Business aspects of Subscription Game Libraries [Xbox GamePass, PSNow]
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Doesn't have to be like that. Bethesda owns intangible and tangible assets, and those need to be amortized.
10$ of operating margin per user / per year? doesn't seem to high even tho I still think is negative considering the cost of running 23 studios and paying EA and other 3rd party publishers for the games they subsidize.
edit: 10/150 is a 6% operating margin. Not the hottest business.
Right now at the rate of change, profit is moving much faster than expenses.
Honestly, you cannot put the price of purchasing a studio into the running sheet for gamepass because MS can equally sell off that set of Studios for some value as well.
These studios build IPs and sell them to whatever platform they want. Parts of these expesnses will go back to XBox.
I have bent over backwards to make Gamepass seem as poor as possible but this seems like a far stretch. The assumption here is that they will make title purchases become 0 due to game pass.
what is 150?
Do we know actual number of profit and opportunity cost?
no those aren't provided, we can only speculate and make assumptions.
There's more to running a business than just employee costs! And even so you have more than 1 months total GP subscription income (and more likely 2 months) paying for just one companies wages!
Don't they have 23 studios now? How many staff in total?
edit - you need to put your s/s in your sig!
Loaded rates include salary, your office equipment, your office space, benefits etc.
It's loaded rates, as in, all in.
The 2300 employees, at a rate of 100K per employee is 230M. I gave the benefit of the doubt and just moved it to 500M per year, so double, at 200K per employee per year. This should covers the costs of food etc, anything their studio does special, but I have HUGE doubts food and additional benefits would surpass the salary of any person.
Honestly, a lot of this should not be covered primarily by Gamepass, because their regular Xbox division would be taking these costs on.
They have 23 studios in total, yes. But employee wise, most of them are very small in comparison. 343i is the largest studio they have and I believe that's 400.
edit: in the sig now! good thinking!
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Spencer committed to getting Game Pass on Apple.
https://www.resetera.com/threads/ph...ell-be-able-to-get-to-some-resolution.291614/
https://www.resetera.com/threads/ph...ell-be-able-to-get-to-some-resolution.291614/
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I posted previously on this which answers, or at least explains why the questions don't make sense, cost of this. Your assumption is not how UK public libraries work.
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Deleted member 7537
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Not the purchase itself. That purchase is now part of the revenues, expenses and profit of Microsoft's game division. Bethesda assets are now part of MS assets and that does compute into the income sheet. As you correctly pointed out now MS has to bear Bethesda's employee cost, R&D, building maintenance, etc. A proportionate part of that goes to gamepass, why? Because it's the reason because gamepass generates revenue, so you need to take into account how much it has cost you to generate that revenue. If not, finances would be a mess. Image Apple saying "well, the cloud business is going horribly, let's charge the cost of Icloud to the Iphone division to make it look better". You can't, how are you going to measure how profitable has been an investment then?
https://www.accountingcoach.com/blog/what-is-the-matching-principle
Again, revenues and cost of those revenues are tied together. If a MS Bethesda game is sold on the PS Store then you can't add that to Gamepass revenue.
Sorry, it is 15 a month * 12 (not 10) months: 180$/year / 10$ operating profit/year= 5.55% operating margin. Office 365 is almost 50%.
I'm pretty sure Xbox has a plan. But gamepass looks remarkably similar to Netflix (I mean, that's the idea) and their are still to generate cash consistently with 200 million users. I have a hard time believing Gamepass will generate a lot of cash to MS with 20M users.
And I didn't. In fact I set this value to 0 on my spreadsheet. See signature. I'm looking at the worst case scenario, where no games are sold to any platform, only gamepass revenyue and gamepass absorbs a great deal of operational spend, just minus the Xbox backoffice.
Which once again, as a worst case scenario I put everything except for those 1 time costs under the game pass sheet. So while on ym spreadsheet I don't account for it's purchase, I put 100% of operational expenses under gamepass.
The only challenge I have with your formula is that expenses aren't capped.
That's basically saying if you have infinite number of subscribers, your operating margin is still only 5.55%
There is a limit on spend, it's not a linear percentage of revenue.
So as subscribers increase rapidly as we see here, subscriber revenue >>> annual spend, then by that formulation operating margin per subscriber increases.
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Deleted member 7537
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Sorry but your spreadsheet is nowhere close to reality.
Let me make one point, let's look at Netflix which is very similar to gamepass: yearly suscription with 3rd party and original content:
- Revenues: 20.4 billion USD (2019) / 5.5 billion USD (2015) : x3.7
- Licensing Cost: 12.1 billion USD (2019) / 3.7 billion USD (2015) : x3.4
I took your excel, I'm going to give you 30% increase in revenue but a 28% increase in licensing cost as well (basically the difference that exists on netflix).
https://1drv.ms/x/s!Asenq0DmRL6IilMIyB_psG7_EGZe?e=ocjui1
The rest I did not change.
I can make that change, it's like the first time someone actually put in some effort to help me here, at the very least you have my thanks. Umm yea, let me put that in, I see what you did there and you're right the multiplicative effects won't work out. I mean, the numbers might be in a bit more favour because the games fall off game pass and don't stay on nearly as long as they do on Netflix.
Can they really spend 14B a year on a restriction of 150 titles per year however?
Netflix continues to grow their library, but Game Pass sort of keeps itself contained.
There are also varying types of titles most of which are made up of smaller ones, I don't think MS is going to expand Game Pass much beyond a 150 titles.
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Deleted member 7537
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Because we do not know how much or for what 3rd parties are charging MS we cannot know how much it cost them. Do they charge them only for content consumed? Or is there a fixed part only making their games available on Gamepass?
As for the number of titles I don't think is that relevant. Let me explain, for these kind of services Pareto's principle usually applies meaning that 80% of the userbase is going to consume 20% of the content. When EA Live is available on gamepass do you think matters much having 400 o 500 titles if everyone is playing FIFA and Battlefront? Yes, MS can save some money if they limit the number titles but a huge percent of the licensing cost is going to come from the 4-5 big 3rd party titles they offer.
My issue, really the main issue why I can't see gamepass ever becoming profitable is that they are throwing away their biggest source of profit: selling digital first party titles. Once they recover the development cost, the marginal cost of each sale is close to zero, is almost 100% profit. Yet they are going to offer those for "free"? So Fallout,Doom,Halo, etc. What used to be 60-70$ games are going to be given away for 15$ a month? I cannot see the economic rationale unless huge number of subscribers sign up, probably over 200M.
hmm... typically the licensing fees must be much higher on video than on games. Games has to be done on a per hour basis of play. It's not the time of thing where you can watch it once and consume everything, that's not really generally what happens.
So I suspect there are 2 facets:
a) the game is given an advance for being on gamepass this we know, so a fee to show up on game pass.
b) the game is given more revenue for some factor of players playing it * hours played
The games are unlikely to stay on for more than 1 year unless they are smaller titles. GTA and other big name ones only lasted a few months.
So considering the type of game you are, game pass can be really exploitative to try to get people to try your game, get hooked, and then you pull off gamepass and people make more purchases.
This is something not available to your typical Netflix media, where once consumed, they are unlikely to consume again later on.
So in this sense, with DLC etc, I do think it must be favourable for MS, the margins may be a little larger than expected. Our spreadsheet indicates that 96M is the beginning of true profit for MS. We have it taking a while, but it's entirely possible that MS could hit this fairly quickly if Xcloud does take off.
I also do suspect there has to be a limit on spend if you're limited to 150 titles. The spreadsheet hits $15 B in licensing fees by the end of the spreadsheet. At 150 titles, that means MS is paying out an average of 100M per title (with MS throwing out that much money, as an indie we need to get going!) AAA spend is about 200M per title right now, and 500M is considered insanely high cost. cough Halo.
That just cannot be right. And 20% of 150 is only 30 titles. And 30 titles cannot be paid 12B (80% of 15B) dollars. That's ludacris, each title would be given 400M of revenue, at those numbers, I don't even know if there are enough titles that even have that level of spend developed each year. Certainly not 30. We most definitely do not have 30 GTA/RDR/TLOU2/Halo/Destiny caliber titles releasing every single year.
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Deleted member 7537
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Really interesting points. Hopefully MS will be transparent about these items and will explain the economic rationale behind it.
Btw, for people who are interested in the business side of things (accounting, valuation, etc.) I can't recommend enough Damodaran's lectures: http://people.stern.nyu.edu/adamodar/New_Home_Page/onlineclass.htm
Btw, for people who are interested in the business side of things (accounting, valuation, etc.) I can't recommend enough Damodaran's lectures: http://people.stern.nyu.edu/adamodar/New_Home_Page/onlineclass.htm
Yea I think I predicated my whole spreadsheet around the concepts that I honestly have little understanding about, but I made a judgement call on it anyway.
I just assumed that the cost of being on game pass has to be less than the cost of exclusivity. Because it's generally an older title, not launching day 1 on game pass, and it's multiplatform anyway, and so by all means, it can't be more expensive than paying for a permanent life time exclusive.
This is something that Sony has been okay with doing traditionally, they outsource companies to build exclusive content for them. I can't see how that is cheaper than taking a game and having it on gamepass. It can't be cheaper, otherwise MS would just buy up studios to make exclusive content. Insomniac cost Sony $229 million. Far less than the spreadsheet predictions of 400M per title at the end of tail end of licensing fees.
I also assume it should be cheaper to do GamePass than it is to be given out via PS+ or GWG.
not sure if it’s cheaper than a limited console exclusive. Ie 6 to 12 month exclusive. May even be also cheaper than this. Because even day 1 GamePass still has sales on the same day all platforms when launched.
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I'll be honest, I don't blame anyone from the US being confused by your messaging here. I'm from the UK and I'm barely understanding why you're talking so much about library usage. I don't know any libraries near me who stock video games and I've never met a single person who's ever used a library to rent a game. Have you got any links to libraries who claim to stock video games - I'd be interested to see where they are and what they have available.
Hard to blame anyone really. Most people do not explore public perks etc or even local areas. Most Canadians opt to fly or leave Canada for vacation; but it’s so beautiful in Canada if you’re willing to leave the city.
and yea libraries here provide 3D printing, game and DVD rentals, mine craft and programming courses etc and others all free!
but most people don’t know if you don’t visit or... lol or if you don’t have children. Because we’re always looking to drop the kids off somewhere free.
and yea libraries here provide 3D printing, game and DVD rentals, mine craft and programming courses etc and others all free!
but most people don’t know if you don’t visit or... lol or if you don’t have children. Because we’re always looking to drop the kids off somewhere free.
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