Game Pass is not profitable yet - Tom Warren
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Bumblebeetuna
Member
Why would they? I download lots of GP games I wouldn't normally buy.
Zeroing
Banned
Where were you when the gamepass threads were being made by the dozen? Yeah a lot of people really though it was…
Bumblebeetuna
Member
Also, is there really a large contingent of Xbox fans here who think the service is making money? I haven't met them. All of these services go through years of bleeding money before they start to make it.
Hitchyhero
Banned
I already hear the defenders coming.
Wel you don't know their finances but I thought it was pretty obvious MS are in growth mode at the moment.... I.e trying to catch as many gamepass customers as possible with deals.
Once the numbers are there and those users begin to pay full price (data suggest users generally do)... That's when the money comes in.
This is pretty much how every subscription model works. The only people who keep moaning about how this model works is gamers (more specifically Sony fanboys)
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jshackles
Gentlemen, we can rebuild it. We have the capability to make the world's first enhanced store. Steam will be that store. Better than it was before.
In the grand scheme of things, I don't think this metric matters too much. To capitalize on the maximum value of the "$1 Live trick", that customer had to spend $180 for 3 years of service ($5/month, instead of $15/month). I'm sure Microsoft knows that locking people into a subscription service, especially with a term measured in years, is worth giving a steep discount since it's in the growth phase. Disney+ did the same thing in '19 letting people lock in three years of service for $140 ($3.80 a month), yet nobody claims that Disney+'s revenue is skewed as a result.
Lots of people take the "$1 live trick" and just convert their existing Gold sub with whatever remaining time happened to be left on it. I can't say for sure, but I'd guess the overwhelming majority of people who have taken this deal had less than one year on their sub when they converted their subscription. It's probably the reason that Microsoft has left this "deal" stay alive for so long.
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Stuart360
Member
I havent seen many say that on here, and at the end of the day we dont really know either way as Microsoft doesnt reveal full statistics.
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sainraja
Member
RiccochetJ
Gold Member
I think you mean you're hoping that we aren't going to like this. Literally no one should have expected them to be profitable at this juncture. What I'm concerned about is if the subscriber rate is growing or is stagnant. The last time we saw any news, they were growing at a nice rate quarter over quarter which bodes well.
itsjustJEFF
Member
It's not an easy business model. They can definitely be "profitable" even when this business model requires investments in 3rd party deals and 1st party budgets. They're not profitable right now because they've spent way more than they're bringing in aka "they tryin grow". They just dropped 7 Billy on Bethesda, not to mention the other 3rd party deals. That cost far exceeds what, at the time, was their current sub count. Even now, it can't make up for it.
It's a balancing act, once they get closer to profitability they'll be able to budget more realistically. This means how much money they can spend on 3rd party deals and how much budget their 1st party studios get for that year/fiscal year/fiscal quarter. Gamepass will continue to grow, there is no doubt about that. The interesting part will be when subs slow down, cause it will, just go ask Netflix, Hulu, Prime etc.
My guess is budgets will scale based on projections and last fiscal quarter/year numbers. Also depends on how much they're willing to move money from the profit slice over to the spending slice.
Bumblebeetuna
Member
Totes bro, I hate the fact that MS shells out tons of money so I can play loads of games for like $2 a month
The Scientist
Member
Every dollar they spend on gamepass is an "investment" and they are happy to do it because it lowers their taxes. It's designed to have the stock value go up through aquisitions and new services which has a lower long term capital gains tax than a simple profit. Investors still see the company value as increasing because of the spending/reinvestment into purchasing other companies (see Bethesda) despite a lower profit for the year. Amazon is the king of this practice to keep their annual profits as low as possible while still increasing stock value. Yes, they will still pay taxes on the increased value when they sell their stocks, but the stock value is cranked way up because all the profits are poured back into the company and the long term capital gains tax is traditionally lower than a simple income tax.
DarkMage619
$MSFT
So they are going to make the service less and less appealing? Sounds like if they follow your logic they will NEVER make money. Imagine if Netflix saw their streaming service was losing money and they said "That's it! No more original series and we are raising the prices! That should light our service on fire!"
sainraja
Member
I think most people understood that Game Pass isn't making Microsoft money right now (e.g. the sustainability question - which also triggered some Xbox fans into silly arguments about Game Pass). Microsoft wants to grow the service. We're just going to have to take a wait and see approach but right now is the best time to get the most out of it if you have an Xbox.
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Magnific0giganticus
Banned
Pull it off? Easier said than done.
Take a look at Netflix.
Video streaming giant Netflix had a total net income of over 2.76 billion U.S. dollars in 2020, whilst the company's annual revenue reached 25 billion U.S. dollars. The number of Netflix's streaming subscribers worldwide has continued to grow in recent years, reaching 204 million in the fourth quarter of 2020.
That's 210 million subs right now (as of Q1 2021). Look at those numbers. They make 25 billion revenue for a whole year and the bottom line of Net profits, their earnings, is $2.76 billion.
Netflix is everywhere. It's not tied to some specific hardware, Game Pass you need an Xbox or a PC (and let's leave aside Xcloud for a moment, that's a big hypothetical future). Netflix is a service that all people can enjoy, it's movies and TV, gaming is not for everyone.
Netflix produces its own content, they also pay third parties, but they have become very efficient in making their own very diverse catalog in a matter of few years and continue doing so. Their content ranges from B to AA quality (mostly AA) and it's less expensive and time demanding than game development.
Long story short, a service like Game Pass is much more expensive to maintain than Netflix, it's also harder to market and gain subscribers because it's tied to specific hardware and smaller gamer demographic.
MS is currently investing millions developing unique content for the service hoping that will have a significant lasting impact on bringing more people over. But a game takes 2, 3 or more years to make, and most of them have a gaming life expectancy of 2 weeks max. People beat a game (if they like it enough for it) and move on, a Netflix Series season is made in less than 6 months, people watch it and in a year or less they will have more to watch of each one, so there's way more incentive to keep subscribing.
I could go on, but the bottom line is, Netflix is a pioneer and right now facing very strong competition. They spend a lot, they make 25 billion in revenue and "only" take 2.7 billion to the bank. That with 200 million subscribers.
You really think Game Pass has a chance at profitability, maintaining more demanding servers, paying pricier pieces of third party content, maintaining Xcloud, paying EA for EA Play, spending big on AA/AAA games that won't sell well because will be day1 on the service, and all the while their subscriber base growth is tied to the success of hardware sales (Xbox consoles or capable GPUs). As a whole the gaming industry sells 200 million consoles in a span of 7 years, add to that roughly 100 million PC gamers. Even if all of those 300 million would subscribe to Game Pass, it would probably still be a losing game.
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jshackles
Gentlemen, we can rebuild it. We have the capability to make the world's first enhanced store. Steam will be that store. Better than it was before.
Excellent post.
I would disagree on the Netflix, Hulu, Prime, etc. comparisons though - it's no secret that those numbers a plunging as a direct result of content creators spinning up their own competing services. Netflix loses tons of subscribers that used to only watch The Office on it because The Office is now on Peacock or whatever it's called. Everyone knows the good movies are on HBO Max. People who used to subscribe to Amazon Prime video to watch Star Trek are moving to Paramount+. Disney's got it's own thing that's cheap.
So unless they allow competing services on their platform (and maybe they will? Stadia? Amazon Luna?) the saturation point of Game Pass will only be reached when they've got as many people subscribing to the service as are willing to pay. The number will probably only ever decline when they a) lose good exclusive games or b) raise the price or c) the economy collapses and millions of people abandon video games in favor of hunting and scavenging food
Hitchyhero
Banned
Imagine being this upset and triggered about something you never will want or have
Oddvintagechap
Banned
It can be profitable. Netflix isnt there yet. And now they have Disney and Hbo coming at them. If they take away enough subscribers, Netflix wont be able to pay their debt.
Gamepass just needs to get as much subscribers as possible. Then when they are used to paying monthly to rent games, they raise the price until its profitable. Just like netflix. This benefits microsoft regardless. Removes all risk in game development.
rickybooby87
Member
It's an educated guess to me rather than a definitive statement. I'm not arsed, as long as it's a good deal for the end user but you just know there will be certain fruit cakes who claim this as a 'victory';
Damn...That zebra GETTIN' IT.
Hitchyhero
Banned
Is subscription and none subscription service on the planet that hasn't gone up in price.... Or are we will paying the same prices from 1900's for all of our stuff?
Hugare
Member
Water is wet
My main worry is the type of games that we will get once it gets profitable. They will get there, eventualy. Dont know when, tho.
I dont see them making $500 million games like Halo when people will remain subbed anyway. Games will be multiplayer, GAAS focused, and made as cheap as possible.
Like Netflix making thousands of original shit for cheap instead of few high budget productions.
My main worry is the type of games that we will get once it gets profitable. They will get there, eventualy. Dont know when, tho.
I dont see them making $500 million games like Halo when people will remain subbed anyway. Games will be multiplayer, GAAS focused, and made as cheap as possible.
Like Netflix making thousands of original shit for cheap instead of few high budget productions.
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LordBlodgett
Member
As I said in the Gamepass thread, I would be disappointed if Gamepass was profitable right now as it would mean Microsoft is not doing enough to grow it. It took 12 years for Netflix to turn it's first really large profit (2005-2017). By that point though they had gone from 2.5 million subscribers, to over 100 million. Spotify is similar, having lost money every year since inception, but now up to 150 million plus subscribers. Disney+ is the new hotness and they expect to stop losing money on the service on 2023-2024.
You don't take profit in subscription services until you get to where you want to be in terms of subscribers. If you are trying to look at the service as a profit center right out of the gate you will end up being CBS all access or PSNow
You don't take profit in subscription services until you get to where you want to be in terms of subscribers. If you are trying to look at the service as a profit center right out of the gate you will end up being CBS all access or PSNow
See, this is the major issue for game pass. I am not sure if game pass is viable or even profitable in the for seeable future. Sure, gamers go gaga over for game pass now, but not MS. I think game pass is never going to work for MS. They try to replicate what Netflix had done on the movie side, but they misread the the market. Consuming games is way harder than movie left alone producing games. Movie streaming service is way easier to realize than game pass because of 2 major obstacles. First, movie production take 5 months to a year to complete as compare to at least 4 years for game. Second, movie and TV show is way more convenient to enjoy as compare where you have to invest in games. It could take up to 10 hours as compare to 2 hours for movie. Not to factor in that everybody in their house have a TV. I can list more, but I think this is enough.
Hitchyhero
Banned
No I've not heard (m)any....
Your not tied into a 50 year contract. If the service gets sh*t unsubscribe.
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Hugare
Member
Most wont.
I know a lot of people that talk shit about Netflix, but they wont unsub.
"Eh, its cheap, and eventualy something interesting gets released"
Also with a lot of GAAS games like Halo Infinite, people will remain subbed for one game.
People like to rewatch movies/series, but it has a shorter limit of investment in general than games. So Netflix gotta keep on investing on new stuff. But people sometimes play the same game for thousands of hours.
I know already that A LOT of people will remain subbed just for playing Halo and nothing else
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prinz_valium
Member
Yes that's my point.
MS owns Github, but they don't share revenue and profit figures for it, because the business is not big enough that is has to be disclosed.
Same goes for Game Pass.
So if you owned a business that was super busy but was constantly losing money, you would keep it open?
Kokoloko85
Member
Lol, well only an idiot would think it has changed since Aaron Greenberg said it isnt making "much" profit.
They have spent so much money on 3rd party deals to be on gamepass it makes sense they havent made a profit, these deals dont come for free.
And making 3rd party gamepass deals with studios probably cost way more than timed exclusives and 3rd party exclusives because they are covering potential profits that the studio would be making in sales. Otherwise it wouldnt be worth it for the studios to make gamepass deals.
Gamepass was the only way for MS to stay relevant in the games industry compared to Nintendo and Playstation. That and BC.
They are banking on it working later on, but I doubt it will generate the money and subscribers to pay for all the studios plus 3rd party game deals.
It might be a good deal for gamers atm but then MS will have control of what studios make what games. The more studios MS buys and makes deal with for gamepass, the more they will control what gets made and what budget it has in the future.
It maybe a great deal for gamers as some say but it wont be good for gaming in the future if MS controls what studios can do.
Its a trojan horse in some ways and I dont want MS controlling Video Game IPs they had nothing to do with establishing in the first place
They have spent so much money on 3rd party deals to be on gamepass it makes sense they havent made a profit, these deals dont come for free.
And making 3rd party gamepass deals with studios probably cost way more than timed exclusives and 3rd party exclusives because they are covering potential profits that the studio would be making in sales. Otherwise it wouldnt be worth it for the studios to make gamepass deals.
Gamepass was the only way for MS to stay relevant in the games industry compared to Nintendo and Playstation. That and BC.
They are banking on it working later on, but I doubt it will generate the money and subscribers to pay for all the studios plus 3rd party game deals.
It might be a good deal for gamers atm but then MS will have control of what studios make what games. The more studios MS buys and makes deal with for gamepass, the more they will control what gets made and what budget it has in the future.
It maybe a great deal for gamers as some say but it wont be good for gaming in the future if MS controls what studios can do.
Its a trojan horse in some ways and I dont want MS controlling Video Game IPs they had nothing to do with establishing in the first place
Zeroing
Banned
It's about people advertising your service for free…
Balducci30
Member
Are people concerned for Microsoft? Who cares it's a great deal and I will use it until it's no longer a great deal
Agree. Glad someone have the same thought as me. See my post, I said somewhat the same thing, but not as details as your.
SlimySnake
Flashless at the Golden Globes
Thats a great point, but unlike Netflix, Microsoft wouldnt need to have 5 news shows on every month. Just do 1-2 new games a month and people would spend 10 hours on it and feel like they got their money's worth.
You are right. It is about hours but Netflix knows they cant just put a new 2 hour movie on every month because people TV for far longer than that. They are investing $19 billion in content in 2021. 12 of which are for new first party content. Trust me, they are doing that because they know that if they dont people will unsub or go to Disney+ or HBO Max.
And thats why I have come around on the idea of gamepass. MS will feel compelled to keep buying new content and that means getting big name stuff like Battlefield 6. Worst case scenario we get B games like outriders which is still pretty good.
ToTTenTranz
Banned
Regardless, this shouldn't be news to anyone and it's a pretty straightforward logic. If it was making money then Microsoft would be mentioning it in their quarterly reports.
What I would really want to know is how many of those "23 million users" are actually paying full price for the subscription and not just taking advantage of the "3 months for $1" promotion that Microsoft has been offering twice a year or even not paying anything in exchange for doing a couple of Bing searches (if it's still possible IDK).
And what's the attach ratio? How many e.g. PC gamers keep paying for the subscription after they played the 4-8 games they're interested in?
What I would really want to know is how many of those "23 million users" are actually paying full price for the subscription and not just taking advantage of the "3 months for $1" promotion that Microsoft has been offering twice a year or even not paying anything in exchange for doing a couple of Bing searches (if it's still possible IDK).
And what's the attach ratio? How many e.g. PC gamers keep paying for the subscription after they played the 4-8 games they're interested in?
Iced Arcade
Member
K
Me as a consumer... I love gamepass, spend that money MS
Me as a consumer... I love gamepass, spend that money MS
BootsLoader
Banned
I just assume that this will happen in the future. That's all. I didn't say that it's not normal etc.
Hezekiah
Banned
I agree, I can't see xCloud taking off in a big way. Not any time in the next five years anyway probably beyond. Many people are seemingly happy playing cookie-cutter games on their phone/tablet. Plus there's so much competition from free-to-play games.
And I don't see GamePass taking off in a big way in the PC market.
Zeroing
Banned
Disney owns almost everything, including children's dreams ( joking about that part ) of course they are destroying their competitors.
Anyway, somehow some people wanted to believe that gamepass was "a game changer", that it was profitable because it's an awesome ammunition for console wars… and in the aftermath of another console war… some people truly believed the service was profitable.
so here we are… MS is not making any money out of it and it didn't changed the gaming industry…
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Malcolm9
Member
Raise the price and you lose the customers, especially when they have been conditioned to get it on the cheap.
Kokoloko85
Member
Dr Kaneda
Member
It was the exact same with Netflix.
Netflix started off offering physical rental (even games and music) and streaming combined for the same really cheap price, it was amazing. Then when they separated the two and started charging for each it was a big downer but at least they really improved their streaming services and had some amazing content for a really cheap price. Then eventually the prices starting increasing periodically. Then they started removing features and abilities, like being able to use a VPN/DSN easily switch between regions and access all their content etc.. Then they started removing some of the best content because it was too expensive to get rights for and instead substituted their own lower standard "original" content etc...
Netflix was at it's best and most consumer friendly/enjoyable in the early stages when it was making a serious loss. As soon as they starting shifting to making a profit it became a significantly worse deal.
$1 a month to access the type of content that's currently on Gamepass? Yeah we're IN the golden age of Gamepass right now because MS are desperate to attract subscribers. In the future the fee is only going to get significantly more and the content significantly worse.
Netflix started off offering physical rental (even games and music) and streaming combined for the same really cheap price, it was amazing. Then when they separated the two and started charging for each it was a big downer but at least they really improved their streaming services and had some amazing content for a really cheap price. Then eventually the prices starting increasing periodically. Then they started removing features and abilities, like being able to use a VPN/DSN easily switch between regions and access all their content etc.. Then they started removing some of the best content because it was too expensive to get rights for and instead substituted their own lower standard "original" content etc...
Netflix was at it's best and most consumer friendly/enjoyable in the early stages when it was making a serious loss. As soon as they starting shifting to making a profit it became a significantly worse deal.
$1 a month to access the type of content that's currently on Gamepass? Yeah we're IN the golden age of Gamepass right now because MS are desperate to attract subscribers. In the future the fee is only going to get significantly more and the content significantly worse.
Salty Popsicle
Banned
For over a decade until 2020, Tesla saw billions of dollars in net losses every year and yet for the past 5 years, their market cap and credit/consumer confidence has shot through the roof. Making a profit isn't the end all and be all that it used to be anymore.
Oddvintagechap
Banned
Thats when you make Skyrim 2 exclusive.
Zeroing
Banned
You haven't met them because they got banned while in the gamepass thread because they choose to compared themselves to minorities being persuaded…. just because a mod decided to stop the console wars…
FunkMiller
Banned
GamePass isn't profitable, and they've never made money on a console.
Big Daddy Bill:
Big Daddy Bill:
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