Current Events > How the hell does gamepass make money

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Explain it to me like I'm 2

Also how do they tell what game is actually doing well for them? Just downloads?

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Theyre older games that probably dont generate much sales anymore. Also goes to show you how much of rip off game prices are, particularly on older games. The margins might be slim on new releases but after theyve recouped its all gravy

Smackems posted...

Explain it to me like I'm 2

Netflix

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They charge a monthly fee

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subscriptions are hot now across all types of businesses. you get a predictable monthly revenue flow, it's easier to sell additional products to your subscribers, and you save money on customer acquisition (it is much cheaper to keep existing customers than attract new ones).

with subscription-based models, the big thing you need to manage is what is called the "churn rate", the rate at which customers leave your service. everything is based around this number, you need to keep it low enough that you can survive with your existing base + new subscribers.

challenges of game pass are paying/navigating licensing, managing the cloud infrastructure required for this, attracting talent that is experienced with software & services, and getting new acquisitions. all stuff that MS is good at, so its no surprise that gamepass is a huge hit.

source: i have worked in the telecom + IT leasing industries and they both worked on the same model

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Romulox28 posted...

subscriptions are hot now across all types of businesses. you get a predictable monthly revenue flow, it's easier to sell additional products to your subscribers, and you save money on customer acquisition (it is much cheaper to keep existing customers than attract new ones).

with subscription-based models, the big thing you need to manage is what is called the "churn rate", the rate at which customers leave your service. everything is based around this number, you need to keep it low enough that you can survive with your existing base + new subscribers (growth rate).

challenges of game pass are paying/navigating licensing, managing the cloud infrastructure required for this, attracting talent that is experienced with software & services, and getting new acquisitions. all stuff that MS is good at, so its no surprise that gamepass is a huge hit.

source: i have worked in the telecom + IT leasing industries and they both worked on the same model

Yeah this all sounds right to me.

TheDarkCircle posted...

Theyre older games that probably dont generate much sales anymore. Also goes to show you how much of rip off game prices are, particularly on older games. The margins might be slim on new releases but after theyve recouped its all gravy

There's plenty of new releases on Game Pass.

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Smackems posted...

Also how do they tell what game is actually doing well for them?

Oh they've got way more ways to track what you're playing and how much.
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Microsoft said they were up to 15 million subscribers in September. That's almost 150 million a month even if they're all just the basic game pass(they aren't).

It was also 10 million subs back in April. That's 50% growth it around 6 months.

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Seems like a gimmick

like, they havent actually figured how to make money off Netflix yet

how can a subscription service fund AAA video game development?

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TheGoldenEel posted...

like, they havent actually figured how to make money off Netflix yet

Is that a serious question? Pretty sure Netflix netted like 2 billion last year

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TheGoldenEel posted...

Seems like a gimmick

like, they havent actually figured how to make money off Netflix yet

how can a subscription service fund AAA video game development?

Microsoft has way more extra ways to make money off Xbox than Netflix.

But also most of the developers they bought out aren't super expensive AAA studios. Probably a reason for that.

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Solid Snake07 posted...

Is that a serious question? Pretty sure Netflix netted like 2 billion last year

Eh... not really.

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Solid Snake07 posted...

Is that a serious question? Pretty sure Netflix netted like 2 billion last year

They spend way way more than that on content

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I still don't really get it

I'm beginning to think I might just be an idiot

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MS is building an ecosystem. It's like Netflix or Amazon Prime-- Amazon loses money on Prime, but they'd prefer to keep customers in the ecosystem than profit on the service.

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vigorm0rtis posted...

Eh... not really.

Yahoo finance says they had a gross revenue just over 20 billion and a net income just under 2 billion in 2019. Both of which grew at a very large clip from 2018

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TheGoldenEel posted...

They spend way way more than that on content

That was their net, which is profit after expenditures.

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Like even if they do make 150 mil a month that has to be split between a ton of developers and publishers and shit so how, at the end, does anyone actually make much when they have to spend so damn much to make the games and run the services

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Smackems posted...

Like even if they do make 150 mil a month that has to be split between a ton of developers and publishers and shit so how, at the end, does anyone actually make much when they have to spend so damn much to make the games and run the services

I'm sure they'd be allocating their money on all of Xbox's revenue as a whole more than just subscription revenue. Looks like they make around $1 billion a quarter if I'm reading some financial stuff right.

Of course there's other stuff to balance as well. Depends on how much Microsoft is willing to invest into the platform since this stuff is all pretty much chump change for them.

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Solid Snake07 posted...

Yahoo finance says they had a gross revenue just over 20 billion and a net income just under 2 billion in 2019. Both of which grew at a very large clip from 2018

As have their costs of production. Netflix is also in the business of ecosystem building.

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Smackems posted...

Like even if they do make 150 mil a month that has to be split between a ton of developers and publishers and shit so how, at the end, does anyone actually make much when they have to spend so damn much to make the games and run the services

MS knows that if you're in their ecosystem you'll spend money somewhere, but right now they're likely losing money. Losing money to make money is pretty common though.

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Smackems posted...

Like even if they do make 150 mil a month that has to be split between a ton of developers and publishers and shit so how, at the end, does anyone actually make much when they have to spend so damn much to make the games and run the services

idk how microsoft is handling the licensing, but here is how netflix does it (to give you an idea):

The payment terms of these agreements are not tied to member usage or the size of our membership base (fixed cost) but may be determined by costs of production or tied to such factors as titles licensed and/or theatrical exhibition receipts... Payment terms for certain content commitments, such as content we directly produce, will typically require more up-front cash payments than other content licenses or arrangements whereby we do not cashflow the production of such content.

also when these guys are viewing gamepass customers they arent just looking at X amount a month, they're looking at the whole picture - they might, for example, have figured out that the average customer stays subbed to gamepass for 6 months, that the average customer might spend an additional $X on microtransactions/dlc over the course of a year, etc.

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vigorm0rtis posted...

As have their costs of production. Netflix is also in the business of ecosystem building.

Uh....yeah costs usually tend to go up with revenues and income.

But to say netflix doesn't turn a profit is factually wrong. They make billions a year.

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A lot of subscription based companies don't usually make a whole lot of money on subs alone, but having a high sub count does give investors and shareholders confidence in your company to invest in. Plus Microsoft makes a shit ton of money from softwares alone, they don't make that much from their video game division.

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like every other single company in america

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