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[Heisenberg007]

The number of subs is useless anyway. They have three different tiers and promo deals. Much better to just talk about the actual dollars. Profit of course is important also but it's hard to gauge with GP. How much of a first party games cost do you push over to GP?

But almost every sub out there has multiple tiers, and pretty much all of them reveal sub numbers.

It is still meaningful data to show user-based growth. Otherwise, if there is no volume growth - and only higher ARPU due to increase in price - it means the potential has dried up.

 

[viveks86]

How much of a first party games cost do you push over to GP?

Not sure why this is being treated as rocket science. Just push over the annualized net loss of each first party game on GP. So that's total annualized expense minus income from non-GP sources like MTX, direct sales, steam/PS etc. If the game has net annual profit on its own, dev cost need not be pushed over.

If CoD cost $200 million to make and made $400 million on PS and PC, then it has no dependency on GP to cover expenses.

But if Indiana Jones cost $100 million to make and it made $60 million on PS and PC, then $40 million difference should be pushed over to GP.

The goal is to find if GP is sustainable. Not just profitable as an independent P&L. Without knowing this, there's no point celebrating it or claiming it to be a benchmark that others should emulate. Investors don't care as they aren't investing in MS game studios. They are investing in MS, which is making shitloads of money. Consumers don't care because they get a bunch of expensive stuff at no additional cost beyond subs. But in the long run, it affects the devs because MS isn't running a charity. And if it affects the devs, it is not praise worthy.

But if it all turns out net positive anyway, then we can set this debate to rest. Unfortunately, all we have is obfuscation.

 

[calico]

If you make the retail channel cover all (or as much as it is able to) of the first party development cost but assign the GP income resulting from those games to GP, then you are not conducting an honest analysis but rather fudging the numbers with an intent to show GP in the most positive light. (This is what I suspect to be happening, based on their apparent responses when asked.)

You could just as easily do what you are suggesting the other way around (have GP be the first stop for covering all development costs), which would make GP look like shit and make the retail channel look incredible, because retail suddenly has ~zero development costs.

If we do it this other way around and GP is able to cover the full development cost of Indiana Jones (your example version of it), then Indiana Jones has magically gone from making $0 at retail to a $60m profit at retail. CoD's retail profit has magically doubled from $200m to $400m.

I don't think it's reasonable to be assigning development costs based on whichever channel (GP or retail) we wish to make look best at any given moment.

 

[mdkirby]

That's what happens when you buy activision. Revenue tho, is most assuredly not profit, and they spent 70bn to acquire that revenue.

 

[viveks86]

If you make the retail channel cover all (or as much as it is able to) of the first party development cost but assign the GP income resulting from those games to GP,

What are you referring to by "GP income resulting from those games"? Additional subs? Or other income from in-game purchases, expansion pass etc? I'm proposing the latter to not be attributed to GP for the purpose of this analysis. Subtract that from dev cost as well. I wasn't trying to separate this by channel (GP vs retail) and present GP in isolation, but to see if the overall strategy of GP + retail - dev is viable for studio growth.

then you are not conducting an honest analysis but rather fudging the numbers with an intent to show GP in the most positive light. (This is what I suspect to be happening, based on their apparent responses when asked.)

MS isn't even doing what I'm suggesting. They are attributing none of the dev cost to GP and presenting its revenue in isolation. Now that's the most positive light and gives no indication if the program is sucking the life out of studios or feeding it. Ultimately, it doesn't matter what MS does for their accounting, as long as the numbers are accounted for somewhere, but if all raw numbers are presented, we can slice this anyway we need to.

If we do it this other way around and GP is able to cover the full development cost of Indiana Jones (your example version of it), then Indiana Jones has magically gone from making $0 at retail to a $60m profit at retail. CoD's retail profit has magically doubled from $200m to $400m.

Sure. But what question are you trying to answer by doing that? If retail channel is also seen as an independent P&L, then they can certainly make the same claim that retail is 'profitable'. There's nothing magical about it if you split things up as separate P&Ls. I'm not trying to compare profitability of each channel separately, where one is highlighted and the other is ignored. In your counter example, yes, retail would look great and GP would look terrible. But together, is it a net positive strategy or not? That's what I'm trying to answer. Slice it however you like. It's still the same cake. Is the cake feeding enough people or not? Or is some other cake being distributed behind the scenes? It's not clear if we can answer that with the data we currently have. And the fact that MS is obfuscating it doesn't inspire confidence.

 

[Ozriel]

Not sure why this is being treated as rocket science. Just push over the annualized net loss of each first party game on GP. So that's total annualized expense minus income from non-GP sources like MTX, direct sales, steam/PS etc. If the game has net annual profit on its own, dev cost need not be pushed over.

If CoD cost $200 million to make and made $400 million on PS and PC, then it has no dependency on GP to cover expenses.

But if Indiana Jones cost $100 million to make and it made $60 million on PS and PC, then $40 million difference should be pushed over to GP.

if a game loses money despite being on retail on Steam, PS and - to a lesser extent - Xbox, it's certainly not due to GamePass.
Your Indiana Jones argument is completely illogical because it wouldn't make sense to assert that cannibalization of sales on the smallest platform would be solely responsible for the loss.

The goal is to find if GP is sustainable. Not just profitable as an independent P&L. Without knowing this, there's no point celebrating it or claiming it to be a benchmark that others should emulate. Investors don't care as they aren't investing in MS game studios. They are investing in MS, which is making shitloads of money. Consumers don't care because they get a bunch of expensive stuff at no additional cost beyond subs. But in the long run, it affects the devs because MS isn't running a charity. And if it affects the devs, it is not praise worthy.

But if it all turns out net positive anyway, then we can set this debate to rest. Unfortunately, all we have is obfuscation.

This 'affects the devs' argument went out the window the instant MS went third party. Because if a game can't sell well enough on Steam or PS5, then it has bigger issues than GP and in fact GP could then be a net positive.

For obvious reasons, I don't see anyone urging Sony to end their exclusivity strategy to 'help the devs'

 

[Ozriel]

MS isn't even doing what I'm suggesting. They are attributing none of the dev cost to GP and presenting its revenue in isolation. Now that's the most positive light and gives no indication if the program is sucking the life out of studios or feeding it. Ultimately, it doesn't matter what MS does for their accounting, as long as the numbers are accounted for somewhere, but if all raw numbers are presented, we can slice this anyway we need to.

According to Dring's MS sources, they're accounting for lost retail revenue due to GP. Revenue, not profit. Implicitly still carrying a portion of the dev costs.

Is the cake feeding enough people or not? Or is some other cake being distributed behind the scenes? It's not clear if we can answer that with the data we currently have. And the fact that MS is obfuscating it doesn't inspire confidence.

You're accusing a company of obfuscation because they're not providing P&L numbers at levels of granularity not required or requested by shareholders…

Might as well argue that their Office 365 strategy does not inspire confidence since they don't really break out the profits due to that sub.

 

[Det]

'Free'



You gotta learn to be subtle with these things. This type of strident warring can only come from deep deprivation. My sympathies.

Why should I be sneaky and passive aggressive?
I don't kiss the ass of a company that loves to play the victim and act like a "nice guy."
I don't kiss up to a company that loves to play the victim and act like a "nice guy," and I certainly don't identify with that kind of behavior enough to become a fan of that company.

 

[viveks86]

if a game loses money despite being on retail on Steam, PS and - to a lesser extent - Xbox, it's certainly not due to GamePass.
Your Indiana Jones argument is completely illogical because it wouldn't make sense to assert that cannibalization of sales on the smallest platform would be solely responsible for the loss.

Who said anything about losing money or cannibalization of sales? When I say net loss, I mean it from an accounting standpoint. If gamepass revenue is accommodating said loss, then no one is "losing money". I'm not asserting that Indy is losing money at all. I actually have no idea if it is or isn't.

Not trying to blame gamepass for anything other than asking if it can cover all shortfalls to make the overall strategy (I.e retail + GP) viable or not.

Games can totally bomb for other reasons. But there will be no way to know with a subscription service that treats every game equally. Again, my goal isn't to assign blame, but to see if there is net profitability, all things considered.

This 'affects the devs' argument went out the window the instant MS went third party. Because if a game can't sell well enough on Steam or PS5, then it has bigger issues than GP and in fact GP could then be a net positive.

Eh? This is where cannibalization comes, but there is no clear math on the impact there. Not to mention games like Indy weren't launch aligned. This will never be 'out the window' until retail sales is on a level playing field. But that's not even the argument I'm making.

For obvious reasons, I don't see anyone urging Sony to end their exclusivity strategy to 'help the devs'

Not interested in whataboutism. We can talk about Sony financials on a thread about it.

According to Dring's MS sources, they're accounting for lost retail revenue due to GP. Revenue, not profit. Implicitly still carrying a portion of the dev costs.

Lost retail revenue is speculative, biased and not hard dollars. You have no idea what dev cost it is "implicitly carrying", which is why it's not the right way to look at things, if you want to get to the truth.

 

[Ozriel]

Who said anything about losing money or cannibalization of sales? When I say net loss, I mean it from an accounting standpoint. If gamepass revenue is accommodating said loss, then no one is "losing money". I'm not asserting that Indy is losing money at all. I actually have no idea if it is or isn't.

Not trying to blame gamepass for anything other than asking if it can cover all shortfalls to make the overall strategy (I.e retail + GP) viable or not.

Games can totally bomb for other reasons. But there will be no way to know with a subscription service that treats every game equally. Again, my goal isn't to assign blame, but to see if there is net profitability, all things considered

So why does it have to be GamePass revenue accommodating the 'loss' or any shortfalls? Why not Steam? Or PSN?
Where does the belief come from that shortfalls would not exist if GamePass wasn't a thing?

Eh? This is where cannibalization comes, but there is no clear math on the impact there. Not to mention games like Indy weren't launch aligned. This will never be 'out the window' until retail sales is on a level playing field. But that's not even the argument I'm making.

Lost retail revenue is speculative, biased and not hard dollars. You have no idea what dev cost it is "implicitly carrying", which is why it's not the right way to look at things, if you want to get to the truth.

Ball park Estimates can be made. Pretty much every publisher has sales forecast projections before launch, and then revise it after seeing critic and commercial reception.

Ball park estimates still translate to hard dollars.

Not interested in whataboutism. We can talk about Sony financials on a thread about it.

To explain this to you as simply as possible, if it's well acknowledged that Sony games can sell on a single platform and be viable, then it stands to reason that Microsoft's games - if they land at the right levels of critical and market reception - can also sell enough to be viable purely on retail on that same platform.

it is well known that GamePass dampens sales on Xbox for first party games, but that's fast becoming the smallest of the three target ecosystems. Bottom line is if a Microsoft first party game loses money, it's not likely to be because of GamePass.

 

[calico]

What are you referring to by "GP income resulting from those games"?

Take this 'almost $5bn' that they are calling GP revenue. I'm referring to whatever portion of that is due to first party games being on the service (this would require an honest assessment by MS).

Ultimately, it doesn't matter what MS does for their accounting, as long as the numbers are accounted for somewhere

Sort of, but it matters if we want to consider GP specifically, and it matters if we are to understand whether to take the statement 'Game Pass is profitable' seriously or not. If that claim involves assigning GP none of the dev costs (or your method, of only whatever dev costs retail sales don't cover) but assigning GP the revenue GP generates from those games, then it shouldn't be taken seriously at all.

But what question are you trying to answer by doing that?

The opposite of whatever you are trying to answer by doing the opposite.

There's nothing magical about it if you split things up as separate P&Ls.

There is if you start shuffling the L around between them depending on whichever conclusion you are trying to reach. It would be quite misleading to say 'GP is profitable' or 'Retail is profitable' if you only arrive at that by assigning all of the L to the other one.

it is well known that GamePass dampens sales on Xbox for first party games, but that's fast becoming the smallest of the three target ecosystems. Bottom line is if a Microsoft first party game loses money, it's not likely to be because of GamePass.

It may well be if GP is the reason why Xbox is the smallest ecosystem.

 

[viveks86]

So why does it have to be GamePass revenue accommodating the 'loss' or any shortfalls? Why not Steam? Or PSN?

Steam and PSN accommodate it already. Where do you think the shortfall comes from? Shortfall = Cost - retail (i.e steam and psn) and other in game sales like MTX. The shortfall is the cost that is above and beyond income directly attributed to an individual game. I feel like you started debating me without understanding my proposed calculation. The reason I'm proposing this calculation is every number is directly measurable and not speculative. It actually works favorable to gamepass because I'm not asking to deduct all game development cost from its revenue. Just the part that cannot be recouped by any other means. At the minimum, it needs to do that to avoid MS game studios from "losing money".

Ball park estimates still translate to hard dollars.

By definition it's not. And if the estimates are not published, then even less so. What and how much counts as a lost sale? Did a GP download happen because it's on GP and has no additional barrier to entry, or because the gamer would have bought it at retail price anyway? Without GP, would they have bought it at full retail or waited for discount? Would they have bought it at all? All this stuff is speculative and companies will always speculate in a biased fashion to keep investors happy. It's not as useful for an external analysis that is trying to be objective. Not saying they are useless measures altogether, but avoidable when there are real measures already, which haven't been published.

Bottom line is if a Microsoft first party game loses money, it's not likely to be because of GamePass.

By going 3rd party, this may very well be the case. It's likely why they went 3rd party in the first place and I applaud them for it. I just wish there were real numbers to back it up

 

[Ozriel]

It may well be if GP is the reason why Xbox is the smallest ecosystem.

Seeing as how GP is one of the biggest system sellers for the console, I strongly doubt this.

 

[Windle Poons]

That would be about an average of $12.20 from each subscriber

And like I keep saying, they've never got a penny from me in however many years it's been going but I'm still a GPU subscriber for 3 more years.

 

[viveks86]

Take this 'almost $5bn' that they are calling GP revenue. I'm referring to whatever portion of that is due to first party games being on the service (this would require an honest assessment by MS).

That's not a right number to begin with for my calculation. My calculation for GP revenue is purely annual subscription revenue. Nothing more, nothing less. So we are in agreement. The 'near $5 billion' just muddies the water even more.

Sort of, but it matters if we want to consider GP specifically, and it matters if we are to understand whether to take the statement 'Game Pass is profitable' seriously or not. If that claim involves assigning GP none of the dev costs (or your method, of only whatever dev costs retail sales don't cover) but assigning GP the revenue GP generates from those games, then it shouldn't be taken seriously at all.

Yeah we agree on that. I think a bulk of our disagreement is coming from the assumption that I'm taking $5 billion as GP revenue on one side of the equation. I'm not. Just give me total annual subscription revenue.

The opposite of whatever you are trying to answer by doing the opposite.


There is if you start shuffling the L around between them depending on whichever conclusion you are trying to reach. It would be quite misleading to say 'GP is profitable' or 'Retail is profitable' if you only arrive at that by assigning all of the L to the other one.

I'm not trying to do either. Just trying to see if the gaming software division is profitable with gamepass as one of its strategies (as that's what matters at the end of the day, right?) It's easy to group all game-specific direct costs and incomes on one side and gamepass subscription revenue on the other. Are they balanced, positive or negative for GP? That's what I'm getting at. I don't know the answer to it. So I don't know what conclusion I should be favoring. Overall I'm not a fan of gamepass, but with MS going 3rd party, it might not be as bad. I just don't know the answer

 

[adamsapple]

Seeing as how GP is one of the biggest system sellers for the console, I strongly doubt this.

And, again, it has been repeated that it accounts for around 15% of the total revenue share, so it's nowhere near a majority of the Xbox pie, even if it's one of the most beloved thing about the brand by fans.

 

[Yekshemesh]

Congrats, it only took 90 Billion dollars to achieve the milestone.

 

[adamsapple]

Congrats, it only took 90 Billion dollars to achieve the milestone.

Spend money to make money, whoda thunk.

 

[Yekshemesh]

Spent 90 billion on 3rd party pubs and finally have your games chart. Who would've thought...

 

[Ozriel]

Spent 90 billion on 3rd party pubs and finally have your games chart. Who would've thought...

At least the games are multiplatform, so looks like a win-win for everyone.

…except you. You've posted the same thing twice in 25 mins so it's safe to say you're upset.

 

[Yekshemesh]

At least the games are multiplatform, so looks like a win-win for everyone.

…except you. You've posted the same thing twice in 25 mins so it's safe to say you're upset.

The games were always multi-platform... it was a win win before the aquisition.

 

[PropellerEar]

Seeing as how GP is one of the biggest system sellers for the console, I strongly doubt this.

The system isn't selling compared to competition, ergo...

 

[calico]

Seeing as how GP is one of the biggest system sellers for the console, I strongly doubt this.

And the biggest reason the system owners aren't buying games, which is what has led to Xbox 'fast becoming the smallest of the three target ecosystems' so far as game sales go, which is what you were talking about.

If a first party game loses money, it may well not have done if Xbox owners still bought games instead of playing them on sub.

Just trying to see if the gaming software division is profitable with gamepass as one of its strategies (as that's what matters at the end of the day, right?)

If that's all we're trying to see, would we not just add up all the (non-hardware) income and subtract all the (non-hardware) costs? The method you described before (or indeed any more nuanced method) is unnecessary if we are only interested in an overall view of whether the current approach is profitable or not.

 

[adamsapple]

Congrats, it only took 90 Billion dollars to achieve the milestone.

Spent 90 billion on 3rd party pubs and finally have your games chart. Who would've thought...

 

[Ozriel]

The games were always multi-platform... it was a win win before the aquisition.

Eh. If you're going to cry about this, at least do it in the right thread. This one is about GP.

And the biggest reason the system owners aren't buying games,

First party games, yes. 3rd party? BS

which is what has led to Xbox 'fast becoming the smallest of the three target ecosystems' so far as game sales go, which is what you were talking about.

"Xbox would have more users than PlayStation or Steam if not for GamePass" is quite the take indeed.

 

[calico]

First party games, yes. 3rd party? BS

You were specifically talking about first party games, though I would assume any game available on Game Pass is likely to have its sales on Xbox suppressed as a result of that availability.

"Xbox would have more users than PlayStation or Steam if not for GamePass" is quite the take indeed.

More Xbox users would be buying games if not for Game Pass, and that increase may well be enough to make the difference between a loss and a profit for a first party game. What is your explanation for why Xbox is 'fast becoming the smallest of the three target ecosystems' for game sales?

 

[Effigenius]

You can consider each game download a lost full price sale and calculate from that in relation to the development and marketing cost.

lol! Yeah right. Just like every pirated game is a lost sale too, right?!

 

[Effigenius]

Not sure why this is being treated as rocket science. Just push over the annualized net loss of each first party game on GP. So that's total annualized expense minus income from non-GP sources like MTX, direct sales, steam/PS etc. If the game has net annual profit on its own, dev cost need not be pushed over.

If CoD cost $200 million to make and made $400 million on PS and PC, then it has no dependency on GP to cover expenses.

But if Indiana Jones cost $100 million to make and it made $60 million on PS and PC, then $40 million difference should be pushed over to GP.

The goal is to find if GP is sustainable. Not just profitable as an independent P&L. Without knowing this, there's no point celebrating it or claiming it to be a benchmark that others should emulate. Investors don't care as they aren't investing in MS game studios. They are investing in MS, which is making shitloads of money. Consumers don't care because they get a bunch of expensive stuff at no additional cost beyond subs. But in the long run, it affects the devs because MS isn't running a charity. And if it affects the devs, it is not praise worthy.

But if it all turns out net positive anyway, then we can set this debate to rest. Unfortunately, all we have is obfuscation.

But if there was no gamepass some of these games would still flop and not recoup dev costs, so putting all the loss on GP isn't correct either.

 

[viveks86]

If that's all we're trying to see, would we not just add up all the (non-hardware) income and subtract all the (non-hardware) costs? The method you described before (or indeed any more nuanced method) is unnecessary if we are only interested in an overall view of whether the current approach is profitable or not.

You know what? That might actually be enough for me now that GamePass is destined to become a secondary source of income once all games are released day and date on other platforms. If the primary source of income i.e retail can't make the game profitable, then it's not GP's responsibility to fund/save it. O Ozriel is right on that aspect.

But if there was no gamepass some of these games would still flop and not recoup dev costs, so putting all the loss on GP isn't correct either.

Since our last exchange, I've seen the light. No point trying to solve this equation for what is going to be a secondary source of income. There is no easy way to accommodate edge cases, such as bad games destined to fail. Might as well step back and look at overall numbers, imo