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

[Eolirin]

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.

You're ignoring the part where Xbox is still a storefront and big third party games generally go on Game Pass after they've stopped selling at full price. Or they're old and newer titles are going to release in those series and they're splashing into the service to drive attention.

So Game Pass is also an advertisement channel for developers, and the size of the install base increases the incentive to be there for those older titles without a risk of lost sales, since there's not much in the way of sales anyway; the fall off of AAA sales is extremely steep and extremely rapid. Getting paid to advertise your newer higher margin product is a pretty good deal, so I expect most devs will be willing to accept much lower prices. It's money they wouldn't otherwise get and it helps build their audience.

Xbox also gets a cut of those sales. They make money when people without Game Pass buy games they see their friends playing, and they make money when the positive word of mouth around the service gets people into the Xbox ecosystem and they make money when people buy more DLC for games they like but wouldn't have tried without them being in the service. It's not a singular revenue stream. Xbox's overall profitability is much more important than Game Pass by itself, and Game Pass improves the ecosystem even if it's running at a loss. As long as it's not a big loss.

And MS has the resources to make Game Pass attractive to gamers with just indie and first party games, especially if they keep expanding their first party. Licensing costs will be the smaller part of the equation over time.

Whether MS can hit the crossover point where they can afford first party expansion on the back of Game Pass before they hit saturation where new user acquisition becomes prohibitively expensive, and whether the success of Game Pass hurts direct sales to the point where it fundamentally destroys those other revenue sources that make this a good deal to developers even without truly massive payouts are open questions. But so far direct sales are up and the primary cost is a reduction on time spent on video streaming services.

 

[Deleted member 11852]

You're ignoring the part where Xbox is still a storefront and big third party games generally go on Game Pass after they've stopped selling at full price. Or they're old and newer titles are going to release in those series and they're splashing into the service to drive attention.

I'm talking about the economics of GamePass, i.e. the game subscription service, and not the profitability of Microsoft's online store. The only assumption I am making here is that Microsft's online Xbox business is profitable and that the distinct GamePass business is not. If both are not turning a profit, I don't see what difference it makes where the losses are?

So Game Pass is also an advertisement channel for developers, and the size of the install base increases the incentive to be there for those older titles without a risk of lost sales, since there's not much in the way of sales anyway; the fall off of AAA sales is extremely steep and extremely rapid.

You say that, a whole bunch of indie developers have reaped massive profits because their game overlooked at launch suddenly became a hit. If Innersloth has written off their sales of Among Us back in in 2019 or early 2020 they would have lost of ton of sales as their game hit it's peak mid-2020. Plenty of games have resurgence far greater than their initial sales but you only hear about the wildly popular ones.

What's better for the developers, putting a game on sake for a month or putting into GamePass for x months?

Xbox also gets a cut of those sales. They make money when people without Game Pass buy games they see their friends playing, and they make money when the positive word of mouth around the service gets people into the Xbox ecosystem and they make money when people buy more DLC for games they like but wouldn't have tried without them being in the service. It's not a singular revenue stream. Xbox's overall profitability is much more important than Game Pass by itself, and Game Pass improves the ecosystem even if it's running at a loss. As long as it's not a big loss.

Right, but that's Micorosft's Xbox online store not GamePass. An assumption I am making is that Microsoft's profitability measures are fairly smart and that sales as result of 'discovery' via games in GamePass, or purchasing of DLC for games in GamePass is at least partially being attributed to GamePass because those sales would not have been otherwise.

And MS has the resources to make Game Pass attractive to gamers with just indie and first party games, especially if they keep expanding their first party. Licensing costs will be the smaller part of the equation over time.

GamePass is attractive to gamers now. I can't imagine Microsoft wanting to be dedicating more resource at more cost without a clear plan to have the service profitable. Microsoft now have a bunch of new AAA/AA developers but nobody is sure if the economics of continuing to develop those AAA/AA games will continue if they decide to make them exclusive for Xbox as Phil Spencer has hinted. They'll be spending the same as what Zenimax was but losing sales to the two largest console platforms: Nintendo and Sony. How is the basic economics of development going to stack up?

 

[zed]

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..

Sounds like the Epic games store

 

[goonergaz]

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.

There are loads of people who use GP for free. There’s a load of people who are still being counted who did the whole £1 conversion thing a couple years back (I still have a year to run).

This has been my point forever when people talk about the numbers when there’s no context.

With MS rewards many people are completely financing their games, even the hardware in some cases.

 

[Deleted member 11852]

With MS rewards maybe people are completely financing their games, even the hardware in some cases.

At least a few people on these forums have explained how they get GamePass by just clicking a bunch of links for ten minutes every morning.

 

[goonergaz]

At least a few people on these forums have explained how they get GamePass by just clicking a bunch of links for ten minutes every morning.

Yep, I have over a year of GPU and over £150 (of points) saved up. I will never have to pay for GPU and in a couple of years I think I can upgrade my XSS for free. The XSS that cost me something like £10 because I traded in my X1X. As you say, less than 10 mins a day - mostly during meetings as it requires no brain power.

 

[Jay]

Still a minor amount of people, the more subscriptions they get the percentage will be less due to rewards, or some how continually doing $1 offer.

Also for the rewards, it may be "free" but they are getting something from it, even if it's bing engagement.

 

[see colon]

I think one of the overlooked aspects of Gamepass is how it affects the used games market. Secondary (used) sales are great for retailers like Gamestop because the profit margins are much larger than new games, but 0 of those dollars are returned to publishers, developers, or platform holders. Gamepass does a few things. A new game released directly into Gamepass removes enough physical purchases from the market that the secondary market will forever have a supply shortage. If Outriders takes off and has a R6: Siege type life, it will probably be hard to find used on Xbox because so few physical copies were sold. This will drive new sales if the game continues to add new players like R6 has. The second thing Gamepass does, is that games that are older and get a Gamepass release, that will prevent a fair amount of used sales. Why would you go buy a used copy of a game if you have Gamepass and the game gets added. It's there for 3 months (minimum), and if you like it and still want to play it when it's leaving GP, you can buy it digitally at a 15% discount. That's often an equal or greater discount than buying used at Gamestop. Releasing your older title on Gamepass is going to give you some income from whatever deal you strike with Microsoft while depressing used sales that you will never see revenue from.

Still a minor amount of people, the more subscriptions they get the percentage will be less due to rewards, or some how continually doing $1 offer.

Also for the rewards, it may be "free" but they are getting something from it, even if it's bing engagement.

Ad impressions and search engine market share are increased by using Bing for the 50+ searches required every day.

 

[goonergaz]

Dp

 

[goonergaz]

Still a minor amount of people, the more subscriptions they get the percentage will be less due to rewards, or some how continually doing $1 offer.

Also for the rewards, it may be "free" but they are getting something from it, even if it's bing engagement.

Not necessarily, that's an assumption - there are plenty of people who are new to rewards and figuring out they can use it to get free stuff. That might even just be the money spent on the store...

Also, they may get something from bing engagement but I doubt it's anything like a sub...a small fraction at best.

The only way to have any decent certainty around what MS are making is if they released $$ figures, and they don't (likely because it's so small) - I'm sure we'll start hearing when the figures look good.

 

[Jay]

Not necessarily, that's an assumption - there are plenty of people who are new to rewards and figuring out they can use it to get free stuff. That might even just be the money spent on the store...

Also, they may get something from bing engagement but I doubt it's anything like a sub...a small fraction at best.

The only way to have any decent certainty around what MS are making is if they released $$ figures, and they don't (likely because it's so small) - I'm sure we'll start hearing when the figures look good.

Most of the general public doesn't have a clue about it, and the ones that does only a subset would be bothered to do everything you need to do to get enough points to get it for free.

Rewards isn't just for GP.
They have calculated how much a reward point is worth to them financially.
It can be used for many things, we just talk about it in regards to GP.
I believe you can use it towards anything in the MS store, not just xbox store.
So for MS they are getting something, they aren't giving it away for free.

 

[goonergaz]

Most of the general public doesn't have a clue about it, and the ones that does only a subset would be bothered to do everything you need to do to get enough points to get it for free.

Rewards isn't just for GP.
They have calculated how much a reward point is worth to them financially.
It can be used for many things, we just talk about it in regards to GP.
I believe you can use it towards anything in the MS store, not just xbox store.
So for MS they are getting something, they aren't giving it away for free.

The thought would be that they sell the data - the problem is the data is flawed because people are either searching random stuff or the same thing over and over.

Would certainly be interesting to see what’s in if for MS, but even then the majority of points are from playing games so actually you could fund your gaming from playing games only - the search bit is around 1/3 of the points you can earn....possibly even less.

 

[Silent_Buddha]

The thought would be that they sell the data - the problem is the data is flawed because people are either searching random stuff or the same thing over and over.

Would certainly be interesting to see what’s in if for MS, but even then the majority of points are from playing games so actually you could fund your gaming from playing games only - the search bit is around 1/3 of the points you can earn....possibly even less.

Hmmm, the playing games bit must be an Xbox console thing as I don't have the ability to get points by playing games.

Most of the possible points you can get actually result in MS getting money. You can get points by spending money in the Microsoft Store. You get points by answering some survey questions. Even something as innocent seeming as taking todays "This or That" Quiz that asks which City has an NBA team is likely just a survey question by the NBA to determine how many people are knowledgeable about NBA teams.

Renting or buying movies through Microsoft also earns points.

Bing rewards is basically advertisement. MS spends money (like advertisements, except in this case it's Bing rewards) in order get people to spend money on MS products or services.

But it's also a revenue generator for MS in the form of surveys that people take to get points, advertisements by other companies (redeem points for gift cards to places like Amazon or Walmart), etc.

And there are too many people making too many assumptions here.

• People getting free or subsidized Game Pass subs is a vanishingly small minority.
• People getting free or subsidized Game Pass subs is so large that most people are getting games for free.

Both are incredibly faulty assumptions. It's possible either could be true. It's also possible that neither are true. Not a single person here has any insight into the breakdowns of how many people are on the 1 USD sub, how many are using Bing/MS points, or how many are paying full price (like me!).

While I "could" use my Bing points for Game Pass, I prefer to save it up for something big like the Surface Book 2 that I got a few hundred dollars cheaper by using my reward points.

Regards,
SB

 

[Jay]

Hmmm, the playing games bit must be an Xbox console thing as I don't have the ability to get points by playing games.

That's the gamepass quests.

The thought would be that they sell the data - the problem is the data is flawed because people are either searching random stuff or the same thing over and over.

That could very well be the case, but for MS it has value.

I don't see anyone saying people are getting elite controllers, software, media etc for free because they used reward points to purchase them.

MS has worked out a monetary value for points is my point.

For the consumer it may be time, or cashback for x amount spent, so it's cheaper/free for them, but that's different than MS actually giving it away for free with nothing in return.
5k points is worth around $5 to them.

 

[see colon]

I don't see anyone saying people are getting elite controllers, software, media etc for free because they used reward points to purchase them.

There's a subreddit where people post pics of consoles, controllers and stuff they got for free.

 

[Jay]

There's a subreddit where people post pics of consoles, controllers and stuff they got for free.

really.

But yea, I'm sure you get what I mean though.

At the minimum time is money and that's what MS is paying you for, and getting it back because it's like a voucher and can only be used with them.

 

[see colon]

really.

But yea, I'm sure you get what I mean though.

At the minimum time is money and that's what MS is paying you for, and getting it back because it's like a voucher and can only be used with them.

Yeah, there's people in there with 1000+ day streaks and stuff like that. I'm happy to just get some gamepass, I'm not going to wait years to get hardware, I have games to play.

 

[goonergaz]

Most of the possible points you can get actually result in MS getting money.

My point was getting things for free, as it is I get a lot more free points where MS get absolutely zero from me than the ones where they make something because I click on a quiz or search etc.

While I "could" use my Bing points for Game Pass, I prefer to save it up for something big like the Surface Book 2 that I got a few hundred dollars cheaper by using my reward points.

Yeah, I'll see how things pan out, as it is I'm on around £170 py so when my GPU runs out will have £350-400 of points, at that stage I may well just give in to trying another way to fund GP as it's quite a chunk of money!

I don't see anyone saying people are getting elite controllers, software, media etc for free because they used reward points to purchase them.

Just because you don't see it doesn't mean it's not happening! lol

MS has worked out a monetary value for points is my point.

For the consumer it may be time, or cashback for x amount spent, so it's cheaper/free for them, but that's different than MS actually giving it away for free with nothing in return.
5k points is worth around $5 to them.

Yes, but as I said, I earn money which MS don't get anything for. In fact not only do they not get a penny they also have to spend money to fund GP. So yeah it could totally be a negative for $ MS...but of course they make more money each second than I can dream of! lol

really.

But yea, I'm sure you get what I mean though.

At the minimum time is money and that's what MS is paying you for, and getting it back because it's like a voucher and can only be used with them.

Not only subreddit, there's forums all over the web and money saving websites all over the place. There's loads of people doing it, sure it's a small minority but it does happen...would be interesting to see the figures but MS won't tell (for some reason).

Yeah, there's people in there with 1000+ day streaks and stuff like that. I'm happy to just get some gamepass, I'm not going to wait years to get hardware, I have games to play.

You'd be surprised how quick it adds up, just from my free points. Sure it would take around 2.5 years to pay for a XSX but still, as I said, if you wanted you could have completely paid for your gaming this gen with a XSS and GPU all without spending a penny.

 

[Jay]

My point was getting things for free, as it is I get a lot more free points where MS get absolutely zero from me than the ones where they make something because I click on a quiz or search etc.

your wrong, as said for MS a reward point has a financial value.
Just because you see your time as free, and you aren't able to see that they have value for MS doesn't make it true.

They could actuality be getting more financially out of you with rewards than you paying by cash.

Just because you don't see it doesn't mean it's not happening! lol

Never said it didn't happen, but if you think a subreddit equates to what the general public is doing your mistaken. Especially as the service user base expands.

, but as I said, I earn money which MS don't get anything for. In fact not only do they not get a penny they also have to spend money to fund GP. So yeah it could totally be a negative for $ MS...but of course they make more money each second than I can dream of! lol

Again you aren't attributing a value to a reward point when for MS there is.
The fact that you can purchase anything with it, as highlighted with the talk about redit shows that's the case. MS rewards isn't specific for GP, it just happens to be something you can purchase with it.
Could buy a elite controller with roughly the same amount of points for GPU is my guess.

only subreddit, there's forums all over the web and money saving websites all over the place. There's loads of people doing it, sure it's a small minority but it does happen...would be interesting to see the figures but MS won't tell (for some reason).

There's plenty of money saving websites out there.
Whether someone is willing to be dedicated and put in the time and effort to maximize the available points every day is another matter.
But every little helps for a lot of people.

You'd be surprised how quick it adds up, just from my free points. Sure it would take around 2.5 years to pay for a XSX but still, as I said, if you wanted you could have completely paid for your gaming this gen with a

actually no I wouldn't be surprised as someone who does it.

But again, this is about the fact that for MS a reward point has value. Where you attribute 0 value to it because you didn't exchange cash.

 

[Johnny Awesome]

MS is headed to 50+ million users (easily) this generation. As the exclusive game library starts to burst at the seams (30+ dev teams) they will start tapering off the deals and possibly raising the monthly price. That's the idea anyway. We don't have enough data to really argue it too accurately, but count me in the camp of people who believe that their plan will work. I think the number of PS5 owners that pick up an XSS for $200 a few years from now for all the GP exclusives is going to be staggering. Especially if MS manages to implement some sort of ML up-scaling for XSS titles.