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

[Deleted member 11852]

Because spend is capped annually. We've been through this.

We've not been through this, you talk about budgets like they are some magical way to not spend more money when costs rise.

Players can only spend so much time playing per month, there is only so much time to play. Whether you choose to play 1 title on game pass or 50 of them. The amount of time a player can play is capped you are unlikely able to extract 24/7 a whole month of playing. That means variable expenses are generally capped.

What are the variable expenses?

You'd have to worry about a small fraction of bandwidth expenses but once again these are minor when compared to the number of players that are likely idle with their game pass accounts. And this is how you budget how much you need to set aside in variable expenses when ti comes to players downloading and playing. You know these metrics and you can work off the average play time and the number of titles a player is likely to try each month.

Server running costs are one of the costs than scale proportionately.

Forecasting the spend allows you to budget how much you are allowed to spend for the year. That caps your expenses. If you continue to gain more subscribers you are going to generate more revenue than you will accumulate expenses.

How do you forecast what a publisher will demand for including the game Microsoft want in GamePass? Because there is no way to forecast that. You can have a budget for spending on games and have the game library a variable size. As the number of subscribers rises, publishers will be looking at a greater number of potential lost sales and the cost of including games will go up - proportionately.

Just because you have game pass, doesn't necessarily mean you have the means to exploit it's offering. This is how both the gym and buffet models work.

Again, gyms do not have a business equivalent of paying publishers to include their games in GamePass. All you can eat buffet business models work because food is dirt cheap and there is a limit to how much the average person can eat.

 

[AzBat]

Subscribers also buy games & DLC. They don't just pay for Game Pass & nothing else. They're also more likely to buy more accessories too.

Tommy McClain

 

[Deleted member 11852]

Subscribers also buy games & DLC. They don't just pay for Game Pass & nothing else. They're also more likely to buy more accessories too.

In the interview, Aaron Greenberg said Microsoft are very focussed on the wider benefit of GamePass, as in the knock-on effects so I'm sure Microsoft are including this in their comments on GamePass's profitability.

 

[AzBat]

Watch out guys, Dsoup is smarter than Microsoft & knows Game Pass is never going to be profitable & is going to fail. Time to quit buying Game Pass & playing all those wonderful games because Microsoft is going to shutter the service a week after Series X launches. Might as well sell anything else you have that's not PlayStation. Praise to Sony who has made all the right decisions & is the most profitable company ever. /s

Tommy McClain

 

[iroboto]

We've not been through this, you talk about budgets like they are some magical way to not spend more money when costs rise.

What are the variable expenses?

Server running costs are one of the costs than scale proportionately.

How do you forecast what a publisher will demand for including the game Microsoft want in GamePass? Because there is no way to forecast that. You can have a budget for spending on games and have the game library a variable size. As the number of subscribers rises, publishers will be looking at a greater number of potential lost sales and the cost of including games will go up - proportionately.

Again, gyms do not have a business equivalent of paying publishers to include their games in GamePass. All you can eat buffet business models work because food is dirt cheap and there is a limit to how much the average person can eat.

Yes, budgets are there to limit spend, which means we forecast our expenses around it and build buffers to ensure we don't overspend.

Costs are not nearly as complicated as you make this seem.

Variable costs:
Play time per title == Average play time per month * 12 + 20% * (avg cost payout per title for each hour played)
Downloading of said title == Average number of titles downloaded per month * 12 + 20% * (avg cost payout per title downloaded)
Bandwidth cost of downloading titles for gamepass - these become costs that are payable directly to Azure team. == Average bandwidth cost per title * number of titles downloaded per month * 12 + 20% * (the cost of bandwidth)

Fixed costs
Annual Licensing Fees = fixed license fee for the year for all publishers
Operations = whatever it takes to keep the service up

Other things to account for:
Cost of Acquisition - the amount of money it costs you to acquire a customer == marketing + promotional costs divided by the number of customers gained as a result of spend
Churn - the number of customers you will lose each month as a % == number of customers you will lose each month

All of these will come together and the forecast of these numbers should not exceed budget.
You put these numbers together which MS has, and then you set a price. That price exceeds these costs combined you are profiting.

Revenue is easy:
Subscription Revenue = Subscribers * fees
DLC revenue = % of subscribers that will purchase a DLC * average cost of DLC they will purchase
so even 1% of subscribers of (10M * avg cost of DLC * 30%)

Contracts once signed are signed. Publishers can choose not to publish on game pass they aren't forced to
You begin the year with signing about 60% of your deals for the year, and at certain point in time in the year you try to make forecast and actuals meet. If you have underspent you may decide to pick up more titles, if you overspend you may cancel some titles you wanted to get in the back 40% of the year. You continually assess each month if your over or under the forecast and pick up and drop off titles as required.

No one is forcing MS to pick up titles, no one is forced to sign anything. It just comes down to what publishers want for their titles and what MS is willing to spend. it has nothing to do with proportions, it's not like this service is about royalties. Games can be on for as little as 3 months and some can be on every single year.

It's whatever the publishers want to do and I think your assumption that publishers will keep demanding more and thus MS will just have to bend over and pay it is completely wrong.

 

[Silent_Buddha]

I'm interested in the profitability, the general consensus seems to be profitability will increase with subscribers but I'm not seeing how costs will not increase proportionately with scale. I don't think a gym isn't a good analogy because there is no gym business equivalent to Microsoft paying third party publishers to include their games in GamePass.

Note that he's not even saying it'll be profitable as it grows, he says "benefits". As I posted above, this could be a reference to GamePass stopping user erosion/disengagement over a generation.

Yes, profitability is certainly up in the air at the moment as to whether or not it will grow long term. You seem to be of the opinion that costs are likely to grow roughly inline with subscriber base, but I'm not sure that is necessarily true.

If developers are happy with the lump sum deals that they may or may not be getting, that's unlikely to change if there's more subscribers. In terms of smaller developers they could already be getting more from MS than they might get for the life of their product without being on Game Pass. For more well known titles there's a pretty good chance that MS' deal with them is viewed as being a larger revenue stream than they would get starting from that point in time going forward. Number of subscribers doesn't change this.

It may well be there will be some adjustments for larger players (say Rockstar, for instance) that scale relative to subscriber base, but it's unlikely to be a 1:1 scaling.

This also requires one to think that being exposed to titles from a developer that a consumer has never had exposure to may not influence a consumer to buy those titles or other titles by the developer of those titles. If Microsoft has done a good job of fostering good will with consumers, there's a good chance this may lead to the consumer buying those titles through MS rather than say Steam or PlayStation.

Obviously that isn't something that is easily tracked, but I'm sure that MS has a whole team of data scientists aggregating data related to that and other things.

Additionally, one of the stated benefits by Phil Spencer for Game Pass was that it allows them the freedom to greenlight game IP and concepts that traditional game publishing makes too risky. If the game is included on the service, there is no need to convince someone they need to spend money on this unproven IP or game concept or even potentially alien type of gameplay. It's there. Try it. You might like it. What do you have to lose? The barrier to get people to try something new is significantly reduced if they don't have to buy it and then be "stuck" with it if they end up not liking it. OTOH if they like it, suddenly the developer has a new potential loyal customer.

New IP and new game types could emerge from this and potentially become a new cornerstone IP or even start a new gaming genre. Again, not something that can be predicted, but has the potential for future revenue.

There are many benefits both monetary and non-monetary that could emerge from Game Pass. It's still early days and it's certainly reasonable to be skeptical of it's ability to become a potential large contributor to Microsoft's profitability, but much like Research and Development there could be related profitable offshoots or benefits from funding the service.

I guess in a way, for MS first party studios you could think of Game Pass as a sort of Gaming Research and Development division. Only thing is, the public has access to it. I fully expect to see some WEIRD game concepts come to Game Pass from Tim Shaeffer and Double Fine Productions, for example. Titles that would never get funded outside of Crowd Funding and maybe some that wouldn't even get Crowd Funded. But because Game Pass...why not?

Regards,
SB

 

[Deleted member 11852]

Yes, budgets are there to limit spend, which means we forecast our expenses around it and build buffers to ensure we don't overspend.

Budgets also prevent you spending money when you may need too. You need budgets, but if you need to spend money to sustain your business, you need to spend money. If Microsoft refused to change Halo Infinite's development budget, it would be releasing in two months.

Play time per title == Average play time per month * 12 + 20% * (avg cost payout per title for each hour played)
Downloading of said title == Average number of titles downloaded per month * 12 + 20% * (avg cost payout per title downloaded)
Bandwidth cost of downloading titles for gamepass - these become costs that are payable directly to Azure team. == Average bandwidth cost per title * number of titles downloaded per month * 12 + 20% * (the cost of bandwidth)

I've not seen anything to suggest this is how Microsoft are compensating publishers. Do you have limits? Further up the thread I linked to a YouTube video where an actual dev talked about this.

Fixed costs
Annual Licensing Fees = fixed license fee for the year for all publishers
Operations = whatever it takes to keep the service up

Operational costs will be variable. This is infrastructure and personnel. Less games = less personnel, more games = more personnel. A lot of time and effort will go into reaching out to publishers, negotiating contracts and so on. If you budget only allows 100 games rather than 300 then you need less people. Pretty much everything is variable because games fade in and fade out of GamePass every month as do people. And unless you know why people drop subscriptions (which you won't) you cannot predict it.

All of these will come together and the forecast of these numbers should not exceed budget. You put these numbers together which MS has, and then you set a price. That price exceeds these costs combined you are profiting.

This is a massive simplification for what will be a incredibly complex cost structure. But to be clear, you think Microsoft will stick to their budgets and if this means halving the number of games in GamePass that is what Microsoft will do?

Contracts once signed are signed. Publishers can choose not to publish on game pass they aren't forced to

Contracts can also allow for tiers of costs and revisiting of cost should the subscriber base grow. Contracts can be as static or adaptive. Microsoft need third party publishers to fill out the GamePass library. Do you think it will appeal as much with less games?

If developers are happy with the lump sum deals that they may or may not be getting, that's unlikely to change if there's more subscribers.

The cost is to compensate publishers for lost sales, which is limited by the number of GamePass subscribers. If there are more subscribers, there are more potential lost sales. If there are more lost sales, publishers will want more compensation.

 

[goonergaz]

Subscribers also buy games & DLC. They don't just pay for Game Pass & nothing else. They're also more likely to buy more accessories too.

Tommy McClain

I don’t, I’ve not bought a Xbox game since getting GP.

Watch out guys, Dsoup is smarter than Microsoft & knows Game Pass is never going to be profitable & is going to fail. Time to quit buying Game Pass & playing all those wonderful games because Microsoft is going to shutter the service a week after Series X launches. Might as well sell anything else you have that's not PlayStation. Praise to Sony who has made all the right decisions & is the most profitable company ever. /s

Tommy McClain

He’s just trying to understand how.

My concerns are with their ability to sustain quality without a price hike once enough people are ‘locked in’. A bit like PS+, once you have a nice selection of games if you stop subbing you lose access, so in the end you have a choice, stop subbing and buy the games you’ve been renting (not great) or keep subbing even if the quality goes down or price goes up (again, not great ).

Another factor which has only been lightly touched in is that everyone defends the digital prices of games, saying the infrastructure (etc) costs a lot hence high prices vs physical. If that’s the case then those costs will also rise proportionately with the user base numbers, along with spiralling costs of developing games.

 

[iroboto]

Budgets also prevent you spending money when you may need too. You need budgets, but if you need to spend money to sustain your business, you need to spend money. If Microsoft refused to change Halo Infinite's development budget, it would be releasing in two months.


I've not seen anything to suggest this is how Microsoft are compensating publishers. Do you have limits? Further up the thread I linked to a YouTube video where an actual dev talked about this.


Operational costs will be variable. This is infrastructure and personnel. Less games = less personnel, more games = more personnel. A lot of time and effort will go into reaching out to publishers, negotiating contracts and so on. If you budget only allows 100 games rather than 300 then you need less people. Pretty much everything is variable because games fade in and fade out of GamePass every month as do people. And unless you know why people drop subscriptions (which you won't) you cannot predict it.


This is a massive simplification for what will be a incredibly complex cost structure. But to be clear, you think Microsoft will stick to their budgets and if this means halving the number of games in GamePass that is what Microsoft will do?


Contracts can also allow for tiers of costs and revisiting of cost should the subscriber base grow. Contracts can be as static or adaptive. Microsoft need third party publishers to fill out the GamePass library. Do you think it will appeal as much with less games?


The cost is to compensate publishers for lost sales, which is limited by the number of GamePass subscribers. If there are more subscribers, there are more potential lost sales. If there are more lost sales, publishers will want more compensation.

When it comes to funding different types of products, usually they have particular rules on how money can be spent and requested. GamePass isn’t capital expenditure like Halo Infinite is. game Pass does not create a sellable asset with long term loyalty. The only asset that game pass creates are subscribers and data on subscribers, perhaps their recommender systems; they are effectively the same as a reseller just in a different format.

the model is taking someone else’s product and reselling it. It’s not the same as building a game in which budgets can be exceeded because there is additional money for the funding of capital expenditures.

As my years of a product manager there are 2 things I have never had to do:
A) I have never included the cost of the sales team in any product, you could call that commission or what not but that is not my issue is pricing the products I am responsible for.
All sales teams are required to sell multiple products, they are assigned by vertical so their existing relationships are leveraged to sell new products since they know their own clients best. In the games industry the verticals would like be AAA, AA, indie and international. The sales teams that regularly work in those verticals signing their products into Xbox and Xbox Live Gold and others would now just add Game Pass To the products they will sell. The only time more sales reps are hired if there are more games on the market that are being built than there are sales reps can attend to. The number of reps should not be proportional to the number of games being signed into game pass.

b) the product manager is responsible for product margins for the product which includes training sales teams on selling the product. In this case sales reps who land deals, if the margin is below the standard amount by a certain percentage I can approve it. If it’s much below it requires VP approval. So from this perspective the sales teams should be doing their best to get the best possible margin and cases where that isn’t there will be escalated to the PM and then further up if the need is still there.

it is absolutely my job requirement to ensure that we are within budget and there needs to be very specific business cases to exceed expenditure limits. Complex cost models are often reduced to simplified costing. There is a very specific reason for this; 100% accurate costing is nearly impossible; how many hands touch the work can never be fully attributed or costed. If you do accurate costing as much as possible you need to be able to prove without the doubt that is the cost because your basing how close you cut your margins on this information. It is better to pad costs in your calculations and work your margins from there to ensure you never dip below to ensure you have healthy margins.

Previously I managed MPLS networks for our customers that wanted it out of country. That requires us to work with the local telco in the desired country and reselling their service as part of our network. It’s not so different here. That company may be forced to sell to us at a lower rate than they would their own customers but that’s okay because that is a customer gained they normally wouldn’t have at all.

Do I expect game pass to stay on budget? Yes. Because if you went through all your money and you’re only 50% through the year you failed your forecasting completely. This would be reflective in the first month, and I don’t expect after review we would keep spending like we’re being blind sided.

 

[iroboto]

Another factor which has only been lightly touched in is that everyone defends the digital prices of games, saying the infrastructure (etc) costs a lot hence high prices vs physical. If that’s the case then those costs will also rise proportionately with the user base numbers, along with spiralling costs of developing games.

It's a fraction of costs compared to physical. The interesting difference between the two is that digital takes a cut at the sale. Physicals are sold to the retailers at discount and you will sell copies even if they are never sold directly to the consumer.

Physical you need to upfront all your costs. Retailers will choose how much of that stock to buy, and anything left over will sit around and do nothing. Most companies will take left over stock and sell it to liquidators.

And that's how cheaper physical copies find their ways in the the discount bargain bin. The challenges with physical is the upfront cost of course, normally the publisher will foot this bill and figure out how many they can reasonably sell. But not always, mistakes are made from time to time. You never have this issue with digital, you just need to deal with the 30% taken with each sale. There are pros and cons to each, but reality is, that if you can't beat the digital cut (30%) by selling to retailers, its not as bad as it seems.

 

[AzBat]

I don’t, I’ve not bought a Xbox game since getting GP.

I didn't say that all or even most of the subscribers would buy games. I suspect that a lot of people won't but it's not 100% of them.

Personally, I have bought a couple. One was Sea of Thieves(months after it went on Game Pass because I was not a Game Pass subscriber at the time), Ori & the Will of the Wisps(absolutely loved the first one & wanted to reward the developer), bought codes for Life is Strange 1 & 2 for a family member who had played it on my account & wanted to continue playing it after it left the service) & lastly bought 2 Lego & 1 Disney games for my kids because they had left the service.

Will I buy any more 1st party games in the future? Probably not as long as I'm a subscriber. I'm only topped up until June 2021. I will sub up again though. My game purchases are mainly titles that leave the service.

He’s just trying to understand how.

You and I both know that's not true. He's doing the exact opposite of understanding. He only wants to push his own agenda & doesn't care what anybody else says on the matter. It's to the point that interacting with him is an exercise in futility & no longer worth the effort.

Tommy McClain

 

[BRiT]

Lately I picked up a good handful of Ubisoft Wolfenstein/Doom related titles because of gamepass. I was able to validate I still enjoyed them, but haven't had enough time to finish them while they were still on gamepass. Likewise I was also able to validate some titles aren't for me and saved me money, for example Kingdom Hearts (little to no actual gameplay) or Yooka-Laylee (horrible character voice noises I detest). I even purchased a few MS titles when on sale like Forza-Horizon 4 because it seemed silly to own DLC without the base game for a tiny bit more.

I suspect but have no evidence that others operate similarly where they find what they like, sometimes too late to complete the game when its on the service so they opt to buy it or they pick up the DLC, like for Journey to the Savage Planet or the Forza Horizons.

 

[Silent_Buddha]

The cost is to compensate publishers for lost sales, which is limited by the number of GamePass subscribers. If there are more subscribers, there are more potential lost sales. If there are more lost sales, publishers will want more compensation.

You mention lost sales, but most developers that have commented see them not as lost sales, but as revenue they never would have had because most of the people on Game Pass never would have bought their game.

Which is true for most indie developers...heck even AA developers have a hard time attracting significant sales numbers.

And for AAA games, they usually come to Game Pass after most people that were interested in the games have gotten them. This can be anywhere from 2-3 months after launch for most AAA titles or 1-2 years after launch in rare cases like COD/GTA/Witcher 3. So if they can get a few more dollars and expose players who weren't interested enough to buy them to try them out...and potentially like them. It's a win-win.

By that time, outside of the ever declining stegosaurus spikes from Steam sales, anything MS offers is likely higher than what they could expect from the next 1+ year of sales. Increasing subscribers doesn't really change that dynamic. Anyone that was going to buy it at launch is unlikely to want to wait 3 month to a couple of years in order to get it as part of the subscription service. Most people that try it will likely be people that never would have bought it (like pirating! except the developer/publisher is getting money for it).

Microsoft may have lost sales, but so far, all they've said within the context of Game Pass and their exclusives being day and date on it is that the titles have "sold" above expectations. This doesn't necessarily mean that they've sold better than they would have if they weren't on Game Pass, but it also could mean that. What we do know is that the for the Metrics that MS are using to determine whether having their exclusives day and date on the service is profitable or not, sales have gone above those expectations.

Regards,
SB

 

[Deleted member 11852]

When it comes to funding different types of products, usually they have particular rules on how money can be spent and requested. GamePass isn’t capital expenditure like Halo Infinite is. game Pass does not create a sellable asset with long term loyalty. The only asset that game pass creates are subscribers and data on subscribers, perhaps their recommender systems; they are effectively the same as a reseller just in a different format.

Aaron Greenberg disagrees: "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."

Also games aren't capital expenditure. Capital expenditure refers to fixed assets like land or buildings. I don't know where attained your financial education but should ask for a refund on that.

As my years of a product manager there are 2 things I have never had to do: A) I have never included the cost of the sales team in any product, you could call that commission or what not but that is not my issue is pricing the products I am responsible for.

Nor should you, nor are Microsoft here. Microsoft have marketing and sales divisions. However what is the GamePass team is responsible for, because it's unique to Xbox and GamePass, is acquiring the rights to use other companies IP as part of their service. That costs money.

The sales teams that regularly work in those verticals signing their products into Xbox and Xbox Live Gold and others would now just add Game Pass To the products they will sell. The only time more sales reps are hired if there are more games on the market that are being built than there are sales reps can attend to. The number of reps should not be proportional to the number of games being signed into game pass.

I personally would be very surprised if the same team who are setup to sell produces and services (GamePass) to consumers are the same team setup for IP procurement because these are very different things with no overlap. Selling to consumers you have a known-quantity product, your terms of sale are fixed and you're marketing into channels in which hits your consumer demographic. Obtaining new games mean reaching out through internal developer channels, negotiating the fixed or variable costs, then having bespoke legal agreement. It's not simply a case of filling in the blanks. I'm certain Microsoft will have a preferred contract type but as I've said before, if Microsoft want something then they need to adapt to the needs of the publisher. This may be something relatively simple, like adjusting the standard period of inclusion, but it may be the publishers have specific needs for marketing or wants a renegotiation clauses if the size of the subscriber base charges. And it's not only about the subscriber base increasing, but decreasing. Exposure and buzz is critical for indie devs.

Previously I managed MPLS networks for our customers that wanted it out of country. That requires us to work with the local telco in the desired country and reselling their service as part of our network. It’s not so different here. That company may be forced to sell to us at a lower rate than they would their own customers but that’s okay because that is a customer gained they normally wouldn’t have at all.

This is nothing alike. The telecommunications industry in almost all countries is subject to strict regulation so companies can be forced to sell to you if the aim to make prices consumer-friendly but Microsoft cannot force publishers to release their IP for inclusion in GamePass unless they are prepared to play a very dirty game.

You mention lost sales, but most developers that have commented see them not as lost sales, but as revenue they never would have had because most of the people on Game Pass never would have bought their game.

I don't know about "most", I've not seen comments from most of the devs with products in GamePass but I've seen a few that suggested that the Microsoft deal is very good and that's why their game is in GamePass. So what about when the deal is not so good? What do you think will happen? Because Microsoft are competing with Epic and Sony money-hatting people and both of those companies have money profit through gaming businesses to re-invest back into gaming.

Which is true for most indie developers...heck even AA developers have a hard time attracting significant sales numbers.

And for AAA games, they usually come to Game Pass after most people that were interested in the games have gotten them. This can be anywhere from 2-3 months after launch for most AAA titles or 1-2 years after launch in rare cases like COD/GTA/Witcher 3.

And they stay very briefly which suggests either they are extremely expensive or are not appealing. I would expect Microsoft to have a standard clause to terminate inclusion early (with penalties) if a game is not attracting attention. Whilst this business model is new, they're not amateurs.

 

[goonergaz]

It's a fraction of costs compared to physical. The interesting difference between the two is that digital takes a cut at the sale. Physicals are sold to the retailers at discount and you will sell copies even if they are never sold directly to the consumer.

Physical you need to upfront all your costs. Retailers will choose how much of that stock to buy, and anything left over will sit around and do nothing. Most companies will take left over stock and sell it to liquidators.

And that's how cheaper physical copies find their ways in the the discount bargain bin. The challenges with physical is the upfront cost of course, normally the publisher will foot this bill and figure out how many they can reasonably sell. But not always, mistakes are made from time to time. You never have this issue with digital, you just need to deal with the 30% taken with each sale. There are pros and cons to each, but reality is, that if you can't beat the digital cut (30%) by selling to retailers, its not as bad as it seems.

If digital is a fraction of the cost then why are digital prices so high?

I didn't say that all or even most of the subscribers would buy games. I suspect that a lot of people won't but it's not 100% of them.

Well your comment can be easily read as all subscribers, but the point is exactly that - MS are not giving enough data points...because there are also subscribers that buy less. And even if it’s a lump sum (all subs together = more bought) the question is how big is that number and (as I said before) was it just a trial on a fake account to get a game on a discount.

Lately I picked up a good handful of Ubisoft Wolfenstein/Doom related titles because of gamepass. I was able to validate I still enjoyed them, but haven't had enough time to finish them while they were still on gamepass. Likewise I was also able to validate some titles aren't for me and saved me money, for example Kingdom Hearts (little to no actual gameplay) or Yooka-Laylee (horrible character voice noises I detest). I even purchased a few MS titles when on sale like Forza-Horizon 4 because it seemed silly to own DLC without the base game for a tiny bit more.

I suspect but have no evidence that others operate similarly where they find what they like, sometimes too late to complete the game when its on the service so they opt to buy it or they pick up the DLC, like for Journey to the Savage Planet or the Forza Horizons.

What this sounds like is that you’re now paying for demos.

 

[BoardBonobo]

There is another additional cost to cloud gaming that may drive costs through the roof and that is the heavy impact on energy usage in data centres and the very negative impact this has on the climate. These are usually offset by carbon credits but that it is just a cheap way out that is not sustainable in the long run. Some articles on this are here, here, and here.

 

[iroboto]

Aaron Greenberg disagrees: "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."

Also games aren't capital expenditure. Capital expenditure refers to fixed assets like land or buildings. I don't know where attained your financial education but should ask for a refund on that.

Aaron Greenberg is their marketing arm. You want Aaron Greenberg to tell his current audience that (a) they want to move more into cloud gaming? (b) that it's a very good business for other competitors to come into?

This is Aaron Greenberg you're quoting (which I'm surprised you're taking his words at face value considering your level of pessimism)

I know what work I am supposed to capitalize and which one goes under OPEX, I'm still working right and my labour is sent to variety of teams and projects in which I know when I need to cap code my time or not, but okay thanks for the sleight:
From your link:
Capital expenditures are the funds used to acquire or upgrade a company's fixed assets, such as expenditures towards property, plant, or equipment (PP&E)
What is a fixed asset:
Fixed assets—also known as tangible assets or property, plant, and equipment (PP&E)—is an accounting term for assets and property that cannot be easily converted into cash. The word fixed indicates that these assets will not be used up, consumed, or sold in the current accounting year. ... Fixed assets are capitalized.

Examples of Fixed Assets
Fixed assets can include buildings, computer equipment, software, furniture, land, machinery, and vehicles. For example, if a company sells produce, the delivery trucks it owns and uses are fixed assets. If a business creates a company parking lot, the parking lot is a fixed asset.

Nor should you, nor are Microsoft here. Microsoft have marketing and sales divisions. However what is the GamePass team is responsible for, because it's unique to Xbox and GamePass, is acquiring the rights to use other companies IP as part of their service. That costs money.

I personally would be very surprised if the same team who are setup to sell produces and services (GamePass) to consumers are the same team setup for IP procurement because these are very different things with no overlap. Selling to consumers you have a known-quantity product, your terms of sale are fixed and you're marketing into channels in which hits your consumer demographic. Obtaining new games mean reaching out through internal developer channels, negotiating the fixed or variable costs, then having bespoke legal agreement. It's not simply a case of filling in the blanks. I'm certain Microsoft will have a preferred contract type but as I've said before, if Microsoft want something then they need to adapt to the needs of the publisher. This may be something relatively simple, like adjusting the standard period of inclusion, but it may be the publishers have specific needs for marketing or wants a renegotiation clauses if the size of the subscriber base charges. And it's not only about the subscriber base increasing, but decreasing. Exposure and buzz is critical for indie devs.

And Microsoft already have game division teams. The same game division teams that are always trying to get games onto their platforms. The same game division teams that ultimately have to help cert and support these titles The same game division teams that support all the verticals down to ID@Xbox. The same ones that are responsible for exclusive hunting, money hatting and all that jazz. Why would they need a separate sales team for gamepass? They don't, that same team just now has to do game pass signing as well, they only need to be trained on how to do it. I never suggested fill in the blank, I've had to train sales teams on my product before. I feel like you're entirely reaching here. You already have an existing Xbox sales team, why do you need to make another?

This is nothing alike. The telecommunications industry in almost all countries is subject to strict regulation so companies can be forced to sell to you if the aim to make prices consumer-friendly but Microsoft cannot force publishers to release their IP for inclusion in GamePass unless they are prepared to play a very dirty game.

No, it's not all that different. Companies are forced to pay retailers at lower than customer costs so that they can get their cut. MS cannot force publishers to release on gamepass, so that's no different than someone not being forced to buy telecomm. If they don't like the price I give, they can go to another service provider. You don't think Game Pass also gives companies more money? What do you do when your title is in decline and your title missed it's mark for expected profits? You have MS here more than happy to pay you for Game Pass and make up that shortfall. You think publishers only look at lost sales ? Why bother with Game Pass if it only has a negative impact on your business. And once agin, how is Game Pass suddenly more expensive than paying outright for exclusive rights to a game? That same game can still be sold to any platform they wish.

I don't know about "most", I've not seen comments from most of the devs with products in GamePass but I've seen a few that suggested that the Microsoft deal is very good and that's why their game is in GamePass. So what about when the deal is not so good? What do you think will happen? Because Microsoft are competing with Epic and Sony money-hatting people and both of those companies have money profit through gaming businesses to re-invest back into gaming.

These aren't relevant discussion points, because what-if scenarios aren't worth discussing. As of right now MS doesn't have to do anything but think about their growth and develop their product because they are the only player in the space. A 20-25% market penetration into their own base is a fairly good start. I don't see that number going down faster than it's going up especially leading into a new gen with cloud now being supported under XGPU.

 

[iroboto]

If digital is a fraction of the cost then why are digital prices so high?

People want to get paid and a long time ago online stores anchored at 30% cut.
Epic Game Store for instance has a lower cut value for instance.

Most of the costs are upfronted in data centre builds but the actual data transaction is minimal.

Azure continues to make hand over fist YoY in profits for MS and has been leading the charge for them for some time now.

 

[iroboto]

What this sounds like is that you’re now paying for demos.

We may treat them like demos but we've been paying for access to full games.

Its just a question of whether you want to play the game through or give up before completion.

 

[goonergaz]

People want to get paid and a long time ago online stores anchored at 30% cut.
Epic Game Store for instance has a lower cut value for instance.

Most of the costs are upfronted in data centre builds but the actual data transaction is minimal.

Azure continues to make hand over fist YoY in profits for MS and has been leading the charge for them for some time now.

They don't just transfer the data though do they? For popular games they have to hold multiple copies (if I remember/understand previous discussions correctly).

I should imagine when the big games hit the stores the costs (to MS) for those is quite high.