Business aspects of Subscription Game Libraries [XGP, PSNow]

Discussion in 'Console Industry' started by iroboto, Feb 3, 2020.

  1. DSoup

    DSoup meh
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    This would make for fascinating reading if it could be done. I'd love to know how many discs are used on different consoles, whether those consoles are connected (family, friends lists etc) in some way, how many people are mostly disc-based vs mostly digital vs a combination of both.
     
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  2. goonergaz

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  3. iroboto

    iroboto Daft Funk
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    I placed the promotional items and marketing under the line item of cost of acquisition which is a per month per subscriber.
    This is a typical for us to separate it in this way, since we have to do this at telcos when we sell you mobile data/subscriber plans. This is how we separate the revenue from promotional losses. The goal is to reduce expenses and COA over time. ie. we subsidize new handsets like iphones when you sign a contract with us. So we eat say $500 over 3 years (initial phone subsidy), but you are paying $2500 over 3 years in contract fees. Sometimes we have promotional offers on data, or internet or TV, in which you pay a reduced rate, and it would be calculated in these terms, or we would line item it into a single upfront cost.

    Which I've shown, the COA will go down 5% per year, which is a typical corporate goal. As there becomes more need to reap more profits, the number of promotional units goes down. So there might be a 12 weeks a year it's $1 a month. And then the next year it's only for 10 weeks. Then 8 weeks. etc. Slowly reducing the rate at which these promotional activities hit because ideally they are invested in the service to care about their account. Not everyone is willing to game the system, its a lot of work to do repeatedly and the companies account for that.

    So if game pass is $10 /mo
    You give it to them for $2 per month
    that's a Cost of Acquisition of $8 per month

    I put in a COA of $6/mo, with a set price of $10. So the total profit already has been chopped down significantly.

    The price will increase at a rate of 5% per year as well. To adjust for inflation and spend, the need for profitability.

    Spreadsheet
    • I made changes to move it back down to 1.25B spend for licensing. With an increase of 12% per year.
    • I've reduced the yoy subscriber growth to 23%
    • I cleaned it up to be a bit more clear.
    • I guess I should add definitions on it.

    https://1drv.ms/x/s!Arh_9w0iEIQBhIcTSA3K8Pyfw3BGiQ?e=xHbORF
     
    #263 iroboto, Jul 30, 2020
    Last edited: Jul 30, 2020
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  4. goonergaz

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    If I'm reading that right you need to adjust the years row, 10bn loss and no break even until 2030...
     
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  5. iroboto

    iroboto Daft Funk
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    oh right. yea that final year is supposed to be 2031, the years duplicated for some reason in the years row.

    And yup, break even at 2030 (sub 1B profit in 2030). Actual worthwhile net profit in 2031
    Thanks fixed.

    Coincidentally this spreadsheet works out that they finally get green when this generation ends.
     
    #265 iroboto, Jul 30, 2020
    Last edited: Jul 30, 2020
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  6. dobwal

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    Do you think things are suppose to happen overnight? In 2005 Netflix's VOD 2.5 million subscribers were mostly DVD subs who were given free access to the service. In 2007, Netflix had 7 million subs and $62 million in profit. Now Netflix has 167 million subs and annual profits close to 2 billion.

    These are a new type of service. Just because gamers aren't instantly running toward these services head over heels doesn't mean they won't eventually. Digital downloads of full package console games was relatively non-existent prior to this gen. Now they rival physical sales. Xbox Live and PS Plus weren't instant successes either. It took Xbox Live 2 years to get to 1 million subs.

    Game Pass will support as many profiles thats allowed on a "Home" console.
     
    #266 dobwal, Jul 30, 2020
    Last edited: Jul 30, 2020
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  7. zed

    zed
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    Mate the whole spreadsheet is missing a very important piece of data, I said this a couple of times, its gonna earn less profits than the traditional model
    Perhaps I havent explained clearly enough, I try again

    Take one game, halo infinite

    comes out, sells 8million = 8x$50 = $400 million additional revenue, traditional model
    comes out, sells a handful of copies since everyone downloads it on gamepass, = bugger allextra revenue (yes it may make some more ppl buy gamepass)

    i.e. where are the numbers of the missed revenue?
     
  8. goonergaz

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    Of course I don't expect it to happen over night. And you're totally missing my point (probably my bad in poor explanation) - you cannot compare Netflix to GP, they are 2 totally different audiences. The Netflix audience is the whole family, so the VFM is much better because maybe in my household it's just my son interested in gaming. Also, with Netflix I can get the premium version and share on 3 other devices, so technically again it's a better value proposition.

    Yes, this is a major miss - @iroboto surely the more popular GP is the less 'old school' revenue comes in. However, it's worth pointing out that a different spreadsheet altogether and one that should include all game revenue (and expenditure) as it currently is and how the whole peice will transition. So at the start of the sheet 'old school' is subsidising GP, but by the end we should see a reverse (in the spreadsheet- maybe not in reality!).
     
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  9. iroboto

    iroboto Daft Funk
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    Yea, I totally get where that discussion point comes in. It's a bit of a separate discussion from GP sustainability. Since we're talking about revenue maximization now, short term vs long term goals.

    I'm not sure how to do opportunity costs. This one is much harder to account for. There's no easy way to determine this. Some people may wait for prices to drop. Some people may buy used.
    I think the hardest thing is to determine that opportunity cost is going to be different for each title. If you guys have ideas on how that would work I would layer that in. I mean, from a starting point we would have to make an assumption on how much revenue is brought in through regular sales. Then we'd have to extract how many people would not buy the game because of gamepass. And then you'd have to subtract that portion out. There might be other factors to layer in, but I guess we can start with that.
     
  10. goonergaz

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    Do we have nothing that shows the current expenditure and income related to games?

    TBH it seems almost impossible to get anything meaningful together as from the PR we are expected to believe that GP improves sales son the reality (in MS PR land) is that both lines move in a positive direction!? Lol - sorry, the more I think about it, the more I disagree with the PR
     
  11. iroboto

    iroboto Daft Funk
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    No, those are pretty closely kept secrets for every company. If your breakdown of costs is known, it's easy for anyone else to figure out how to entire the market - people would know exactly what your margins were and how much to flag you down by. I used to do product management, and even then it was still very challenging to break down the cost of selling a product, every hand it touches etc.

    We're unlikely to get any idea on the expenditure and income related to games, we can do some ball park averaging at best.
     
  12. mrcorbo

    mrcorbo Foo Fighter
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    $15 is for ultimate (Console+PC+Xcloud). It's only $10/month for GP for console.
     
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  13. dobwal

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    Are you attributing the total cost of MGS to Game Pass?

    And $1.25 billion in third party licensing equals out to those 200 titles selling 62 million units annually at an average price of $20 a unit. For a 10 million sub base that’s seems a little far fetched. That’s 6 games per user per year.
     
    #273 dobwal, Jul 31, 2020
    Last edited: Jul 31, 2020
  14. BRiT

    BRiT (>• •)>⌐■-■ (⌐■-■)
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    What is MGS? That does not exist.

    It is Xbox Game Studios, so XGS if you must abbreviate.
     
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  15. iroboto

    iroboto Daft Funk
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    Yea. I’m attributing the cost of all of XGS to game pass. Not sure why. This is probably wrong now that you questioned it lol.
     
  16. dobwal

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    If you were a company you probably lump all revenue generated by your software. Whatever, % of that total was contributed by your sub revenue would be used as the % of the cost needed to produce and market that software and attributed to your steaming service.

    80% of revenue generated by single unit sales then only 20% of the cost is attributed to the streaming service unit.
     
    #276 dobwal, Aug 1, 2020
    Last edited: Aug 1, 2020
  17. dobwal

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    My bad. It did spend the first 20 years of its life using “Microsoft” in its title.
     
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  18. mpg1

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  19. AzBat

    AzBat Agent of the Bat
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    I unrolled 3 tweets & exported it to 1 image. Original link at the bottom.

    ZhugeEX - Microsoft FY2020 (Jul 1, 2019 - Jun 30, 2020) Edited.png

    Source Tweet

    Tommy McClain
     
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  20. DSoup

    DSoup meh
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    And this put's Microsoft strategy into perspective: hardware is unimportant in terms of revenue. But it has no context with the same pie showing profit/loss.
     
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