Court Documents show Microsoft Console Revenue Cut at 12% in CY21 [2021-05]

Discussion in 'Console Industry' started by liams, May 1, 2021.

  1. liams

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    from a leaked document obtained by Tom Warren (linked below), there is an indication that the percentage of revenue that microsoft will take from all sales on the xbox consoles will also decrease to 12% like the already announced changes to the PC store. It seems that this lower revenue cut would be available for all games, as long as the developer allowed microsoft streaming rights for the title. That would certainly be a good way to entice developers into allowing people to stream their games that people have purchased digital copies for.

    [​IMG]

    Tom Warrens tweet



    I wonder what implications this would have for the wider console industry? If the 12% cut became something that was considered standard, and was forced upon sony it would significantly affect their business.

    If I am reading sony's 2020 financial report correctly then sony had roughly $15B in revenue from software sales in 2020. With the current 30% cut that gives sony $4.5B in profit (naively). Assuming a 12% cut becomes the standard, and sony changes their cut to 12% they would have just $1.8B in profit, a decrease of $2.7B

    Assuming that sony doesnt change their revenue split, and that microsoft does lower theirs, it will be interesting to see what dynamics occur. Is it possible that third parties will be much more amicable to microsoft with things like marketing deals? Are companies potentially going to feel slighted by sony?
     
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  2. Silent_Buddha

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    You can't count it that way. Sony's software revenue is 100% of Sony published titles + 30% cut of 3rd party game sales. So the 30% cut is already accounted for in Sony's software revenue.

    I don't think this will affect Sony or even put pressure on them to also adopt a 12% cut. Just like MS and Epic taking a 12% cut on PC doesn't change the dynamics on PC and doesn't put much pressure on Valve to also adopt a 12% cut.

    Players in general only use EGS for the free games, and when possible buy games on Steam instead of EGS. This is because the Steam platform is just nicer to use and a better experience than EGS.

    On console, players that play on PlayStation are still going to play on PlayStation regardless of whether a developer is getting a larger cut from MS.

    And if they do something similar on console as PC (timed exclusivity on Epic for that greater developer cut) then they'll be sacrificing a LOT of revenue for that larger cut. And then hope that players still want to play their game when it comes to Steam (or in this case PS5).

    Regards,
    SB
     
    #2 Silent_Buddha, May 1, 2021
    Last edited: May 1, 2021
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  3. liams

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    I agree with your assessment that it would be unlikely for it to directly force sony to change their revenue share. I think the most interesting thing to me is that microsoft is apparently willing to drop the revenue share so drastically on console in return for the streaming rights of a game. I cant see why a publisher would be against people who own a digital copy playing their game on xcloud, although it might be one of those "why do something for free" sort of situations.

    When I was saying that maybe third parties would be more amicable to things like marketing deals with xbox in comparison to playstation if the revenue cuts were drastically different, I didn't mean to imply that there would be any exclusivity there, just that xbox would potentially have the marketing for the game, like they typically do for the battlefield series. That way players associate the game with xbox, but know they can still buy the game on playstation. Letting xbox have the marketing rights for the game would potentially increase the percentage of the player base that is on xbox, resulting in increased profit for the developer, even if the game is still on playstation
     
  4. Nesh

    Nesh Double Agent
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    Is MS considering a 12% cut on XBOX sold games?
     
  5. BRiT

    BRiT (>• •)>⌐■-■ (⌐■-■)
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    /me checks thread title and original post...
     
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  6. Eolirin

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    I think this is deeply mistaken. I wouldn't draw conclusions from the dynamics in PC where Steam has had a massively dominant position for a very long time. The console space is not Epic vs Steam. Xbox is a much bigger player in its market, and it's far more competitive, to the point of having market parity in the past. A play like that throws away revenue, but it's dangerous for Sony in a way that Epic's attempt to break Steam's monopsony has not (yet) been.

    Just one dynamic that would shift: if Sony stays at 30% and MS goes to 12%, the economics of exclusivity deals change drastically. Sony will have to pay out significantly more and MS will have to pay out significantly less. Even if they sell fewer copies on Xbox devs will make more money being there than on Playstation. Timed exclusives become worth doing even if MS isn't offering them money. Whatever hit they'll take in lost PS sales from the year delay will almost certainly be made up by the increased profit from the increased Xbox sales. Conversely, timed exclusives for Playstation would require a huge payout, as every PS sale that replaces a potential Xbox sale reduces revenue by 18% which is magnified by the distribution shift.

    It gives developers a vested interest in prioritizing Xbox relative to Sony. Being in a position where it's more profitable to the third party devs that make up the vast majority of console sales if their closest competitor crushes them is not good for Sony.

    And unlike Steam vs Epic, the console market is far more zero sum. If Xbox is getting a ton of timed exclusives and third party focus, Sony is going start losing share to Xbox. And that only accelerates the trend as there's even less incentive to be on the platform that pays less as its market share shrinks.

    There's no way Sony wouldn't be forced to lower their own take to stay competitive. Valve was forced to improve their revenue split in response to Epic even with Epic coming from a much greater position of weakeness compared to where Xbox is to Playstation, they just limited it to games with huge sales since their audiences would be more likely to follow them. But they still did it. Not to Epic's level, and Sony might not be forced all the way down to 12% either, but they'd have to lower. It's almost impossible to go back up too, so these set new ceilings.
     
    #6 Eolirin, May 2, 2021
    Last edited: May 2, 2021
  7. eastmen

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    Microsoft might be playing the long game and considers that streaming rights and revenue will be larger in the semi distant future (by end of gen ??) than actual physical sales. As game pass grows it will have to start to eat into people buying the full game on a lot of titles so like i said they must be hedging on that. Or they don't think Nintendo and Sony will match and MS can out last them in terms of taking less money. Third option would be the upcoming Epic trial stuff and MS may be trying to be proactive with it. Figure a 12-15% cut might be better sounding for what they are actually providing the publisher ? content hosting and continued access to xbox services ? It would be hard for epic to come for them when they are charging very similar to what epic is charging. A judge would be like well why can't MS charge that but you can ?
     
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  8. Jay

    Jay
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    I could see how that would make sense far into the future, if they wanted to allow bought games to be streamed outside of GPU.
    I don't see why they would take such a huge cut from 30%.
    Unless they plan to allow streaming in the immediate future.

    Cut on PC side makes sense because they hardly make anything from that anyway, so trying to entice devs to the store.
    Not the case on console, and Sony wouldn't have any reason to follow suite with such a big cut if any. So it would just be list revenue.
     
  9. eastmen

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    I guess I"m talking more game pass / streaming. With game pass your not selling a copy of the game in reality your just renting it. So perhaps they feel the streaming + game pass money is going to be more in the long run than the store will actually bring in.

    Or again MS thinks they can out last the competition
     
  10. Eolirin

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    They wouldn't be wrong.

    It could also just be that they want to unify their terms and don't care about the lost revenue as it'll be a smaller part of the mix with those massive Game Pass numbers adding to the totals anyway, plus it'll be easier for them to join Epic in beating up on Apple and Google's app store policies. Their PC store policies are now reflecting the Epic position entirely. If that were to be applied to the console space, say because of antitrust rulings, they'd need to be able to make their revenue numbers work even if they're not the payment processor or storefront for individual games. Game Pass is pretty much the only way to do that. Competitive rates with other providers would make it pretty much impossible to maintain anything near 30%.

    So they could be getting out in front of a change they want to see happen in the broader market, and are lobbying for, or at least expect to see happen, that unfortunately conflicts with the current model for consoles and are throwing their console revenues under the bus in service of it. And they can afford to do that because Game Pass took off.

    This is a bit of a prisoner's dilemma though. If MS does reduce their take, and Sony doesn't, they very likely lose less than the 18%. They might even end up net positive in the long run. If Sony also reduces, to an appropriate level for their market share, developers are better off, but both platform holders lose money.
     
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  11. Jay

    Jay
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    For it to go into GP it needs some other agreement anyway, which they could stipulate to also include streaming.

    Short term, just sounds like a big loss in revenue for games that will be affected years down the line. They could easily take 25% to include streaming rights and the choice for the next 3 or so years for the studios would end up being the same.

    The only way this would make sense GP related would be that they have the option to put it into GPU without needing additional concent. So the extra that the studio makes offsets any loss in sales, which they say generally doesn't happen anyway. Thereby undermining that point.

    Don't disagree with a lot of your reasoning, just think such a huge drop doesn't make sense in this regards.
    This may be true but they still have investors that they need to satisfy.
    You can do everything discussed without taking 2 thirds less.
    Do that when really desperate.
     
    #11 Jay, May 2, 2021
    Last edited: May 2, 2021
  12. Eolirin

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    Think of it like this: if the expectation is that direct sales revenue will be 20% of Xbox software revenue and GP will be 80% of Xbox software revenue, then reducing that 20% by 18% in order to gain significant developer goodwill and head off any potential antitrust litigation is kind of a no brainer. You can maybe even make that back with increased growth; selling to people without Xboxes, because all your titles are streaming capable even the ones not on Game Pass so they're device agnostic. No one is going to turn down the extra revenue. It's a much bigger risk if those numbers are reversed though. Much harder to make up a more than 10% loss in revenue vs a less than 4% one.
     
    #12 Eolirin, May 2, 2021
    Last edited: May 2, 2021
  13. eastmen

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    Right now MS is growing everything like crazy. I doubt investors even notice xbox aside from numbers going up. If game pass keeps growing like it is ,then there may not be any effect to the numbers
     
  14. liams

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    another thing that lowering the revenue cut to 12% in return for streaming rights is that it ensures that someone like amazon cant jump the gun and sign a bunch of exclusive streaming contracts with publishers before the streaming rights are worth more money. Right now I would argue that streaming rights arent that important, but they could be in the future. By getting streaming rights for every game that appears on xbox, even in a non-exclusive way, it absolutely guarantees that whatever microsoft calls their streaming solution for games that you own has the largest game library out of anyone. There is no way that a publisher would give someone like amazon or google the streaming rights to their games for free, but if this revenue share change happens, thats effectively what they are giving to Microsoft
     
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  15. see colon

    see colon All Ham & No Potatos
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    Timing is everything. Dropping your revenue split in the middle of a generation doesn't make any sense because at that point it's extremely hard to change the trajectory of a platform. We are at the start of a generation, games are coming out now that are only of PS5 and Series consoles, and both systems are supply limited. That's why this is happening now. If you want to make a next gen game right now, the installed base is close enough that it really doesn't matter which console you release on, so offering developers/publishers a bigger cut is an incentive to choose Xbox, even if it's not an exclusive. Streaming rights might seam like a far off stipulation, but Microsoft may be gearing up to offer streaming for games that you purchase digitally that aren't part of Gamepass. I would assume that GPU would still be require to use Xcloud, so MS would make subscription money for people who wanted to stream, but don't find the GP library to be enticing. This would basically allow for a Stadia like service where you could buy and stream games without a console. But would have the advantage that if you owned a console, you could download and play those games also.

    Streaming might look like it's far in the future, but MS have said during some of the backcompat interviews that licensing was harder to navigate than the tech issues, and that they changed their contracts to account for this in the future. I would assume this is a situation like that as well. If Microsoft are trying to "respect your investment in the Xbox platform" like Phil likes to say, and are moving towards a platform-less delivery of content, they need these streaming rights to make that happen.
     
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  16. Jay

    Jay
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    Which games are those?
    And do you really think the reason for that is the revenue split? As that wouldn't affect going to steam.

    Talking specifically about the windows store, I would say the issue is less to do with revenue split and more to do with its issues and people not liking it.
    Even if it's free, I could see studios not bothering to release on there until its resolved.

    I personally am all for MS being aggressive, but as I've said in the past sometimes they look at their data and interpret it wrongly imo.
    Fix the store, already have GP, and GDK to make releasing into the store a reasonable proportion.
     
  17. liams

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    I could see microsoft using this as a way of forcing game developers to do things in the future.

    So for instance the headline revenue cut is still 30%, but there is a 12% agreement that is available to everyone as long as the game developers follow some rules that microsoft decides, and possibly changes into the future.

    As an example, maybe microsoft want game developers to improve accessibility of their titles, so they add user adjustable subtitle size to the list of requirements that games need to follow to qualify for the 12% cut. As long as sony stays at 30%, which they are likely to do imo, it gives microsoft a good way to have more control over the games that appear on its platforms, without making the developers feel short changed, because if they dont follow the list of requirements dictated by microsoft nothing changes for them, but if they do they get substantially more money.
     
  18. DSoup

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    I don't get it. Why would Microsoft feel the need to financially incentivise companies to allow their games to be streamed? What's the downside for devs/publishers? :???:
     
  19. AzBat

    AzBat Agent of the Bat
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    It's not their own platform? And they want to be paid on different terms over traditional sales? Evidently it's an issue for Nvidia. <Shrug>

    Tommy McClain
     
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  20. see colon

    see colon All Ham & No Potatos
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    Assuming you could stream games you purchased in 2021 on whatever hardware Xbox decides is an Xbox or runs an Xbox app in 2041, there would be the perpetual rights to stream content no longer available for purchase on the Xbox/Microsoft store.
     
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