Phil Spencer: Xbox Game Pass Isn't 'Burning Cash', It's Very Sustainable

Burn some of that cash for ubisoft plus please, I'd happily pay extra a month for that to be included and would be more use than EA access

Wait for the push square posts saying he's lying 🤣

But but gamepass iisnt that great bluh bluh this bluh bluh that

@UltimateOtaku91 I wouldn't pay a dime for Ubisoft games. At this point I'd rather have Microsoft selling 'add-ons' to Game Pass, so that we could choose whether we would like to pay a little more for EA, Ubisoft or other company's own services.

Game Pass is brilliant. It’s the Netflix of Games which Stadia should have been. Just need PlayStation to put exclusives on its PlayStation now service and everyone wins!!!!

But Xbox has no games... Wait.

Seriously, Game Pass has become an important part of what Xbox is so there's no turning back and it must be profitable because the number of members raise constantly and sales haven't decreased according to developers and to Forza Horizon 5 impressive figures.

I'm not interested in GP, but I'm glad it's doing well. It's by far the best sub service of the big three. I'd rather GP does the best and shows Nintendo and Sony how a game sub service should be done.

Would also like for it to eventually be the reason gold gets dropped.

All the experts over at push square say it doesn’t make any money and isn’t sustainable though, I don’t know who to believe 🤣

Even at 25m people paying $10 a month, that's $250m a month - or $3bn a year. Yes I know some may well be paying $1 a month for a month or two but others are also paying 'more' for Ultimate too and 25m is likely to be a 'conservative' estimate too.

If you take a game like Horizon:Zero Dawn which had an Estimated development cost of $45m (say $50m for convenience), that means Game Pass is bringing in 'enough' revenue to pay for '5' AAA games equivalent to H:ZD - although as games take 'years' to make, that cost is spread over many years too. Of course there are 'other' costs to pay from the Game Pass pot - like the servers, upgrades and upkeep, the staffing, the 3rd Parties who allow their games on Game Pass etc etc.

However, they also get money coming in from Game Pass subscribers who buy games, add-ons etc because they are invested in the ecosystem. If they want to play 3rd Party games not on Game Pass, they still have to buy those too so MS benefits from that.

It is sustainable but often, you have to take a 'loss' on the concept in the early years as you need content to entice growth but haven't got the subscription numbers yet to cover the costs of that content. Unlike Netflix though, its not an 'exclusive' platform as the games are still 'sold' to those non-subscribers.

If Netflix spend $300m on a big blockbuster movie, its not going to get a cinema release with Box Office receipts and networks buying up the rights to show it on their channel(s), Its relying on Subscribers for it to be financially successful. FH5 for example may well be on Game Pass, but its also got a 'traditional' release. Maybe it won't 'sell' as many copies as say FH4 because more people now have Game Pass, but its still available to buy on multiple hardware (XB1, XB1X, XSS, XSX, PC) and no doubt, some GP subscribers will buy FH5 and/or extras too so its not so dependent on Game Pass alone to be financially successful.

MS paid $7.5bn for Zenimax and many add that on to the Game Pass equation, how can they be 'profitable' when it would take several years of just Game Pass Subscriptions to cover that 'cost' let alone the development of games. However, MS bought them for the whole Xbox community, not just for Game Pass. Those games will sell well on Xbox and PC to all the non-subscribers, will draw in more Subscribers, entice people into the Xbox ecosystem.

In general, the Game Pass model often takes a huge investment cost and takes time for the Subscriber count to grow enough to surpass the running costs. So I can understand why that mentality exists. I am sure it wasn't easy for MS initially, but when you are not fully reliant on Subscribers as you have customers that will buy the games, its not as risky.

No-one really knows the truth - but as MS seem to have an 'increase' in overall profits across the board, it would indicate its 'sustainable' right now.

@Martsmall
I mean if GamePass wasn't sustainable would you expect Phil to come forth and say that? The inventor of MoviePass wouldn't do that when anyone with half a brain could do the math and tell it wasn't sustainable. GamePass is a better business model for sure but you get the idea.

And FWIW, I'm an owner of both PS and XB. I'm enjoying GamePass but I'm still skeptical that it makes a profit. Not that that has any effect on me. MS has the capital to support it though so it's safe for a long while I'd imagine.

@themightyant whether it's in profit or not ,they could break even as far as I care,as long as it keeps churning out the games I'm happy

Oh boy, people now arguing over what he meant by saying sustainability lol.
Here is a jar of eggs, Sony friends. Now suck em

@Medic_Alert @themightyant I mean, in fairness a cost like marketing isn't profitable by itself. Yet, companies will spend half the budget on marketing because the practice is justified or "sustainable" because of revenue it helps bring in.

Many devs have stated that GP was great for their launch. The service is clearly having a positive impact on revenues.

If there's one complaint I have with Game Pass is that there's too much damn choice. It's another backlog of entertainment I didn't need. But that's on me for subscribing obviously and giving into the temptation.

They should do what AOL did back in the 90s when they gave away all those "free trial" floppies and CDs. It was SUPER successful, but at industry events the executives would tell their competitors it was costing them a fortune, and they tried to stop it, but couldn't. That way their competitors weren't tempted to copy them

When it comes to talking Game Pass vs traditional sales, sustainability, etc, one thing I think a lot of people really overestimate the actual sales of a game vs it's probable total market.

I've said it before, but, we can look at Game Pass and say "they're losing money vs $70 game sales", but we're looking inside our tiny window of enthusiasts and missing that, on average, console owners, on all platforms, buy, statistically, 2 games a year. Now, that's an average of those of us buying 15 on a slow year and those buying one game every 3 years. Those of us that buy 15 probably wait for sales more times than not. The people buying one every 3 don't.

If we take the average, even at Sony day 1 prices, that means the average player of that potential 100m player base upgrading to $70 PS5 games spends about $140/yr on games for their console. A GPU customer spends $180/yr. Boom. GPU customers are already spending more into Xbox than the average Playstation customer into PS. Done. Sure they have the cloud servers to pay for, but that's a separate gamble on the cloud market, not really a function of GP alone in the console space. Plus, Sony's been selling cloud play for years and it's incredibly cheap so the costs on that must scale with subs quite favorably. After all nobody's going after Sony for Now "burning cash." Whether GPU launched at a loss or not is kind of irrelevant. It can net more spend per active customer per year, by default, than PS does, though offset by, for now, a smaller total market. The early "losses" wouldn't count as "burning cash" more than an investment/R&D/expense line, and isn't exceptional to having to build an $900M stadium on prime real estate to host a football club that pulls in $300M/yr in tickets. Or R&D'ing a PS5 to sell Spiderman on.

But we can break that down further. The tiny enthusiast market, us, represents, if we're optimistic 5-10% of the total market. We buy a lot of games, but we also buy a lot on sale, reducing the total gains. On game pass, we're mostly digital. PS still shares more significant sales revenue with Walmart, Amazon, etc. MS is making more profit per-sale on average on the actual copies sold as well, though Sony's digital is certainly taking over, there, too. Along with that, "lifetime sales" on the typical retail game mean little as a lot of those sales are post-discounts anyway. Thus the importance of launch sales only.

And then there's the big one, the list from the other day on PS about the most playtime on the platform. All but 2 games on the list are multiplat 3rd party. Of the other 8, only one is on Game Pass (meaning Xbox players have to buy the games outright here too), and the one that's on Game Pass is one of the 3 PS Studios games on the list, MLB. Meaning even if Sony emulated GP 1:1 with Now, 8 of their top 10 engagement games wouldn't even be affected by the change. But #1 is Fortnite, F2P. So the current reigning #1 thing PS5's are being used for is something players aren't even paying for (obviously unless they buy into the MTX...which many do.)

Now if you have a player that subscribes, and browses the sales, buys DLC, now you're up to $200 and beyond per customer per year, and total capture of spend rather than sharing with retailers and, worse, total loss of spend on used software. It already starts pulling in more than traditional retail sales.

Fans seem to focus on "how much does it loose vs retail sales by providing so much for so cheap?" Assuming everybody was going to pay launch retail for everything they play on GP. It's the wrong comparison, and it's not the comparison MS is making. They're looking at "how much total entertainment spend does each active user spend into Xbox with GPU, vs in the traditional retail channel?" If that number is the same or greater, they grew their market and revenues with it. There's not a concern about "can this title make more at retail pricing per sale? X copies at $Y = $Z revenue." They're looking at "how many more users can we get and how much of their total entertainment spend can we pull into Xbox." Meaning pulling that spend from TV, movies, music, travel, iOS, Playstation, dining, everything. That's the metric that matters in digital entertainment, because it's about "leveraging their market" rather than just "sell through of a manufactured good." It's a different target, and ultimately a bigger target.

Sony knows this, too, it's why they're desperate to get into the PC, film, and mobile space so aggressively. They're not oblivious to this shift in spending, they're just trying to slow it down as much as possible (ironically, they were one of the first ones to get into it, ahead of its time.) Someday, Now will be Game Pass. Heck, maybe it'll be better than Game Pass by they time they really have to use it. And presumably under a more creative leader....

More on offer for less money easily leads to over-consumption and additional spend per user. More income, happier customer, it's a win-win. It's how buffets, cellular carriers, and ISPs have made money for decades. For only $5/more a month you can get another 5GB mobile data at 4G speeds! Of course you didn't even use the 5GB you had before, but what's another $60 a year for the luxury just in case you want it? If you go over your limit separately it'll cost you $50 just once!

And, as I've said before as well, we're also not factoring in the investor-friendliness of recurring purchases, the stability that brings, and the ability to therefore invest those projected earnings, safely, unlike day 1 sales. If they pull in $500M from game pass, they can invest it, more importantly they can invest it before they have it (ugh, finance...) because it's predictable income, and that 500M can be 650M simply by laundering successful utilization of projected future earnings. They can't do that with day 1 sales in the box. There's business factors affecting the value of that money as well. It's not just X subscribers at $Y/mo = $Z/mo. It's the gains with appreciation that count.

Overall, GP encourages spending a little more to get a lot more, that you otherwise wouldn't have bought at all. That's just good business, not just for repeat sales, but for the bottom line. It's simple, but it's genius.

@Medic_Alert While I think you're right on this one, I wouldn't read to much into public records and not misleading investors. Anything could be said about anything (and always is) in a way that clears those loopholes. And even when they get caught, they plead guilty, get a $5M fine, pay it with the $100M exit bonus, and move on to the next company. I don't think Phil's in danger of lies here, but "because it's public" isn't really proof of anything.

@PhileasFragg If AOL were in gaming, they'd be Atari.

@SplooshDmg I went to reply, and I was going to paste a picture of the most scotch-drunk picture of Jim Ryan I could find to add to the comedic value. So I googled his name and looked at the pictures, and I was greeted with an endlessly scrolling page of images and OMG every last one of them he looks completely sloshed. I mean only a few stock photos does he not, he's a total mess in all of them. I've been sitting here unable to stop laughing uncontrollably at that fact. There's too many choice candids to even include examples, but as I look at them so many hilarious captions come to mind.

I can't walk away empty handed however. So I'll choose to post the following one. I caption it:

"A very special message to PlayStation fans from PlayStation CEO and President Jim Ryan"

The Marvel strategy truly sucks if you're a game enthusiast, especially since it takes one of the top studios in the world effectively out of making video games and into making brand/movie tie-ins, but as a business strategy, it's definitely "in the now" in a solid way. I see why they're doing it. It's lame, it's hollywood, it's one step away from "We have Fortnite too!" but that'll make a lot of people choose their console. But yeah, we know PS is the default console people choose to play Fortnite and CoD on if they don't really know what console they want or really care, they just want to play one of the big 5. So console install base really isn't relevant. With 100M console's sony's failed to move more than 30M of a single game. That's a pretty good attach rate, but it also tells us, basically, they're fine even if they sell no exclusives at all. The FIFA tie-in is probably all they really need. Their 1st party games are praised among fans but if you subtract cost from sales, they're not really even doing a major line of business on those exclusives. It's all in the 3rd party.

That's one thing Game Pass does, as well, is it gives MS negotiating control over how the whole ecosystem performs. They can use Halo to loss-lead to pull in players to then strike better deals with 2K, etc, skimming more royalties off the top because they're delivering an active, engaged audience primed and ready. I'd say Activision but Activision just isn't playing the Game Pass game yet. There's just so, so much in the background at what goes on. We didn't even know the tip of the iceberg until Epic v Apple opened that window. The layers of depth on these contracts is extraordinary, and that gives us a little insight into what kinds of negotiating happens. Imagine Xbox just eating a loss when GTAV goes up there for a month.....in exchange for an extra 0.4% of the pot on all 2K game sales for 4 months? These things add up. And we now know that's the kind of crazy stuff in these negotiations. We're a long, long, long way from the happy days of copies X dollars = profits.

Starfield....I will forever think of it as the buggy, dated game that isn't really very good anyway, just like all the other buggy, dated games that aren't very good anyway from Bethesda that Sony once tried to buy exclusivity of.....

There's a difference between making an accounting profit and generating positive cash flow. Hollywood is a good example--most films don't generate an accounting profit, but have positive cash flow. I wouldn't be surprised if Game Pass is similar in that, from an accounting point of view, it could be break even or possibly a loss. But from a cash flow standpoint it sounds like Phil is saying it's doing just fine.

@SplooshDmg Deathloop was weird from the start. It doesn't fit what I think of being a "Playstation game". There's a certain "feel" to a PS game, or at least there used to be, and that isn't it. I can't say it "feels" like an Xbox game either, but it just feels multiplat. And it is multiplat after the timing. I never figured that would hit particularly hard for the PS exclusive audience no matter how hard they pushed it or how good it is.

I bet the XBox top ten looks basically like the PS5 top 10. Different order, some substitutions but the top 5 will all be at the top ragardless. Fortnite and CoD will surely be at the top.

Game Pass, by going with what's popular foremost does run the risk of becoming a bland, homogenous morass if it's not well managed. However, PS has become that as well because they can't risk anything not being a big hit due to the cost up front. Some will cite Returnal, but that was lower budget, to an external (at the time) studio, and I still believe that was more of a "final test" before the acquisition went through more than a profit oriented product. A joint project on a bigger scale to make sure the team works well in their environment.

Yeah, nobody should have to pay for Betesda's boring buggy games. I'm so glad I just get them for free after I pay $180 for the year for them.

What about things like Forza horizon 5's premium add ons pack then or wanting an extra £14 to upgrade to the anniversary edition of Skyrim ?

@Would_you_kindly The premium pack is just the normal DLC with expansions, same as all previous FH games have had on Game Pass. The only difference is that for FH4 you either had to buy the full premium edition of the game for $75, 85, whatever it cost full price, or you could play on GP and had to buy all the DLC separately for more money than the upgrade edition cost if you wanted the expansion content. With FH5's premium pack you can just pay the difference as though you owned the base game already, and upgrade to the premium edition content without having to pay for the base game at all, so it's actually a big price cut vs accessing the same content in FH4.

Like if Ubisoft did it for Assassin's Creed, you know how they normally sell the $60 base game, the $80 mid-tier game, and the $100 gold edition that comes with all the expansion packs, add-ons, and early access? It would be like having to only pay the $40 upgrade difference to gold, the cost of the base game is included. At first it looks like they're gouging but they're actually offering value.

Skyrim, the terminology is weird. "Upgrade" makes it sound like what PS5 is doing with $10 upgrades from PS4 to PS5. But it's not. The actual upgrade is free for special edition (the X1 version) owners. The $20 anniversary pack is really just a DLC bundle of paid community content. It's not really an upgrade at all. They really shouldn't have called it that. Most people really shouldn't "upgrade", it doesn't improve anything in Skyrim at all, you already get the "best" version of Skyrim if you already own it (or play it on Game Pass), all it does is add a bunch of mini-DLC packs that were already available individually for years, for a single reduced bundle price. There's no upgrade, there's just a DLC bundle for sale. IDK why they called it an upgrade. Especially when they also did release an upgrade. For free.

@SplooshDmg It's a very awkward year when the GOTY nominees are:
Xbox Studios (Playstation Exclusive)
Xbox Studios
Nintendo 2D game
EA
Capcom
PlayStation Studios (Honroable mention before the vote. No chance.)

Making money and making profits are absolutely two different things but its definitely sustainable. The subscription numbers, the in game purchases by users who may not have dipped into those first party games paying full price, many factors that will make them their money back.

Its been a game changing service and will continue to be that way. They are on to a winner. MS being able to afford to take the risk with it helped, but no doubt eventually it will turn a profit for them.

All that aside I still cant understand how this post prompted all the playstation comments. Wasnt even mentioned in the article. Console wars are a dead horse stop beating it.

The numbers are gonna be bananas with this Halo Infinite multiplayer launch

@Jaxx420 The article is about Phils comment about people writing how they're burning money/losing money - he even used the word "sustainable" directly referencing the internet mantra (including some devs and people like Shaun Layden, technically working in the indies scene now), who have called it "unsustainable." He's directly countering an argument generally raised about the business model in relation to Sony's traditional model, so the article, and Phil's statement/the question asked of him by Axios does actually involve PS, or PS's business model more specifically. The notion of "Game Pass is unsustainable/burns money" that he's discussing is a comparison to Playstation's operations pretty directly. So discussing that comparison further is on-point, not aimless console wars. Yes, the comedy around Ol' Scotchy isn't related, but it's a follow-on in the conversation continued with Sploosh, and I'm not mocking Jim as an Xbox warrior, I'm mocking him as a PlayStation fan. That gif's coming back on Push Square, you can bet on it.

@SplooshDmg Because it's a Keighley, and Geoff doesn't like jocks, gearheads, weebs, eCompetitors, or....well really anyone that doesn't pay him enough or grant him access to celebrities somehow....

Really, I still see these awards as nothing but an internet social popularity contest. There's really no rhyme or reason to what gets excluded other than that it's not trending on social for a long time. Though FH5 is trending but it goes against the "sports, racers, J-anything, and strategy isn't a real game" motif of the Keighleys. I am surprised Dread is on the list though. That still seems kinda outside, but Metroid does have that internet popularity engine behind it. I'm just surprised ACNH didn't win last year.

I haven't played Arise yet. Love, love the Tales series so it's on the list (and if it's on sales next week I'm buying, even if not playing yet.) SMTV was a full price buy though. Handheld makes that somewhat convenient though.

@NEStalgia tbf even though I need coffee to read them all sometimes your comments make sense and I almost always agree with you. Wasnt really directed at you more to those who only seem to comment when they can compare xbox vs ps and take a pop. It gets old.

Honestly - I do think PS users spend way too much time on GamePass and profitability but I am sure you can agree with me too the whole tit for tat between console zealots doesnt half get old very quickly.

@Kilamanjaro you don't need game pass for halo infinites multiplayer it's free to play

@Jaxx420 I agree with this. At the end of the day I take a lot from all the services anyway. If its on gamepass I play it on XSX. If its on PS Now I play it on PS5. If it is on neither I play where it plays best or where more friends are If it's multiplayer. Bought GTA trilogy on PS and bought Vanguard on Xbox.

Because of GamePass and PS Now I can avoid paying full price for a large chunk of games and use my money to pay for those not available on the subs. I benefit greatly from this. Games day one on GP is just the icing on the cake.

If MS prove that it's sustainable we can expect more from Sony. MS can take more risks so I'm sure Sony are biding their time tk see how it turns out before bolstering PS Now.

Eurgh and on console wars... I've already said on multiple comments on both here and on PushSquare that it is the very vocal few that treat Sony and MS like gods. I am pretty sure Phil Spencer is some sort of Deity to "purists". It's great that people have passion it's just better spent on our shared passion for games and not this BS hating on the "other side". You used to be able to have a rational argument if you had an opposing opinion but now you are called out for being a toxic fanboy. I was reading the Xbox bc article and most comments applauded MS for their efforts but then some were targeting the "other side".

I'll tell you one thing you can't play on Xbox or PlayStation and that's Chronotrigger!

I've picked it up on DS and it's great. Never played it before and I am very impressed!

@HungryHungryHomer wow yes 100% with you in this one! I'm having to be selective on what games inay now with so much choice and so little time. I've still not picked up Forza yet...

I'm a big fan of the souls games too so I'll be screwed when Elden Ring comes out.

@NEStalgia You always remind the important fact that we are a small minority. PS4 was the most successful console last generation but it was the FIFA/GTA console, not The Last of Us console. Series X/S is the Game Pass console. The important thing for Microsoft is the Xbox revenue and the earnings are higher with Game Pass than just selling copies but we often forget that many Game Pass members also buy games, more than before according to Microsoft. At first, this might not sound logical but I guess it's the higher amount of users and the discovery that Game Pass entails that raise the overall sales. Game Pass is a win-win for Microsoft. More platforms, more players, more subscriptions, more sales. The day that they acquired Mojang and ZeniMax they "lost" money but afterwards what they get is a constant money inflow. Why do they needed so many Xbox Game Studios? Because they wanted to create a great gaming ecosystem and Game Pass is the perfect way to make the most of it. Game Pass is a gaming multiverse.

@BlueOcean That's why the engagement metrics are so important to companies. Game pass keeps you engaged with the product, keeps your eyes on their screen, their content, their sales. Because they keep you looking there, they keep you interested in what else they're selling, and you're more likely to buy it. Engagement is THE metric for modern digital content, whether it's Xbox, or IGN. GP gets that engagement metric going like nothing else, and thus it nets add on sales easily!

I'd have rolled my eyes at the multiverse metaverse thing a few weeks ago, but after zuck and Satya keep saying it, it really is spot on

@Would_you_kindly I'm making an assumption, I have it and know it's free to play.

@NEStalgia It was a description of my own, I had only heard the term in a song before 😁.

There is so much Sony fans pretend to not understand, but these are rabid fanboys that can’t ever acknowledge the competition is doing well.

Biggest point of contention I see is “can’t make Triple A games and just give them away”, as if letting GamePass players access to the games without buying them meant they need to stop selling the games.

These Triple A games get many to subscribe to GamePass at the same time they sell units like crazy.