Business aspects of Subscription Game Libraries [XGP, PSNow]

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

  1. TheAlSpark

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  2. Metal_Spirit

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    Can you also provide the profits? Because Revenue is very nice to see, but doesn´t show how well the division is doing.
    And Gamepass must be sucking lots of money from this revenue.
     
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  3. jayco

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    What’s so bad about a little transparency?
     
  4. jayco

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    It’s safe to say Gamepass with its one dollar deals is losing money. Which means they are luring users to then crank up the price. Amazon with Prime, or Netflix have adopted this strategy. They are all so consumer friendly at the beggining.
     
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  5. AzBat

    AzBat Agent of the Bat
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    You need to talk to ZhugeEX.

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  6. AzBat

    AzBat Agent of the Bat
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    Captilism. You don't have to play.

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  7. eastmen

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    Because its not needed in all cases. Game pass is a long term play for gaming revenue that leverages red dog and will in turn let red dog break into new market segments. Some investors only want immediate return on their stock purchase.

    Game pass right now is in its launch phase. You had the console version launch , pc in beta and now the streaming portion getting ready to launch. When you launch a new product you rarely ever make a profit.

    Amazon prime is 15 years old and went from $80 to $120. in that time frame they added more than just 2 day shipping. They've added prime video , music , photos, same day delievery , a twitch sub , prime panetry , amazon fresh , prime wardrobe and god knows what else. So the value has increased since you get more for your money.

    When a company does a free month for a dollar its not any different than a free 2 week trial. The over whelming majority of people will subscribe or a dollar and then keep the subscription. Its a way to get people to try it. MS has never hidden the price of game pass. No one goes into thinking the promotional $1 month is the price they will pay forever because it states when signing up the regular price of game pass ultimate
     
    #307 eastmen, Aug 4, 2020
    Last edited: Aug 4, 2020
  8. jayco

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    A lot of companies that do heavy investment like Amazon, Spotify or Uber have posted losses for years and investors have continued to support these companies. But the business case has to be clear. I don't think no one would have opposed MS moving into the cloud business and investing heavily on it, considering how key was seen back then.

    And also I think are confusion institutional investors with retail investors than want to make a few bucks. The latter have little to say in the future of the company, the big shareholders, the ones that sit on the board, are there for the long run. These are the ones that made Satya Nadella CEO.

    I think netflix is a much better example as there are some key differences with Prime:

    - Amazon Prime (and other services like Kindle Unlimited or Audible) subs are not the core of their business (6% of their yearly revenue). Gamepass, however, seems to be the core on which MS wants to build it's gaming future. Prime doesn't have to be profitable, Gamepass does.

    - Amazon gets a cut for each item they sell in their store and Prime users are much more likely to buy on Amazon than non-prime users. Which means their revenue increases thanks to Amazon Prime (and even then they've hiked the price twice in a 4 year period, from 80$ to 99$ in 2014, to 99$ to 120$ in 2018, it's a 50% increase).

    In the case of Gamepass however, I guess MS has to pay the publishers to have their games available on Gamepass. I'd imagine they make some money if the user finally decides to buy the game but, if not, is MS only making revenue from the subs? If that's the case I don't think their margins are going to be too good, probably negative until they manage to get a lot of people signed up, but even then I don't think they'll be to wide.

    Maybe they are counting on the "Gym effect", people subbed but not actually playing any games or playing only MS exclusive titles. Which leads me to my next point.

    - If all 1st party titles are available on gamepass for "free". It means the subscription has to make enough money to pay third party publishers and pay for 1st party game development. That's a ton of money.

    Live Gold and PS+ makes sense. The marginal cost of adding another user should be very low or even close to zero, margins are good and they throw some free games from time to time that you actually own.

    But again, Gamepass is much more like Netflix. Netflix still doesn't make any cash on their operations, even with almost 200M subs and after several price hikes and the business model is quite similar: third party content + their own productions, with the possibility of buying content.
     
  9. Jay

    Jay
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    Regarding cloud:
    It's worth remembering that the xsx blades will be used for other work loads beyond games.

    The simplest example is remote pc/apps that their currently close to rolling out, remote anchor for hollolense I think it was called is another. Those work loads will benefit from everything that xcloud depends on like low latency.

    So it's almost a no brainer to invest in xcloud/azure.
     
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  10. iroboto

    iroboto Daft Funk
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    If we're talking gamepass, this absolutely is a factor. You can only play so much. There's just way too much content.
    Yes there will be a handful of people that can smash your buffet, but most people can only do a plate or so and because of that, ti's profitable.
    People are not buying gamepass for unlimited gaming, they're paying for gamepass to be given a large selection of titles to play from. To try out as much as possible. Interest in smashing titles to completion is probably not as high as people think. The 100% achievement people barely exist. Most people do not finish their games. Probably the best games have a near 50-75% completion rate for all players.

    This makes budgeting easier for them. As for Netflix not making a profit, they continue to grow their expenses with their revenue base. The day that they want to be very profitable, they will cap their spend (and therefore growth) and just pull in subscriber revenue. The reason they've been given so much money is because their subscriber revenue is allowing them to take on more leverage.
     
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  11. jayco

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    Even capping it right now, they would need an additional 3.5 billion in cash every year. Considering a substantial amount of their subscription goes to paying licensing fees, they would need to cut their own shows and exclusive deals which is what differentiates them from other streaming platforms. Netflix is like an elephant on a bike, it can't stop moving. I suspect they'll hike the price again sooner than later.

    edit: or be prepared to watch 3-4 ads before the movie/episode plays.
     
  12. iroboto

    iroboto Daft Funk
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    umm... I dunno I don't see it like that. I'm not sure why everyone is so adament netflix will just die overnight.

    Latest q2 earnings call:

    The company said its net cash in operating activities was +$1 billion compared to -$544 million in the same period last year. Netflix was free cash flow positive for the second consecutive quarter, coming in at +$899 million versus -$594 million in the second quarter last year. The company said its growing operating margin has helped its free cash flow profile, along with content spending being pushed into the second half of 2020 and into next year. Netflix expects free cash flow for the year to be breakeven or positive, though it expects to dip into the negative again next year.

    The company expects to see a 16% operating margin for the year and 19% for 2021. Hastings described that as “tamping down the expectations.”

    Operating margin moving up from 16% to 19% means that they're getting more return for their expenditures from their content creation. As long as that operating margin stays positive and a healthy amount, I don't see any reason they need to change anything massive. They will need to respond to market forces, but this idea that they are 1001 train cars on their way to doom makes little sense to me.
     
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  13. BRiT

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    Been watching the series SnowPiercer? :lol:
     
  14. iroboto

    iroboto Daft Funk
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    long live engine eternal
     
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  15. jayco

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    It had positive cash flow because it had to stop production on all its shows due to corona. As I said, if they stop producing their own content they can break even.

    Operating margin is an income sheet ratio, which can be subject to a lot of creative accounting. Look at the cash flow statement.

    And I did not say they are on their way to doom. I said they will be hiking prices to start making cash.

    edit: does anyone notice a trend here?

    [​IMG]
     
    #315 jayco, Aug 7, 2020
    Last edited: Aug 7, 2020
  16. BRiT

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    That cash flow expenditures is proportionate to number of subscribers?
     
  17. jayco

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    I don't think they've disclosed any deals with studios and producers. So I guess there is probably a mix, the big guys will probably get money based on the amount of users + content consumed. Other will only probably get paid if their content is actually watched. But yes, more users is going to mean additional cash expenditures. But the biggest thing here is their investment on original shows + big exclusive content like Star Trek Discovery, that probably cost a ton of money each year.

    Netflix debt is rated as junk debt, so that tells you how confidence some analyst are about Netflix generating positive cash flow any time soon. https://www.marketwatch.com/story/m...3-or-3-notches-into-junk-territory-2019-04-23

    IMO Netflix is a little bit like Tesla. They've change the landscape by doing things first, Tesla has some advantage as the technological changes that the big auto manufacturers have to make take a lot of time to implement. But is not that hard to catch up to Netflix, question is what happens if Disney decides to make a lot of content exclusive to their platform, including 20th Century Fox and Marvel. What if NBC Universal launches their own streaming service? That's why I said Netflix cannot stop investing huge amounts of money in content, they need those "exclusives" that will draw people to their platform. So the argument "we'll stop investing and make money" doesn't make any sense here. If they stop investing their platform will become less attractive.
     
  18. Malo

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    Discovery is CBS All Access?
     
  19. BRiT

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    Yes. ST : Discovery is entirely CBS All Access and paid for by CBS/Viacom. However, outside of the US, where CBS All Access doesn't exist (yet) they sold redistribution rights to Netflix and possibly others.
     
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  20. Malo

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    ahh ok, thanks.
     
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