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

[Nisaaru]

Which means, old games and new smaller projects. Which in turn doesnt make the gamepass very interesting.

If you can prioritise your purchases and are interested in the MS game portfolio there can be a strong cost incentive. It gives you the MS games for free and any game which gets into rotation can be bought cheaper including their DLCs.

Everybody has to do their own projection if that makes sense financially or not.

 

[Xbat]

Sony generates numbers that large with every single exclusive released every single year? I think you need to re-check your numbers.

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[iroboto]

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Sorry I think I misunderstood your post.

if you've got say 3.68B in profit each year, to make a profit, cap your expenses. If your run rate of expenses is exceeding your profit continually, you're constantly digging a hole. This is acceptable at the start of the run but somewhere down the line you're going to have to switch to profit driven model

 

[London Geezer]

nothing should change whether on gamepass or not. it ultimately depends on what each company is targeting with their subscription.

Well I was specifically arguing against this particular concept:

You can do it with multiple games that might only sell 2 or 3 million copies, but can be made much faster and more cheaply to fill in the gaps.

 

[zed]

Sustainability is about whether your revenue exceeds your expenses. Opportunity cost is probably what you're referring to, which is the cost of doing something and something else could have generated more.
So you would need 4 exclusive titles each year to sell 10M units, every single year, to equate to the revenue power of 30M subscribers.

You're forgetting to add in costs

One side has to pay out 4 companies vs the other side has to pay out 100s of companies

I guarantee the first one will be far more profitable, whereas company B may even occur a loss.

Evidence? 100s of companies in the last 20 years which often occurred losses for many years to try and gain subscribers/users, most never even turned a profit and went out of business.

Now is it a smart move on MS to lose money/forgo money now to hope and gain users which may be profitable in 10 years? Who knows, we will see in 2030

 

[Xbat]

You're forgetting to add in costs

One side has to pay out 4 companies vs the other side has to pay out 100s of companies

Yup that's what I was getting at too.

 

[London Geezer]

Another article...

How Netflix Pays for Movie and TV Show Licensing

https://www.investopedia.com/articles/investing/062515/how-netflix-pays-movie-and-tv-show-licensing.asp

 

[Deleted member 11852]

Another article...

How Netflix Pays for Movie and TV Show Licensing

167m subscribers worldwide
$15bn on licensed content last year.

Hmmm

 

[iroboto]

You're forgetting to add in costs

One side has to pay out 4 companies vs the other side has to pay out 100s of companies

I guarantee the first one will be far more profitable, whereas company B may even occur a loss.

Evidence? 100s of companies in the last 20 years which often occurred losses for many years to try and gain subscribers/users, most never even turned a profit and went out of business.

Now is it a smart move on MS to lose money/forgo money now to hope and gain users which may be profitable in 10 years? Who knows, we will see in 2030

As I said in my post, if you’re talking profitability then in the short term the Sony model is more profitable. In the long run the subscriber model has both revenue and expenses fixed or at least fixed within a given interval. It doesn’t suffer from the swings of success. If the average profit of subscriber model exceeds the boom bust of the standard model than over a long period of time subscriber model will be more profitable.

Sony as great as it is, cannot statistically produce Only 10M unit sale hits after hits after hits. There will be failures or games that don’t reach potential.

 

[Xbat]

As I said in my post, if you’re talking profitability then in the short term the Sony model is more profitable. In the long run the subscriber model has both revenue and expenses fixed or at least fixed within a given interval. It doesn’t suffer from the swings of success. If the average profit of subscriber model exceeds the boom bust of the standard model than over a long period of time subscriber model will be more profitable.

I don't think anyone questions the reasons for a subscription service that has enough people subscribed for it to make the money you envision but they question how do you get there and is it doable.

 

[London Geezer]

167m subscribers worldwide
$15bn on licensed content last year.

Hmmm

I don't think people realise quite what the challenge is here.

Also, a huge part of subscriptions is that a lot of the content is not on there in perpetuity. So what happens once games leave the service?

 

[iroboto]

I don't think anyone questions the reasons for a subscription service that has enough people subscribed for it to make the money you envision but they question how do you get there and is it doable.

Yea no guarantees on that. I would never imply it’s guaranteed. Just showing how the math works to green light it. The business decisions needed to make this successful are beyond me. But as long as they offer the service I’ll use it. I see this as no different than my telco provider offering a 1 year contract on an insanely cheaper internet rate. May as well pay less while I can than pay more.

 

[iroboto]

I don't think people realise quite what the challenge is here.

Also, a huge part of subscriptions is that a lot of the content is not on there in perpetuity. So what happens once games leave the service?

On MS model. If you still want it. You buy it. They offer a 20% limited time discount. Or you wait for a sale and buy it then.

167M subscribers at $10/mo is 1.67B per month. *12 months and you’re ahead of their expenses. 20B in revenue.

 

[BRiT]

Also, a huge part of subscriptions is that a lot of the content is not on there in perpetuity. So what happens once games leave the service?

Then you [Microsoft] go back to the old business model of making at least 30% on purchase of the game if bought digitally.

 

[Nesh]

If you can prioritise your purchases and are interested in the MS game portfolio there can be a strong cost incentive. It gives you the MS games for free and any game which gets into rotation can be bought cheaper including their DLCs.

Everybody has to do their own projection if that makes sense financially or not.

You are speaking from the perspective of the consumer without taking into consideration my previous paragraph

 

[iroboto]

I just made a spreadsheet.

I think this is reasonable. It's just easier than going back and forth on this.

https://1drv.ms/x/s!Arh_9w0iEIQBhIcTSA3K8Pyfw3BGiQ?e=xHbORF

They would be profitable in year 7 using these numbers. At a profit of 97M. Let me know if you can't access the spreadsheet

I can only assume that MS has a much better projection spreadsheet than this with actuals below. As long as they are hitting their expected numbers, they'll reach their goal.

 

[function]

I mean on some level, there has to be an element of "if Gamepass isn't that popular, they won't lose many sales to it." And I'd think many publishers or devs are likely to take user base into account when agreeing licensing costs.

(And that's ignoring that according to MS, they've seen at least some games sell better because of it, and some indie's have made very positive noises about their Gamepass experience)

MCC and Sea of Thieves are on Gamepass and those have sold tons on Steam, and I'm pretty sure millions on console. And those players aren't even getting a discount due to being Gamepass members.

Neflix don't also sell huge numbers of titles for customers to own, or have DLC to sell for popular streaming movies, or additional fees for watching those movies with friends (who must also be subscribed or purchase the title). The number of overlapping factors in MS's case makes things very interesting. A number potentially reinforce each other, and support further spending.

 

[Deleted member 11852]

As I said in my post, if you’re talking profitability then in the short term the Sony model is more profitable.

The short term for Sony at this point is twenty-five years!

 

[Eolirin]

Big games take years to make. That's not going to change unless the games become less big and less good, frankly. What you're describing seems to be a lowering of the quality of games, so that they don't take 4+ years to make. And that's not a gaming industry many of us want. It would be an industry without GTA, RDR, any of Sony's big hits, any of anyone's big games. Basically all games as we know them now, in favour of the quality we get on mobile games. No thanks!

Many of us do not play that many games per year, so when we do play we want those experiences to have an impact. Playing tens and tens of smaller, shittier games does not interest a lot of people!

No it makes it so that you can continue to fund 4+ year games. Yes, there are more smaller titles too. The big high quality games don't go away. They come to the service later, or they come from MS's first party investment. And that last bit is that's why they've been gobbling up so many studios. If you have enough studios you can stagger releases on those big games so that you have new AAA content falling into the service on a regular basis.

MS isn't trying to end direct sales in favor of Game Pass either. This is a second revenue stream for big games once they've sold what they're going to sell. And a huge boost for small games that otherwise might fail.

If MS can get enough subs, and it certainly looks like they're on their way to that, this leads to more games of all kinds and better financial stability for large game devs.

We know that it leads to people playing more games, and spending more time playing games, and playing a more diverse set of games because MS has talked about those stats. We know that at least for some indies it leads to there being more success for their games on Xbox than on all of the other platforms they're on, and that it leads to more sales as well, as the Xbox social features end up acting as a big advertisement boost. Remember that we're not talking about some big shift in resources from bigger games to smaller games; the smaller games already exist.

 

[Eolirin]

You're forgetting to add in costs

One side has to pay out 4 companies vs the other side has to pay out 100s of companies

I guarantee the first one will be far more profitable, whereas company B may even occur a loss.

Evidence? 100s of companies in the last 20 years which often occurred losses for many years to try and gain subscribers/users, most never even turned a profit and went out of business.

Now is it a smart move on MS to lose money/forgo money now to hope and gain users which may be profitable in 10 years? Who knows, we will see in 2030

This doesn't work. The existence of failed subscriptions isn't evidence of anything. There's been a bunch of failed development studios and even the big publishers tend to have poor margins. That doesn't mean AAA development is impossible to succeed at either.

And Sony isn't just a publisher, they're also a platform holder. They don't break out the profitability of their game development studios either. I guarantee there's a level of subsidizing their developers going on from the money they make on software licensing. They definitely make more on third party sales than they do from their own projects, and at higher margins.

MS isn't any different, and Game Pass isn't either. They're never going to talk about whether Game Pass is individually profitable and it doesn't matter. Xbox as a whole is. And it's seeing significant revenue growth thanks to expanding Game Pass engagement. This even effects sales of games from people who aren't paying for Game Pass, increases Xbox Live engagement, etc. There are less tangible benefits to the service beyond just the straight numbers.

And the cost stuff doesn't work that way either. MS isn't paying the full cost of development to those other devs, while Sony is paying a massive amount of money to keep their studios staffed and working for a very long time before they see any returns. You can't just compare how many companies get money, you need to know how much money is going out too.

How many subs MS has and how costly they are to maintain are the only things that matter to making an assessment on relative profitability.

There's always a point of diminishing returns with content volume for maintaining subs and there's a stabilization point for subscriptions based on the addressable market size. (That's part of the xCloud push. Makes it so that game pass doesn't need to be limited by the Xbox install base.)

If the point where the costs of having enough content to hit diminishing returns is well below the revenue generated at the stabilization point where the marginal cost of adding and retaining a new sub is very high, then the sub service not only succeeds but can be wildly profitable. If it's above it, then it will probably never succeed. Though, to note, MS does not need Game Pass to ever be directly profitable if it's driving engagement in a way that increases profits elsewhere.

And here's the thing. We cannot possibly even begin to try to guess at where that crossover point is, but MS has to have a pretty good idea where it is and whether they're on path to reach it. There's no point trying to figure this stuff out, we don't have the requisite data. All we can say is that MS seems to believe they can get there, given the large amount of resources they're funneling into it. Maybe they're being overly optimistic, maybe they're not, but they have all the data, and we don't.