own weight. You should still sign up and get yours. The value is incredible and just ride it as long as they offer it.

When my telco offers me 40/mo for 1Gb internet for a 1 year promo. I don't say no just because I know the deal is going to end after 1 year. It's saving me 15/mo and I get 4x the speed. Just ride the promo and at the end of the promo ask for it again or leave. It's like people who don't do mortgage shopping, when variable is cheap as hell, why sign fixed at several points higher. I very well could have rode my mortgage variable for the last 12 years, and I don't think at any point in time it would have been worse than the fixed rates.

You can use any console to play it and your mobile phone now. And soonish any laptop.
I mean, at this point in time, people just gotta try it out.

It's sort of funny, but I'll say this, Game Pass is probably the main reason I will get a PS5 next generation. Because it let me try out all these games I normally wouldn't be willing to pay for. And now I'm willing to try out more titles because of it. (at least the ones I can't get on PC). And now I have the games I want to play, on the devices I want to play on. I may have to wait for PS5 a bit, lets see my luck come launch. But at least for now I can count on this service to provide years of good exploratory gaming.

 

[AzBat]

lets be real; even if the service dies under its own weight. You should still sign up and get yours. The value is incredible and just ride it as long as they offer it.
...
It's sort of funny, but I'll say this, Game Pass is probably the main reason I will get a PS5 next generation.

I'm actually doing the opposite. I'm doubling down on Xbox consoles. This might be the first time I might actually get a new console at launch. Buying new consoles at launch required you to spend money on a couple of $50-$60 games & new accessories. Now that I have Game Pass & Series X|S works with all my accessories & can put that extra money toward the console & can I do that at launch instead of waiting a year or so when it's more affordable.

Tommy McClain

 

[iroboto]

I'm actually doing the opposite. I'm doubling down on Xbox consoles. This might be the first time I might actually get a new console at launch. Buying new consoles at launch required you to spend money on a couple of $50-$60 games & new accessories. Now that I have Game Pass & Series X|S works with all my accessories & can put that extra money toward the console & can I do that at launch instead of waiting a year or so when it's more affordable.

Tommy McClain

I'm doing something similar, this will be the first time since Geforce Annihilator DDR will I ever buy a top of the line GPU at launch. GP has been instrumental to loving my PC again.

All my accessories etc can be used towards Xbox on my PC. All my games work still, game pass spreads across fairly well. And I still have XBO/X to play titles.

I don't need PS5 right away, unless I want to get started through their PS4 backlog. So it depends on their enhancements announcements. If those PS4 titles are all being super enhanced, yea I will eye launch date much closer. If not and it's just plain BC, I will borrow someones PS4 Pro.

 

[Deleted member 11852]

This fallacy that every part of your business has to be profitable is ludicrous. The Game Pass business is only one part of their Xbox strategy & even the Xbox business is small part of Microsoft's overall business.

I completely agree with this. Sony felt that bankrolling PSN (free multiplayer) in the PS3 era was worth the overhead. They changed tack the following generation. Low profitability, or howvever we wish to term it, is better than loss-making but equally with any business you are constantly assessing not just the monetary side but the wider value to the operation. If Microsoft have data that demonstrate that GamePass is attracting people to their platform, or stopping people leaving, it may be worth it to them.

But there is also a danger of indulging business units that aren't profitable and are being propped up the the successful parts. Sony learned this the hard way in 2007-2010. The question most large organisations will ask themselves, when they have a reason to think about it, is if you stopped doing X and put those people and resources on Y, would you be better off?

 

[Johnny Awesome]

Yeah. My son has GamePass and all I need to do is get the XSX at launch. I don't even need an extra controller as I have 3 that work with X1 right now. I would never wait a year just to save $100.

 

[dobwal]

I've seen lots of recounting by indie devs saying being included in sales spurs sales later on. Can you provide some actual data on this? I don't have any but it sounds like you do.



Why are you making argument but me expecting to provide figures to support your position? Is this some new form of debate style I've not encountered? I don't know what Microsoft's margins are but Aaron Greenberg said that Xbox Game Pass is "not that profitable".

Why are you seemingly dismissing Microsoft's own statement?

I'm not asking you to provide data that not readily available to anybody. I'm just trying to parse out the sentiments that drive your opinion. We have no data. So I'm providing my thoughts on what drives my opinion and see whats your outlook with regards to those thoughts.

Furthermore, I'm am not discounting MS's statement. Currently MS is sacrificing revenue by offering discounts to drive adoption. They are basically accepting short term losses to drive long term gains. Losses in that type of situation can be driven by how aggressive you want to grow your sub base. It doesn't demonstrate the feasibility of a platform or content owner to create and maintain a profitable subscription model. My statements are a reflection upon subscription services in general.

For example, I look at EA Play. Its mostly driven by EA games which is free for EA to use for its service. So they only have to look at how much the sub generates from users versus how much revenue those users might have generated by not being on the service and simply buying individual titles.

EA Play has about 3.5 million subs. I am not sure how many on the Xbox but the service started with 21 games. Now its 90 games at the same price. They've quadruple their library and include FIFA 20, Madden 20 and Sim 4. Thats 3 out 5 of the top revenue generators for EA from just last year. The other two are Apex Legend (a free to play title) and Fallen Order. EA Play also includes Battlefield titles, SWBF titles, Titan Fall and other of their top franchises.

EA has expanded to PS and added third party titles to their lineup with a plan to grow their third party offerings. They've done all this for basically $5 a month.

 

[Deleted member 11852]

Furthermore, I'm am not discounting MS's statement. Currently MS is sacrificing revenue by offering discounts to drive adoption. They are basically accepting short term losses to drive long term gains. Losses in that type of situation can be driven by how aggressive you want to grow your sub base. It doesn't demonstrate the feasibility of a platform or content owner to create and maintain a profitable subscription model. My statements are a reflection upon subscription services in general.

You can't compare EA's model to GamePass. EA's model is smaller and entirely vertical, including only EA games. Microsoft's relies on them getting games from their party developers where they are both competing with exclusive offers from PlayStation and possible Steam and Epic too.

Just to be clear, I understand Microsoft are willing to run on razor thin profits to grow their subscriber base but what I don't understand, and what nobody has been able to explain, is how Microsoft can increase profitability as the subscriber base increases. I'd wager the math most third party publishers with games in GamePass are doing is, looking at the size of the subscriber base and working out how many potential lost sales inclusion could mean. Whether a new game, or an any game where revenue may spike if promoted in a sale.

How will change change as GamePass's subscriber base grows? What other costs will reduce disproportionately? There is so much blind faith this will just magically happen but what are business model reasons to explain an increase in profitability? If Microsoft have 20 million subscribers by this time next year, why will their profitability increase? Don't just look at more subscriber revenue, look at infrastructure costs and third party publishers wanting more.

Go!

 

[AzBat]

Gamers don't stop spending money while they are subscribed to Game Pass. So it's not so much a lost sale, but a better opportunity to sell to a gamer that's way more engaged than somebody just watching a trailer or browsing the store. Microsoft says the service leads to more subscribers buying more games & DLC. The additional discount they receive while it's still on the service is a great incentive. In essence, gamers are using Game Pass to trial or rent games, but then decide to buy the game anyway knowing that 3rd party games are not on Game Pass forever. With more people in the game, it raises awareness to all gamers(not just those on Game Pass or just on Xbox) & things happen like Microsoft's 1st party games selling great on Steam even when gamers could get the game free on Game Pass for PC. "a rising tide lifts all boats"

Tommy McClain

 

[goonergaz]

Gamers don't stop spending money while they are subscribed to Game Pass. So it's not so much a lost sale, but a better opportunity to sell to a gamer that's way more engaged than somebody just watching a trailer or browsing the store. Microsoft says the service leads to more subscribers buying more games & DLC. The additional discount they receive while it's still on the service is a great incentive. In essence, gamers are using Game Pass to trial or rent games, but then decide to buy the game anyway knowing that 3rd party games are not on Game Pass forever. With more people in the game, it raises awareness to all gamers(not just those on Game Pass or just on Xbox) & things happen like Microsoft's 1st party games selling great on Steam even when gamers could get the game free on Game Pass for PC. "a rising tide lifts all boats"

Tommy McClain

Problem is (as I’ve repeatedly said) we have no data behind the PR...for example; where are these ‘additional purchases’? Are they moving money away from one dev to another? So as an example, I was going to buy game a, but because it’s on GP I will by game b.
In this scenario, game b is better off but game a loses out. I guess that’s offset by the GP money, but by how much?
I can see GP is great for a small dev and unpopular game genre (or something completely new)...but what if some guy made a flappy birds type mega seller?

 

[Johnny Awesome]

Time will tell. MS believes GP can work and they have more data than anyone on these forums. I've decided that's good enough for me to think it can work, though certainly not a guarantee that it will.

 

[Deleted member 11852]

Time will tell. MS believes GP can work and they have more data than anyone on these forums.

Microsoft believed Zune would work. And PlaysForSure. And Kinect. And WindowsPhone. Sony beloved Vita would work. And PS3. Nintendo believed Wii U would work. By work I mean these products would be a commercial success. I won't even want to begin the list of projects Google thought would work but later canned. This is not a question or belief of aspiration but commercial adoption and reality. History of littered with really good products have commercially failed.

 

[Johnny Awesome]

That's why I said there was no guarantee of success.

 

[AzBat]

You miss 100% of the shots you don't take.

I'm glad Microsoft is not listening to some of these Negative Nancies. LOL

Does it suck being such a cynic all the time?

Tommy McClain

 

[Silenti]

You miss 100% of the shots you don't take.

I'm glad Microsoft is not listening to some of these Negative Nancies. LOL

Does it suck being such a cynic all the time?

Tommy McClain

Nope. Just means that all surprises are good.