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[Coulomb_Barrier]

Netflix generated $6bn of EBITDA in the last 12 months (23.5% margin). For context, Sony generated $13bn of EBITDA (15% margin). So yeah, streaming can be profitable, and can produce high margins. The main issue with streaming platforms is the very high degree of fixed costs; however, once you reach and surpass the breakeven userbase threshold, then it becomes highly profitable as marginal/variable costs are very low.

Poor comparison as Netflix has $207m subscribers and you can't get Netflix subs for the equivalent $5 a month or even free now as they've stopped all free trials (here at least).

You should also compare to Playstation, not Sony as a whole, when looking at margins, preferably on a non-new console launch year.

 

[massivekettle]

Poor comparison as Netflix has $207m subscribers and you can't get Netflix subs for the equivalent $5 a month or even free now as they've stopped all free trials (here at least).

You should also compare to Playstation, not Sony as a whole, when looking at margins, preferably on a non-new console launch year.

I wasn't making a comparison, just laying out some facts for the poster who was asking whether streaming can be profitable. Streaming (or all-you-can-eat platforms) can be profitable and Netflix is a prime example. As I said, due to the high degree of fixed costs, it's all about getting scale.

 

[NickFire]

I'm not the least shocked by this claim, especially after reading countless people explaining you can sub for the price of gold plus a dollar. And based on the current direction / efforts of MS, I don't think its (claimed) lack of profitability at this time matters at all with respect to the life of the service. It is not going anywhere, at least not anytime soon, but I do expect the narrative will be changing from best value to a premium service on console (with a premium price to match), because I doubt MS wants to take a loss over the lifespan of the Series S/X.

I'm expecting it to be treated as a premium service eventually, because I remain skeptical that casuals will want to pay what it costs when its really pumping out new gen content the casuals want. Year 1 of next GP will have cost $180 (give or take) before Halo ships, and only 1/2 of that game will require a sub or purchase because MP is free (I think anyway). That's a lot to charge for little (if you want new gen games), so I fully expect the price to rise once the pipeline includes even a handful of big Series X first party games per year. How much is TBD, but that aborted Gold price hike cannot be ignored. Nor can I ignore how they thought of Gold first, charged me a couple hundred to upgrade my 360 storage, or now charge me a subscription for office when I used to buy it every few years.

I really do hope I am wrong, and that after 2-3 years this service lives up to the hype. I'd love to save money while still playing the games I want the most. But I am extremely skeptical that MS will take a loss after the first couple years of this gen, and that makes me believe it will be pitched as a premium product, with a premium price, within a couple years.

 

[Schmick]

Electricity bills and broadband are essential costs for essential services of course, Gamepass is not.

Netflix, Amazon Prime, Disney+ and Gamepass on top is a needless expense for casuals.

Yes but they all have one thing in common, their fees will increase. They are no surprises when it comes to price increases. They are inevitable.

I'm agreeing with your original comment.

But at the end of the day it's down to the individual consumer to decide to continue to spend on the needless stuff.

 

[FunkMiller]

Your post just made me realize something I hadn't thought about regarding the Zenimax aquisition - if Xbox and PC are the only supported platforms, will Skyrim 2 be re-relased on both platforms annually? Or will it be Xbox one year and PC the next?

2023: Elder Scrolls 6: Xbox version. Elder Scrolls 6: PC version
2024: Elder Scrolls 6 goty: Xbox version. Elder Scrolls 6 goty: PC version
2025: Elder Scrolls 6 VR: Xbox version. Elder Scrolls 6 VR: PC version
2026: Elder Scrolls 6 Xbox Series X upgraded version: Xbox Series X. Elder Scrolls 6 PC upgraded version: PC.
2027: Elder Scrolls 6 VR goty upgrade: Xbox Series X. Elder Scrolls 6 VR goty upgrade: PC
2028: Elder Scrolls 6 on Ps5. Elder Scrolls 6 on Switch 2.
2029: Elder Scrolls 6 on your fucking fridge.
2030 Elder Scrolls 6 injected into your eyeballs.
2031: Elder Scrolls 6 beamed onto Phil Spencer's ass, as he is whipped naked through the offices of Microsoft for not making GamePass profitable.

 

[Coulomb_Barrier]

I wasn't making a comparison, just laying out some facts for the poster who was asking whether streaming can be profitable. Streaming (or all-you-can-eat platforms) can be profitable and Netflix is a prime example. As I said, due to the high degree of fixed costs, it's all about getting scale.

Of course streaming can be profitable, that's not exactly great insight, is it? When you have to use the most popular streaming service to show this, it's also not much of an argument either.

 

[Heisenberg007]

I don’t see this happening. It’s already proven to be a commercially successful concept and Im sure they’re planning on this being the future of the Xbox brand.

Not profitable does not mean not successful.

In the short term? Perhaps. In the long term? No.

Not profitable literally refers to not being successful.

 

[nowhat]

2023: Elder Scrolls 6: Xbox version. Elder Scrolls 6: PC version
2024: Elder Scrolls 6 goty: Xbox version. Elder Scrolls 6 goty: PC version
2025: Elder Scrolls 6 VR: Xbox version. Elder Scrolls 6 VR: PC version
2026: Elder Scrolls 6 Xbox Series X upgraded version: Xbox Series X. Elder Scrolls 6 PC upgraded version: PC.
2027: Elder Scrolls 6 VR goty upgrade: Xbox Series X. Elder Scrolls 6 VR goty upgrade: PC
2028: Elder Scrolls 6 on Ps5. Elder Scrolls 6 on Switch 2.
2029: Elder Scrolls 6 on your fucking fridge.
2030 Elder Scrolls 6 injected into your eyeballs.
2031: Elder Scrolls 6 beamed onto Phil Spencer's ass, as he is whipped naked through the offices of Microsoft for not making GamePass profitable.

I think you're a visionary, but I'll propose one addition, must get those sweet holiday sales too:

Holiday 2029: Elder Scrolls 6 fucking your fridge

 

[massivekettle]

Of course streaming can be profitable, that's not exactly great insight, is it? When you have to use the most popular streaming service to show this, it's also not much of an argument either.

Some in this thread didn't believe streaming could be profitable.

 

[Leyasu]

What number of subs do you think they need to "easily" cover the cost of supporting "23 studios" making games for this service, one of which was bought for 7.5 billion? Netflix has upwards of 200 million subscribers, paying up to 18 dollars a month, and Netflix has been losing money for years. Years.

200 million subscribers.

The Xbox Live user base is like 90 million or so right now? Not everyone will sign up for GP, which is obvious. Their play is to hope people on mobile and other consoles sign up to play via XCloud only. Not sure I'm seeing that.

Do the maths yourself... 200m full paying subs 2.1b per month. Is that how much their salary bill is? Do they report their expenditure ?

30m full paying subs is 450m revenue a month.. The investment for zenimax was and gamepass set-up and 3rd party game deal outlay is not something that they will be looking to recoup in a year or two. it is a long game. I would have thought that 30 - 40m full paying monthly subs would cover their running costs. Unless their salaries are extraordinary.

 

[Heisenberg007]

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.

Excellent points. Plus, three more factors:

1. There are more "casuals" in the movie/tv shows consumer market than there are in the gaming space, and
2. Media consumption is significantly easier because of 25-min or 50-min episodes. This makes it easier to feed content regularly and keep the production lights on while reaping the rewards relatively instantly. That's not a luxury with games. If you are making A and AA games, you won't be able to compete. If you are making big-ass AAA games, that's going to take 3-4 years. Even an episodic game with 5-6 episodes, can take 2+ years to make, with each episode releasing after several months. Those games don't even do that well.
3. Latency, if you are targeting the 2 billion+ market.

It's just not the same as Netflix, and it is possible that MS may have misread the market and copied someone else's business model that doesn't even work in this industry they are in.

 

[Faithless83]

But it is profitable! I'm telling you! I've bought 3 years live gold and upgraded to gamepass with the 1$ promo.
They got my whole 1$ profit there for 36 months.

Sustainable AF.

 

[polybius80]

I think its more to do with word of mouth, 'hey i played this game on Gamepass the other day man, it was awesome. You should buy it'.
A few Indie devs have talked about this before.

there is also people that call you stupid for buying a game instead of paying gamepass, word of mouth also work and works more effectively with demos

 

[S0ULZB0URNE]

Buying all of these studios,paying them to make games and $1 for 3 month GP subs causes much bleeding.

 

[GrayFoxPL]

I'm guessing that the money they're paying out to get games into the service is steep or when XBOX says GP subs they're including everyone who joined up irrespective of whether they're still/recurring subs. I thought that at 23 million they'd be seeing major profits. I guess not...

18 million subs. Profits?
- loss

MS:

 

[DeepEnigma]

18 million subs. Profits?
- loss

MS:

 

[Haggard]

is anyone actually surprised? That´s normal silicon valley business procedure.
Pump/bleed money into a venture to forcefully grow it until it is big enough to actually sustain itself or it dies because the business plan didn`t work out after all.

 

[Dolomite]

Lmfao it's profitable for ME. Good Guy Phil, taking one for the team

 

[Nester99]

It’s about people advertising your service for free…

so....customer acquisition...

 

[SenjutsuSage]

If things get tight I'll lend Microsoft some money. It'll be alright.

 

[Alan Silvestro]

Double the price, gain profit.

 

[MrS]

 

[Kokoloko85]

All I'm reading here is conjecture. Who exactly will MS be controlling? 3rd party developers/publishers? What exactly would MS gain from taking control?

I see Gamepass as a good thing, for smaller developers especially. Gamepass provides guaranteed income for the developers that put their games on it. Guaranteed income may just be the necessary impetus needed for developers to develop something fresh and new as opposed to the numerous sequels and unoriginal games we get.

Original games don't always succeed financially because gamers are not prepared to pay for something new. But with GP this won't be an issue. How many times have you heard of gamers pleasantly surprised about a game they would have never of thought of trying if it wasn't for GP.

So not only does GP give developers the opportunity to produce something original but also gives the gamers the opportunity to play them.

Yeah I doubt those smaller, risky titles will be given a chance when it will actually be about profit in the future. Right now MS is willing to lose money, but when they want Gamepass to be an actual finance success, they will fund what they deem worthwhile like every other producer etc

 

[S0ULZB0URNE]

Double the price, gain profit.

Oh it's coming and it won't be good.

 

[YeulEmeralda]

I wasn't making a comparison, just laying out some facts for the poster who was asking whether streaming can be profitable. Streaming (or all-you-can-eat platforms) can be profitable and Netflix is a prime example. As I said, due to the high degree of fixed costs, it's all about getting scale.

Streaming can be profitable if you make your own content.

 

[Schmick]

Oh it's coming and it won't be good.

If they double the price they'll still have my custom.

 

[Schmick]

Yeah I doubt those smaller, risky titles will be given a chance when it will actually be about profit in the future. Right now MS is willing to lose money, but when they want Gamepass to be an actual finance success, they will fund what they deem worthwhile like every other producer etc

You are losing me here. MS won't be funding 3rd party games will they.

 

[Zeroing]

so....customer acquisition...

Customer satisfaction

I am joking

 

[Negotiator101]

“completely sustainable” Phil Spencer.

But what does he know.....right Tom?

 

[Kokoloko85]

You are losing me here. MS won't be funding 3rd party games will they.

No but if they are gonna expand and buy the gaming industry like they plan to then they will lol

 

[Metnut]

Gamepass will become profitable when they increase the price and cut the budget on first-party games and fill them with microtransactions.

If you don’t want gamings future to end up like this, purchase your games to own.

 

[Negotiator101]

Oh it's coming and it won't be good.

Bet? 12 months from now it's the same price?

 

[S0ULZB0URNE]

Bet? 12 months from now it's the same price?

I never gave a time frame.

 

[QuantumZebra]

I also wonder this.

I don't understand how this can be profitable... ever.

If someone could explain then that would be nice.

I just don't see how MS can pay so much money for games to be on there yet charge a small fee to gamers. Where is the investment return?

MS is one of the few companies that can bleed millions yearly and be fine - especially if it is to promote growth for a service they're backing.

 

[Schmick]

No but if they are gonna expand and buy the gaming industry like they plan to then they will lol

MS won't be buying every developer out there.

 

[Interfectum]

Oh it's coming and it won't be good.

I would say there are other controversial decisions coming before that. I could easily see something like "pay $20" to play Elder Scrolls early on Game Pass or something along those lines. Disney+ has already proven this model to work so I could see MS trying to attach some sort of "pay early to play" model to the huge AAA games coming to GP. Imagine the Twitter and GAFverse the day something like that gets announced.

 

[megreotsugua]

Excellent points. Plus, three more factors:

1. There are more "casuals" in the movie/tv shows consumer market than there are in the gaming space, and
2. Media consumption is significantly easier because of 25-min or 50-min episodes. This makes it easier to feed content regularly and keep the production lights on while reaping the rewards relatively instantly. That's not a luxury with games. If you are making A and AA games, you won't be able to compete. If you are making big-ass AAA games, that's going to take 3-4 years. Even an episodic game with 5-6 episodes, can take 2+ years to make, with each episode releasing after several months. Those games don't even do that well.
3. Latency, if you are targeting the 2 billion+ market.

It's just not the same as Netflix, and it is possible that MS may have misread the market and copied someone else's business model that doesn't even work in this industry they are in.

4. Each and every game that is not on gamepass (99% of games) is a gamepass competition. It's so different how we consume games from shows and movies. A gamer can play a game or two for months if he is so hooked in that game and he wants nothing else to play.

Unlike in movies and shows, a person subscribed to Netflix would have no problem watching and paying for a movie in the cinema for 3 hours (pre and post covid) while still subscribed to the Netflix. He might even have a separate TV streaming service aside from Netflix. He will still get his money's worth. He can binge watch a show or two for 15 hours throughout the month and it would still be worth it.

Now for games, what value would a 10,000 AAA games for $10 would give a gamer if all he wants to play is GTA6 online? of Fifa? or Genshin Impact? or Fortnite? or COD Warzone? for months if not for years with occasional game or two every 3 months?

5. More and more free-to-play games are coming.

 

[vaibhavpisal]

People would cancel in drove before they made a profit if they did this (maybe not those on the 1$ deal...). Profit would not happen like this.

When I have a couple of minutes I will go over the psnow list and look for overlap with the GamePass list (old/ish AAA titles are probably all around raking in all the money they can), which is the vast majority of games on these services + Sony has about twice as much. To be honest, I don't think that the selection is great on PSNow, and I think gamepass is worse--even if you count the day and date thing as MS did not release a game I am aware of in forever.

I think library is good. Already have a lot of games in waiting.

I wouldn't mind them taking it slow in adding games.Very distracting when you are in middle of something and having a great time.

As for psnow, I don't care about library of such a service from any company. Even if they added all games on platform, I wouldn't stream.

 

[massivekettle]

Streaming can be profitable if you make your own content.

I don't think the source of the content matters per se. It depends on what third parties are charging for their content vs. your internal development costs. Relying nearly entirely on third parties can be dangerous in the long run which is why Netflix is hedging its bets and producing a lot of stuff in house, but they're still out there bidding for content (Sony movies, Seinfeld, etc.).

 

[nowhat]

OK, while I enjoy a "good" meme or snarky oneliner as much as anyone (well, duh), and Game Pass has incredible value from a consumer POV (should I get an Xbox sometime later I'll definitely subscribe at least for a while), a legit question. It's all well and good to spend your college years "networking" while business daddy keeps filling your trust fund, but at some point you have to at least get that liberal arts degree. Or without the analogy, mind share is great, but there becomes a point where a business needs to stop hemorrhaging money and at least get it up to mere bleeding.

Increasing subscription prices is an obvious solution, but also a risky one, there are many examples. I can't help but to think this feels like another subscription service that really struggled with financials despite having a very sizable user base, and that is Spotify. You know where this is going.

Would you accept a service with no/very low monthly rate, but with mandatory ads? Personally I hate ads so much I'd rather pay to see none, but I know I don't represent the average consumer, they seem to be fine getting bombarded by ads. Would you, if you'd get all those "free" games for viewing them?

 

[reinking]

If they double the price they'll still have my custom.

Wait. Are you talking about doubling the price @ discount plus $1 deal? Or full $180 per year price? Because I have to tell you we have very different views if you are talking about the latter. $360 a year and I would nope right the heck out. I feel a little cheated I am paying this much for a lot of back catalogue games. I am starting to think I would be better off working the Gamefly system for new releases again.

 

[Negotiator101]

I never gave a time frame.

When and by how much do you expect it to go up? I do think it will increase but I expect them to keep it like it is for the next year or so.

 

[Excess]

>me travels back to 2002
>when's Amazon ever going to make a profit?

Amazon posts its first net profit

In the fourth quarter, Amazon reports its first-ever profit--on record sales--delivering on its promises to Wall Street. "I think everyone was surprised," an analyst says.

www.cnet.com

>accelerates through time to 2021
>when's Tesla every going to make a profit

Tesla Has First Profitable Year, but Competition Is Growing (Published 2021)

The company benefited from a jump in sales of electric cars in China and Europe, but its fourth quarter earnings fell short of Wall Street’s expectations.

www.nytimes.com

>implying Silicon Valley isn't one giant highly-leveraged ponzi scheme

 

[DarkMage619]

4. Each and every game that is not on gamepass (99% of games) is a gamepass competition. It's so different how we consume games from shows and movies. A gamer can play a game or two for months if he is so hooked in that game and he wants nothing else to play.

Unlike in movies and shows, a person subscribed to Netflix would have no problem watching and paying for a movie in the cinema for 3 hours (pre and post covid) while still subscribed to the Netflix. He might even have a separate TV streaming service aside from Netflix. He will still get his money's worth. He can binge watch a show or two for 15 hours throughout the month and it would still be worth it.

Now for games, what value would a 10,000 AAA games for $10 would give a gamer if all he wants to play is GTA6 online? of Fifa? or Genshin Impact? or Fortnite? or COD Warzone? for months if not for years with occasional game or two every 3 months?

5. More and more free-to-play games are coming.

I am not sure what point you are trying to make but Game pass is OPTIONAL. So if you all you want to play is GTA 6 and its not on Game pass buy GTA 6 and don't sign up. Game pass gives people options and give people a chance to play a game without having to pay retail for that privilege. It gives games that AREN'T GTA a chance to shine. Free to play games don't usually have the same quality and usually have microtransactions so they won't be replacing titles on the service.

 

[Pagusas]

why do you all care so much about wether its profitable or not? Its a loss leader for MS to get people into their system long term. MS has super deep pockets. Its going to be ok, I promise.

 

[Smoke6]

Poor comparison as Netflix has $207m subscribers and you can't get Netflix subs for the equivalent $5 a month or even free now as they've stopped all free trials (here at least).

You should also compare to Playstation, not Sony as a whole, when looking at margins, preferably on a non-new console launch year.

Get out your feelings about this as his comparison are spot on and no need to compare to Sony for anything as Sony doesn’t do a steaming service such as MS!

Like y’all really in denial and only care for the fact you don’t have to play full price for a game that the company that provided it to you still does!

let the MS war chest shit go as this is a business and I’m quite sure in gamepass doesn’t see phenomenal growth near 100mil subs then that service and maybe the hardware is done!

the writings been on the wall for quite a while and yes y’all got an acquisition of a company that studios takes years to make there games and once the the latest games release for them this gen, you’re waiting for the next gen to play whatever else they might have in store then!

sad reality is that might not even happen or gamepass goes away as game sales trump sub services my a country mile unless you’re charging damn near $200 a month and have 75mil plus subs at full price. I said this before that this was a last ditch effort for MS to compete with Sony and Nintendo and someone above is getting sick of the bullshit and construing numbers to please console warriors and shareholders!

This is why Sony needs to just keep doing what they’re doing, you fanboys don’t even know you’re sinking your own ship slowly but surely trying to save a few bucks when you could rent these games and pay less than gamepass for a year in you’re paying full price

 

[FoundryMusic]

I'm guessing that the money they're paying out to get games into the service is steep or when XBOX says GP subs they're including everyone who joined up irrespective of whether they're still/recurring subs. I thought that at 23 million they'd be seeing major profits. I guess not...

Damn.... Does this mean I can't use it any more now?

 

[sainraja]

why do you all care so much about wether its profitable or not? Its a loss leader for MS to get people into their system long term. MS has super deep pockets. Its going to be ok, I promise.

Relax. People are just discussing it. It's not an attack. You'll be fine, I promise.

 

[jshackles]

OK, while I enjoy a "good" meme or snarky oneliner as much as anyone (well, duh), and Game Pass has incredible value from a consumer POV (should I get an Xbox sometime later I'll definitely subscribe at least for a while), a legit question. It's all well and good to spend your college years "networking" while business daddy keeps filling your trust fund, but at some point you have to at least get that liberal arts degree. Or without the analogy, mind share is great, but there becomes a point where a business needs to stop hemorrhaging money and at least get it up to mere bleeding.

Increasing subscription prices is an obvious solution, but also a risky one, there are many examples. I can't help but to think this feels like another subscription service that really struggled with financials despite having a very sizable user base, and that is Spotify. You know where this is going.

Would you accept a service with no/very low monthly rate, but with mandatory ads? Personally I hate ads so much I'd rather pay to see none, but I know I don't represent the average consumer, they seem to be fine getting bombarded by ads. Would you, if you'd get all those "free" games for viewing them?

Ads where, exactly? If I were forced to watch an ad before playing each game, I would stop using the service even if it were free.

I'm personally okay with a price hike to $20/month. Any higher than that and I feel like I'd be better off buying games outright at full price. But I'm also someone who has put in a bunch of time the last four weeks with Outriders and am still only 3/4 of the way through the campaign. At $15 a month now (for ultimate) I still feel like I've come out ahead by playing a game for two months and only paying $30 for a $60 game. But - I have a ton of other games at my disposal in the event that I suddenly find myself with massive amounts of pre-pandemic levels free-time.

The service will "mature" when purchasing studios starts yielding first-party games that go directly to the service and stay there forever. From the looks of things, the Game Pass catalog will be outright stacked in 3-4 year's time.

 

[EDMIX]

No, Microsoft reports the monthly active subscribers, not the total users that have signed up throughout the lifetime. Suggesting otherwise is pretty conspiratorial.

As Warren mentions, it's still in growth mode. I don't know why people are so hung up on it being profitable at the moment. If Microsoft wants to keep pumping in value to drive growth, that just benefits me. I'm riding that gravy train for the next 4+ years.
They still have huge revenue from the service and it will only continue to grow.

Agreed.

They are still investing and are waiting on a return later on. It might sound like its a bad thing, but it makes sense to go this route.