Business aspects of Subscription Game Libraries [Xbox GamePass, PSNow]
- Thread starter iroboto
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Because consumers want to go there too. Consumers switched to music streaming and video streaming instead of ownership, and even if they buy it's digital, not discs. And considering they're willing to pay the same for a digital release as a physical giving you mighty profit margins, why the hell would any business not pursue that?!
This all digital future is not being foisted onto unwilling consumers. It's a mutual advance to an electronic, cashless society. The losses are losses the wider market is happy to have (or ignorantly stumbling into, to regret at their leisure).
I think you guys lost what was the initial point and the discussion transformed about something else
Metal_Spirit
Regular
In my case it is not only the feeling of ownership of having a game. It´s the fact that I know I can play it several years later.
Every year, on the 24th December and 30th December, I pick one console and connect it early in the morning to a 4K projector on a 180 inches screen, keeping it on till 8 pm. Kids go bananas with some older games they never played on older consoles, and for me it´s nostalgia time. Playing the game as it was intended to be played, and some old games even today are really good and very replayable.
That's is why I keep the hardware, and for this I want the physical version.
In this regard some newer games are a problem, since they require patches. And that is why on these consoles I'm keeping the HDD with the most desirable games installed and patched.
I also have a ZX Spectrum, a Commodore 64, a Commodore Amiga and a Atari St fully working.
Johnny Awesome
Veteran
I'm one of the guys who believes that if you have 100+ million subscribers with sub revenue of $12-15 billion per year that you can make money with GamePass. That's enough to keep 30 MS studios supplied with the cash to put all those games out (6+ AAA games per year). It's a "chicken and the egg" problem, but I believe if MS builds it, they will come. 
If they build it, they will come. That's not in doubt. Offer people free/super cheap things and they'll bite. The question is how sustainable that it, which depends what it costs to get 100 million subscribers on it. The console games industry was ~$36 billion in 2021. Is MS adding an extra 10 billion a year to that figure with their 100M subs, or diverting half the market from buying games to subbing and reducing that total spend?
Metal_Spirit
Regular
I always believed a system like Gamepass can be profitable with a lot of users.I'm one of the guys who believes that if you have 100+ million subscribers with sub revenue of $12-15 billion per year that you can make money with GamePass. That's enough to keep 30 MS studios supplied with the cash to put all those games out (6+ AAA games per year). It's a "chicken and the egg" problem, but I believe if MS builds it, they will come.
Question is... The console market in 2022 generated over 71 billions in revenue. Gamepass with 25 million users generated (according to Microsoft), 3 billions.
I do not know how many people are in the console market, and I cannot add users from all consoles since some can have two or more consoles (like me).
But I guess the console market should have about 200 to 250 million users. It's an estimate!
If 25 million users generated 3 billions, 250 million would generate 30 billions.
This can make Gamepass profitable!
Question is: Is there any company that will only get 30 billion from a market capable of generating 71 billion?
Off course not! And that is why the idea of a cheap gaming platform like Gamepass is, in my opinion, Utopic. Prices will go up and Gaming will be more expensive and more fragmented over several services than never.
And this is valid for any subscription service.
According to MS plans, 2-3B mobile devices and PCs as a total addressable market. If a company could obtain a 10% hit rate, that would Be 300M users or 30B in revenue.
D
Deleted member 11852
Guest
Apple - albeit just with bigger numbers. The way Apple do this is to take a 30% cut on all apps/games sold on their store, which is the same model as the traditional console economic model. The risk is with developers and publishers making games, then for something like GTA and Skyrim, or Fortnite with it's IAPs, it's just 30% of somebody else's success.
Nobody is clear what the subscription economic model is, nor the profit margins. This is a new model and it's changing as it's growing, evident from Microsoft saying back in 2018 that GamePass was driving game sales to more recently when they said GamePass is impacting sales.
Johnny Awesome
Veteran
GP might actually drive industry revenue down, but still be good for MS.
Big winners with GP mega success are MS and consumers. Big losers are Sony and some publishers.
My guess is that GP is headed from $10 per month to $15 per month over time after they have 100+ million subscribers. It'll still be a deal for consumers. I played about $300 worth of games last year for my $120 subscription. I'd have gladly paid $180.
Big winners with GP mega success are MS and consumers. Big losers are Sony and some publishers.
My guess is that GP is headed from $10 per month to $15 per month over time after they have 100+ million subscribers. It'll still be a deal for consumers. I played about $300 worth of games last year for my $120 subscription. I'd have gladly paid $180.
Small and middle sized publishers and developers can be winners on GP also. Much like many indie games were going Epic Game Store exclusive because the funding they get from such a deal can offset or outright cover the development costs.
D
Deleted member 11852
Guest
Xbox revenue was down 13% last quarter. Is that a "mega success"? Only in a money laundering operation!
The less you have to pay Microsoft to get more and more games is going to have this impact. You can't get more for less, without somebody hurting. Phil Spencer already said, GamePass is impacting actual game sales as well so that's also less profit on those 30% digital sales. How is any of this sustainable?
Johnny Awesome
Veteran
Never said GP was a mega success, just talking about what happens if it is.
It's easy for most people to see that 100+ million subscribers can generate $15 billion in revenue and generate good profits. Very sustainable.
It's easy for most people to see that 100+ million subscribers can generate $15 billion in revenue and generate good profits. Very sustainable.
D
Deleted member 11852
Guest
Ah gotchya, you were talking speculatively.
I would say that in terms of user base and popularity, that GamePass is already a mega success but that's not translating into revenue - and therefore cannot transfer into profit. At the WSJ Live Conference last October, Phil Spencer set expectations for a Game Pass price increase and it is needed.
You want Game Pass to stay, I want Game Pass to stay and for that to happen, it needs to be providing decent profitability for Microsoft. If Game Pass is profitable but producing less profit than Microsoft were making just taking a 30% cut on all game/DLC sales, then that isn't a good deal for Microsoft. Companies look to maximise profits.
Yes.
No. Not that it can't generate good profits, but it's not clear for me to see it will be good profits. I've no idea what the costs are to secure and sustain that 100 million subscribers, which is what ultimately affects profitability. Sony's annual PS revenue was $25 billion and Nintendo's $15 billion. Sony had $2.6 billion annual operating profit, Nintendo $5.4 billion. But of course those numbers are obscured by investments etc.
And of course the video streaming companies. Disney+ is 160 million subscribers. Average monthly revenue per user is $4, $7.6 billion per annum. It loses $1billion a year on this service. To remedy this, they are adding adverts and a $3 "no ads" payment to increase average spend.
The ability for GP to be very profitable is unproven. Now if revenue scales with users and costs don't, then growth is the key to success. We've no insight though; it's all guesswork as the operations are deliberately obtuse. Not just GP, but all streaming services. GeForce NOW doesn't publicise its operations, instead just including them in nVidia's overall statements. And that for me is a clue that streaming isn't profitable for anyone yet as if there was a magic formula for big money, I would expect investor communications to highlight this. If GeForce NOW is making crazy profits, I expect nVidia to call this out to encourage investment and growth of that part of its business. Disney+ is also an exceptional case because Disney already had an insane catalogue without an obvious need to invest in new content, and yet they do, attracting users through the latest content rather than an established library. That suggests the same for game streaming, a large library of old games isn't appealing and you need new, costly content to keep subscribers.
So no, I don't see reason to assume GP can be super profitable.
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I dont think Gamepass is profitable. Spencer's so called Gamepass profitability admission is careful wording.
Articles report it as:
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.”
He speaks as if he is describing the broad picture, where with that kind of revenue percentage from Gamepass they still remain profitable in general, and NOT that Gamepass itself is profitable.
Also in line with what you describe above, Gamepass has a negative impact in game sales revenue. The bigger you rely on subscriptions the less revenue per customer.
Articles report it as:
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.”
He speaks as if he is describing the broad picture, where with that kind of revenue percentage from Gamepass they still remain profitable in general, and NOT that Gamepass itself is profitable.
Also in line with what you describe above, Gamepass has a negative impact in game sales revenue. The bigger you rely on subscriptions the less revenue per customer.
That's a fair take on an ambiguous statement. I agree it could mean "it's profitable for Microsoft's gaming endeavours for GP to operate where it's at."
Also the statement contradicts to proposed GP-centric future:
So Spencer sees GP remaining a small part of their gaming operations. In the speculated 100 million subscriber model and $15 billion a year revenue, that'd be part of a $100 billion a year revenue gaming division. For the massive GP service envisioned by some, Spencer's statement will have to be wholly disregarded. Indeed, future growth seems predicated on a mobile game store and selling content to mobile gamers.
Also the statement contradicts to proposed GP-centric future:
So Spencer sees GP remaining a small part of their gaming operations. In the speculated 100 million subscriber model and $15 billion a year revenue, that'd be part of a $100 billion a year revenue gaming division. For the massive GP service envisioned by some, Spencer's statement will have to be wholly disregarded. Indeed, future growth seems predicated on a mobile game store and selling content to mobile gamers.
Johnny Awesome
Veteran
I'm in the camp that thinks it's sustainable and highly profitable if they scale it large enough. We might get to find out.
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