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

I would suspect the clients more atracted to Gamepass would be the big whales. Gamepass would allow for substantial savings, without loosing games. So, this would represent losses.
Overall, I do agree with your points.

 

But...,but....,but...., I thought gamepass wasn't profitable

 

as me and others have addressed this is comparing ppl with gamepass vs ppl without pass, thus as initial subscribers are more likely to be hardcore their stats will most likely spend/play more. Its like comparing someone who brought a xbox day one vs someone who got one at xmas 4 years later and see who on average spends more money/time on the thing, well duh.
To answer the question is it profitable? well you can say with near certainty it is not at present, but I don't think anyone thought it would be now, like all these things their plan is long term, first grow the userbase as quick as possible incurring a lose along the way and then in future try to profit from users once the userbase is a lot bigger.
FWIW Spotify which has 155 million paying users, $10 a month, but still lost -€300million in 2020.

 

Last July, Microsoft said GamePass is "not a big profit play". Which suggests it is at least profitable. Since then Phil Spencer has spoken about the economics of Xbox and Game Pass, often in the context of their Zenimax acquisition, and what he has said leans on GamePass not being where Microsoft want it. But it's a new business model and may take some iterative changes to get to the level of profitability they deem acceptable. It took Amazon ten years to turn a profit, and Netflix have re-invented their model completely (dropping physical media) and iterated on how they obtain content, which now includes a huge amount of in-house content.

 

talking of subscription models, they hired experienced people on the matter as of recently.

 

Yeah, it's like "people that switch to (car insurance company) save money". Well, of course. If you have car insurance, and you call around and everyone else is more expensive, you aren't going to switch. Unless there is some other motivating factor, but even then, if it's more expensive, you probably just stay.

Also, there is no variables listed. They spend 20% more per month? Over a lifetime? Certainly not per game, because they play more games and get discounts on more.

I think half of Gamepass' business model is to have non-gamepass subscribers buy games. Online services for consoles are essentially social media at this point. You have status updates in the form of activity feeds, and you can see what your friends are playing. If, for example, all of your friends are playing State of Decay and you want to join them, you may just buy the game without getting gamepass. Some people are just opposed to subscriptions, and they will make choices that don't make long term or even short term financial sense like that. This activity is what developers are citing when they talk about getting a sales bump by putting a game on gamepass. MS gets a cut of those sales, also, of course. So the true revenue of gamepass is subs + related sales, which is a hard number to quantify, but I would imagine that gamepass is significantly more valuable than it is profitable. And it's model of adding and removing games but notifying users before removal and pushing sales for those games gives it a higher possibility for profitability than something like Spotify which offers a 100% library with no real possibility additional revenue.

 

Yes but where does the extra 20 percent end up? How much is game pass again?

 

Ah stats without context is pointless.

We've been over this time and time again, technically I “spend more money and time gaming and playing new genres I would never touch because of game pass*”, why? Because I get free money.

So I get my free money and guess where I spend that free money....

*context is that I play for 30 seconds then delete the game

 

This is huge. It's also why only playing 2 games a year on Game Pass is break even for me in terms of cost. I'm spending 120 USD a year (PC Game Pass), so if I just play 2 launch titles a year, then that is the equivalent if I bought those games. Everything after that is FREE games for me.

The whales don't care about how much money they spend. They are whales because they make so much money that they have literally no way to spend all the money that they make. Since I play quite a few F2P games, I've met quite a few whales, and the money the spend (in some cases 100,000+ USD a year on 1 game, but usually closer to the 1,000-10,000 USD range) is just a drop in the bucket to them. It's pocket change. It's quite literally worth as much to them as a quarter (0.25 USD) is worth to me in terms of total personal wealth and income.

To put that into more perspective, in terms of relative wealth (income and savings) buying a 60 USD game to them is like me being able to buy a game for less than 0.001 USD.

Or to put it another way, most of them make more money in 1 minute than you spend on gaming in an entire year. IE - their time is worth far more to them than whatever they spend on gaming.

In other words, if they do get Game Pass it isn't to save money. It would purely be for convenience or some other reason. These are the same sorts of people that when they go shopping, they don't even bother to look at the price tags of what they are buying because the price is meaningless.

Granted there are also some "try-hards" that try to be a whale that spend a significant percentage of their income on games, but these people in general only spend a small fraction of the money that real whales spend in those games.

Regards,
SB

 

People with Game Pass watch less Netflix.

 

They gave the profit of Sony just for service an profit it was 4.1 billions dollars for fiscal year 2019. It means Sony lost 1.7 billions on hardware. It seems Sony and Microsoft never make a profit on PS4 and Xbox One.

EDIT: From Tom Warren

 

Key word is "yet"

 

I know you thinkI have a massive downer on GamePass but I don't, it's the fundamental economic model that interests me. GamePass has been running almost four years (launched June 2017). If your business if making a loss you have two ways to address that. You can charge more (subs go up), you can spend less - or you can do a bit of both.

It would be interesting to know when Microsoft predict GamePass will become profitable based on changes they likely have in the pipeline.

 

I asked before how the economics of game pass work that makes it profitable. I got an answer I didnt quite understand.
But this....this shows its unprofitable at this point, this can mean a lot of things. Profitable yet because of what reason?
Because the current game development and agreements do not fall in line with a subscription based service hence MS is cutting it's own profits to keep developers profitable?
It has millions of subscribers and the numbers are climbing.
When MS counts on gamepass is it because at some point in the longer term (possibly the VEEERY long term) they expect to change the market, hence have some kind of monopoly in the subscription service and the old model (along with competition) will vanish?
Hence the contracts of game development and revenue generation will change in accord to the subscription based service?

 

See my post here
https://forum.beyond3d.com/posts/2202256/
Once you become big enuf you can start dictating terms, they're not there yet. Prolly need 100 million ppl I would guess, only then and once they increase GP prices will they actually start making a profit

 

But But But I thought you thought gamepass was already profitable

 

The sound of it doesnt sound great for the industry as a whole. It is like a disaster sugar coated as the next best thing.

 

Not quite true, well the not paying taxes bit is true, but Amazon is hugely profitable even ignoring AWS.

When Bezos founded Amazon in 1994 he told investors there would be no profits was at least five years because Amazon's book/retail model had profitably predicated on scale - the basic economy-of-scale supplier principle that the more you can sell, the more you can buy, the less you pay. Amazon turned their first profitable quarter in 2001. This is a business where you know you need to be so large to achieve profitability.

A few people have suggested GamePass will be profitable with more users but I don't follow how. There is more money coming in (subs), but also you are still having to pay publishers to include their games. If I'm a publisher with a game that Microsoft wants to include, I'm ask how many GamePass subs they have because that is potentially lost sales. Microsoft say 10 million, ok sure I want $2m. When they are bigger, and have 20 million subs, I now want $4m because lost sales are proportionate to the number of subscribers - with some iffy demographics of GamePass subscribers thrown in.

So they either pay out less to publishers - and I'm sure that's part of the strategy of acquiring more studios for their own content - but unless they pay out a lot less - which would probably mean fewer non-Microsoft games in GamePass I'm not seeing a shift in profitability without changing what GamePass is today.

 

It's possible if an assumption is made that all subscribers would keep their subscription if it wasn't being discounted (1 USD for first 3 months) or subsidized (redeem Bing rewards for subscription) it would be profitable or nearly profitable. Basically they are banking that at some point the service will sustain itself without requiring massive incentives to get people to try the service. The key is how long (or if you're pessimistic, never) until they don't need to give away free subscriptions in order to maintain X level subscription growth.

Regards,
SB

 

I'm making no assumptions, I simply don't see where Microsoft can cut costs. I wasn't aware Microsoft were giving away vast numbers of free subs/cheap subscriptions but if they are, that is both impacting their direct subscriber revenue and inflating the apparent popularity of the service. If they have users who are happy to use GamePass for free but won't pay, that's no use of all. These types of users increase subscribers counts and inflate the amount Microsoft has to pay publishers for lost sales revenue, whilst simultaneously contributing little to the ecosystem unless they are spending a lot in microtransactions that also go through Microsoft's payment system.

There's a ton of moving parts and most of them aren't visible. But in terms of reducing costs, there are limited options. They don't want to end up like EGS where I've spent literally nothing there but have a massive game library - all 'free' games bankrolled by Epic's weekly giveaways.