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

[Johnny Awesome]

The journalists are terrible with all of their clickbait nonsense. The devil is in the details as usual.

What matters from MS' perspective is if GP revenue is enough to justify the loss of sales and draw more people into the Xbox ecosystem.

I'll re-state my opinion that MS' strategy with GamePass is the right one for them, but that a lot will depend on the execution. They need the games and so far it's been an improving, yet mixed bag.

It's not the right strategy for Sony because they are the market leader and are selling 60% more units than MS this generation and also don't care about PC as much. Everything they do with subscription stuff is mainly to hedge their bets in case GP takes off. The day GP subscriptions hit 100+ million is the day that Sony puts their 1st party on day one into PS subscription services to stem the tide. That day may never come if MS doesn't execute their strategy better.

It's about gaining critical mass for MS and getting a ton of highly sought after 1st party games into GP needs to be their #1 priority. Starfield, Hellblade 2 and Forza need to turn out a lot better than Halo Infinite did for them. Hi Fi Rush is a good omen, but still only a AA title. These other games have to turn heads. Every year they need 3 or 4 of those + some paid goodies like EA play etc.... That's what they need to get 100+ million subs. Then with $1 billion revenue per month they will be unstoppable IMO.

 

[Shifty Geezer]

What matters from MS' perspective is if GP revenue is enough to justify the loss of sales and draw more people into the Xbox ecosystem.

Sure, but I think the point here is more for content producers, that MS's move may be resulting in less money for them. We'll never be privvy to that information. But we will see if AAA games care to launch on GP which will be an inside indicator.

 

[iroboto]

https://twitter.com/x/status/1625852960931741698

 

[Nesh]

https://twitter.com/x/status/1625852960931741698

The devil is in the details. How do they secure that success?

 

[BRiT]

The devil is in the details. How do they secure that success?

Most likely through payments from Microsoft for being on the GamePass Service.

 

[Nesh]

Most likely through payments from Microsoft for being on the GamePass Service.

Which is exactly the point I am making. A lot of these statements are PR. Ensuring their success implies that Gamepass helps them organically sell more.
But thats actually subsidizing them for the lost revenue. They arent exactly ensuring their success. They are ensuring they are funded to remain afloat and healthy

 

[BRiT]

Which is exactly the point I am making. A lot of these statements are PR. Ensuring their success implies that Gamepass helps them organically sell more.
But thats actually subsidizing them for the lost revenue. They arent exactly ensuring their success. They are ensuring they are funded to remain afloat and healthy

Yeah, it's the same as games being included on PlayStation Plus subscription service (all tiers) or Amazon Luna or even Google Stadia when it was alive.

 

[Deleted member 11852]

https://twitter.com/x/status/1625852960931741698

I've never questioned whether GamePass was good for developers or publishers because every account I've read, devs and pubs have said they are really pleased with GamePass. I have only questioned Microsoft's profitability and how that might change once the user base grows.

I'm still none the wiser, the only change we've seen in 4-5 years is that GamePass wasn't impacting sales of games and now it is. ¯\_(ツ)_/¯

 

[BRiT]

I've never questioned whether GamePass was good for developers or publishers because every account I've read, devs and pubs have said they are really pleased with GamePass. I have only questioned Microsoft's profitability and how that might change once the user base grows.

We've also seen statements that GamePass is profitable.

 

[Nesh]

Yeah, it's the same as games being included on PlayStation Plus subscription service (all tiers) or Amazon Luna or even Google Stadia when it was alive.

Yeah doing this day one doesnt sound very sustainable. It is probably is better for indie devs that arent expecting to sell by the trackloads btw.
So the amount of subsidization expected, isnt that huge to begin with for MS but ensures income for the small devs instead of relying on the uncertain market environment. But as more and more games join the income pie they share shrinks unless the subscriptions grow exponentially.
I cant see this very sustainable for big AAA multimillion titles joining day one. MS must be doing a lot of math to get this going. Luna and Stadia running those servers, subsidizing games and not having enough subscriptions killed them
Sony chooses the safe side by not trying to have games day one for big titles. They seemed to be aware of the risks.

 

[Deleted member 11852]

We've also seen statements that GamePass is profitable.

But no indication of whether it's barely profitable (e.g. 0.5% on revenue) or very profitable (e.g. 30% on revenue). And more important, what the profitability has been over time as the user base has grown and games sales have been impacted. But there is no chance Microsoft will release that unless Phil Spencer suddens drops it randomly into an interview.

 

[Nesh]

We've also seen statements that GamePass is profitable.

I didnt see statements of profitability. I saw statements of revenue. So far we saw revenue and that games bring in less sales which contradicted MS's previous statements

Microsoft confirms that Xbox Game Pass hurts game sales

Internal analysis shows a sales decrease after games come to Xbox Game Pass.

www.shacknews.com

 

[BRiT]

I didnt see statements of profitability.

Here's another such statement again since you didn't see it the other times it was posted on B3D throughout the vast discussions about this.

Microsoft Gaming CEO Phil Spencer has revealed that the company’s Xbox Game Pass subscription service is already profitable. Speaking at The Wall Street Journal’s Tech Live conference, Spencer also revealed that Xbox Game Pass is around 15 percent of Microsoft’s overall Xbox content and services revenue.

Spencer says he now expects Xbox Game Pass to stay at around 10–15 percent of Microsoft’s Xbox content and services revenue and that “it’s profitable for us.”

Microsoft says Xbox Game Pass is profitable as it sees subscription growth slow

Microsoft Gaming CEO Phil Spencer provides rare Xbox insights.

www.theverge.com

 

[Nesh]

Here's another such statement again since you didn't see it the other times it was posted on B3D throughout the vast discussions about this.

Microsoft says Xbox Game Pass is profitable as it sees subscription growth slow

Microsoft Gaming CEO Phil Spencer provides rare Xbox insights.

www.theverge.com

But thats the thing. They gave no numbers. They gave only for revenue. And there is something about it that is open to accounting cooking.
For example calculating Gamepass costs and Gamepass revenue as a separate entity, it might give positive numbers. Once you calculate how much sales are lost outside of gamepass because of gamepass, it might show that it is actually eating revenue.
Also it doesnt shade any light on how costs of inhouse games are calculated into Gamepass. These games depending on how they do their accounting may appear as free additions, whereas the costs of making these games are calculated separately. Meanwhile third party additions may show their contract costs calculated in Gamepass because the development costs are absorbed by the third party studios.
They arent very transparent with the financial statements of Gamepass

edit: Also the statement is "profitable for us" is open to interpretation. It may also mean having Gamepass still maintains profitability in the whole XBOX division. I have questions and we need more specific reports

 

[iroboto]

I've never questioned whether GamePass was good for developers or publishers because every account I've read, devs and pubs have said they are really pleased with GamePass. I have only questioned Microsoft's profitability and how that might change once the user base grows.

I'm still none the wiser, the only change we've seen in 4-5 years is that GamePass wasn't impacting sales of games and now it is. ¯\_(ツ)_/¯

If it's good for developers that is ideal.
Let's them experiment and try more things, not have to do specific things just to profit off of whales etc.

 

[stu11]

Which is exactly the point I am making. A lot of these statements are PR. Ensuring their success implies that Gamepass helps them organically sell more.
But thats actually subsidizing them for the lost revenue. They arent exactly ensuring their success. They are ensuring they are funded to remain afloat and healthy

There was an recent article regarding whether the business model is sustainable and there seems to be some question marks over it according to the market research firm DFC Intelligence.

“When one does the math, Game Pass is making probably three times the revenue Nintendo Switch Online currently generates and probably getting close to matching PlayStation+ revenue because it is priced higher. However, Microsoft is giving away a lot to generate that revenue and it does not appear to be a sustainable long-term business model.”

“"The bottom line is that game subscription services seem to work well as a value-add proposition. Nintendo has shown that with Nintendo Switch Online. There are tens of millions of users that will pay $60+ for a game and a cheap mediocre online service. Taking it to the level of a Game Pass requires not only significantly more expenditure but requires giving up a large established revenue stream."”

Sounds some people are not convinced that Gamepass is sustainable in the long term.

 

[Nesh]

Considering the unsastainable nature of Gamepass, I dont think MS are out of their heads. There is an obvious long term gain they are betting on.

One is to attract more people away from competition. But the major target is to make Gamepass such a powerful proposition, that it will be the no.1 service and platform to game on. As this is being achieved the created content will be gradually adjusted to be costly enough to be sustainable or the large game creators will shrink to a few super groups owning multiple studios (which may explaing the big acquisitions and share buy outs of some big companies) and the rest will be small to medium studios. It doesnt look like Gamepass can easilly sustain thousands of multimillion AAA titles with a fixed fee

This is why there is a discrepancy between some studios impressions on Gamepass day one additions. Small indie studios see it as a benefit, whereas some big studios with sure hits are hesitating as the contracts arent good enough.

Oddworld devs on PS4 agreed for an almost immediate inclusion on Plus, but after seeing how popular the game was, they realised that they would have gained even more revenue

Thats why MS started buying studios and publishers en masse and are willing to lose money now on gamepass with a future prospect of ripping the benefits in the far future.

They need that content in Gamepass that an independent big players would be hesitant to add theirs day one

 

[BRiT]

Considering the unsastainable nature of Gamepass, I dont think MS are out of their heads. There is an obvious long term gain they are betting on.

What an outlandish claim. Evidence is needed for this claim.

As you said, there are nuances to the service that some are not considering. So it's nice to see you explore those other areas.

 

[Deleted member 11852]

Some interesting thoughts in this gamesindustry.biz opinion article, 'What would a Game Pass dominated landscape look like?'.

I like this because is proposes that both developers and Microsoft can carve a lucrative profit niche from GamePass. The losers? Publishers, but I struggle to care when third parties get squeezed out between creators and customers, acknowledging that for decades that have been necessary in many creative industries.

 

[chris1515]

https://twitter.com/x/status/1626605215964069888

Funny this Xbox youtuber complain of no promotion of Xbox in a retailer shop in Belgium but the retailer employee told him "They don't promote Xbox because the marketing is turning too much around Gamepass". He stay a few hours and he saw multiple PS5 sold. This is a retailer call FNAC existing in France, Belgium, Spain, Portugal, Luxembourg, Switzerland and in one Middle east and some African country(Tunisia, Qatar, Ivory Coast, Cameroon, the Republic of Congo and Senegal).