Support NeoGAF

[Spacefish]

I've developed apps for iOS and Android, managed the development of many more apps on larger projects.. work with people whose entire career revolves around developing mobile apps, etc.

I've never met anyone who even had a modicum of disdain for iOS development. For the most part most modern development environments/frameworks are pretty developer friendly.

 

[TLZ]

Last time a company tried to make money on hardware it was the 3DO, and we all know how well that went.

Console based profits are from publishing and licensing. Not the hardware itself and hasn't been since the 2600.

PS4.

Although this subject isn’t surprising at all. This has always been the case with consoles.

Sell hardware at a loss, make money back from a couple/few games.

 

[Jaguar Victory]

I thought the forum was older and smarter at this point but many of you still struggle with basic console economics.

1. Sell the hardware at cost or at a small loss
2. Charge 30% commission on software sales to pay for subsidies, certification costs, R&D, marketing, etc. and turn a profit
3. Make extra money on accessories and licensing
4. Continue to push to expand userbase to sell more software and accessories to

They would have to either shrink the userbase by charging more money for hardware or they would have to compromise the technology advancements in the console to make them more cost effective. We don't want that shit.

 

[jakinov]

you're explaining why its nice for it to be centralised not why its expensive for them to run it, which it is not. The statement that it is essentially free money is correct.

Well no I did both.

Microsoft and Sony have to hire a shit ton of people (a point I brought up in my other post) to develop and maintain the plethora of services they offer such as identity services (single sign on), social services (profiles, friends, trophies, moderation, LFG,), and communication (voice, text, video). Employees are not cheap. Microsoft and Sony pay their employees a lot of money which is a point I brought up in my original post. I'm talking hundreds of thousands of dollars a year per employee for their engineers and executives (another point I brought up in my other post). Microsoft and Sony also offers a shit ton of support agents to deal with your issues immediately like via chat, phone, email, forums, etc. (another point I brought up in my other post). They also have to deal with moderation (i.e. suspensions and validating reports).

Across all Xbox Live services and apps and any of the features and applications they develop we are probably looking at over a hundred developers and IT personnel. That's just salaries.

I also talked about in my other post that when you provide these general services the server costs look a whole lot different than providing actual game servers because game servers don't do much and there's low standards for them, they essentially just synchronize clients. An enterprise grade service is supposed to be highly available, secure and be able to handle large loads. The servers inherently cost more because they have better SLA, better support and more infra/services to facilitate those things. For Microsoft/Sony to run something like universal sign on services for players cost significantly more than running a bunch of game servers. Not only because of the expensive engineering work to build/support the underlying service but the actual cost structure of the operations is different (something I also mentioned in my other post).

Expensive Employees + Expensive Enterprise Grade Services. = A lot of money.

 

[Spacefish]

Well no I did both.

Microsoft and Sony have to hire a shit ton of people (a point I brought up in my other post) to develop and maintain the plethora of services they offer such as identity services (single sign on), social services (profiles, friends, trophies, moderation, LFG,), and communication (voice, text, video). Employees are not cheap. Microsoft and Sony pay their employees a lot of money which is a point I brought up in my original post. I'm talking hundreds of thousands of dollars a year per employee for their engineers and executives (another point I brought up in my other post). Microsoft and Sony also offers a shit ton of support agents to deal with your issues immediately like via chat, phone, email, forums, etc. (another point I brought up in my other post). They also have to deal with moderation (i.e. suspensions and validating reports).

Across all Xbox Live services and apps and any of the features and applications they develop we are probably looking at over a hundred developers and IT personnel. That's just salaries.

I also talked about in my other post that when you provide these general services the server costs look a whole lot different than providing actual game servers because game servers don't do much and there's low standards for them, they essentially just synchronize clients. An enterprise grade service is supposed to be highly available, secure and be able to handle large loads. The servers inherently cost more because they have better SLA, better support and more infra/services to facilitate those things. For Microsoft/Sony to run something like universal sign on services for players cost significantly more than running a bunch of game servers. Not only because of the expensive engineering work to build/support the underlying service but the actual cost structure of the operations is different (something I also mentioned in my other post).

Expensive Employees + Expensive Enterprise Grade Services. = A lot of money.

sorry but those costs do not amount to even a fraction of $60 a year per user, I would be surprised if its even $1 per year per user. The mere existence of steam makes any pay to play online service ridiculous.

 

[Ozzy Onya A2Z]

So Ozzy Onya A2Z would you like to step up and eat your delicious crow now?

I like how you take one statement with zero sales numbers backing things up in the current gen and push it like it's some home run. They don't eat loss leading costs like they used to. They're not losing $100 or $200 or $300 a unit, it's closer to break even at launch and profit at end of cycle. I like how you assume a blanket lawyer statement is continuously held true throughout all generations that has nothing about the cost of goods changing over the lifetime of a console generation or revisions of hardware either.

Further if you had actual loss numbers you'd see the OG Xbox and Kinect were big loss numbers, newer generations like One X or Series X are aligned with my statement. Also the other brands in my statement hold true still too, Sony eat the hardest and Ninty make money.

I'll take a wing to eat at best, not the whole bird mate. Just give me some hot sauce to go with it.

 

[Boglin]

There is an arbitrary line between "It's their platform, they can do what they want" and "they have too much leverage, it's anti-competitive". The threshold between the two is probably different for every single person.

I think it would be wrong for Epic to be able to force themselves into any walled garden but at the same time, if apple hypothetically had 100% of the market I would want competing stores to be allowed in. Am I wrong in thinking that this is a fair position to hold? If I'm not wrong then what's in contention is not whether walled gardens should be allowed, but instead it's the point in which a walled garden is considered anti-competitive.

For me, it's no different than me thinking Neogaf or Era should be able to moderate however they wish but I don't feel the same about Google, Twitter or Facebook.

 

[jroc74]

So Ozzy Onya A2Z would you like to step up and eat your delicious crow now?

That wasnt the only one.

There was a user that claimed the Series S was being sold at a profit. lol

If one dont know or even understand a lil bit about how this stuff works, fine. But ppl shouldnt dont post like they do. I dont claim to be all that knowledgeable about this and other stuff but I at least try to research before I post.

This is why I keep saying whenever the bill of materials gets posted its gonna be an interested thread.

As far as the PS4....I swore I saw the cost to build the Pro and it was cheaper than the PS4.

I'm willing to bet Sony didnt lose as much as MS did with hardware last gen.

 

[killatopak]

at launch, yes.

at all?

 

[jroc74]

at launch, yes.

at all?

In MS case...there were alot of deep discounts for the XBO consoles.

I remember ppl asking why Sony wasnt cutting the price on the PS4, Pro. Some ppl think companies need to do things to "win" NPD results.

Sony was about trying to make as much as it could on hardware sales. Its also why you dont see any price cuts for the Switch. The way its selling, there's no need to.

I agree with you. I thought revisions would at least help balance things out.

 

[DaGwaphics]

Wait, what? They don’t even make the slightest profit from selling a late lastgen Xbox One S? Am i misunderstanding him?

On a running balance sheet, probably not. You've got all the R&D costs as a huge negative to start, and then you add to that all the early losses in the beginning, and by the time you are making a profit you probably won't sell enough to get out of the hole.

Plus, MS is always super aggressive with the prices. Even when the official MSRP was still $299 on the 1S, finding one for $199 or even $179 wasn't difficult (from major retailers).

 

[DeltaPolarBear]

On a running balance sheet, probably not. You've got all the R&D costs as a huge negative to start, and then you add to that all the early losses in the beginning, and by the time you are making a profit you probably won't sell enough to get out of the hole.

Plus, MS is always super aggressive with the prices. Even when the official MSRP was still $299 on the 1S, finding one for $199 or even $179 wasn't difficult (from major retailers).

Remember when everyone laughed when MS tried to sell the Xbox ONE S Digital for $250? I would not be surprised if that was the only way it could be profitable. And they were forced to cut the price on that very quickly.

The issue is that Xbox is less desirable than Playstation for more than a generation now, so despite having the same raw material costs Xbox had to be sold at a discount, basically permanently. Not being cheaper would cause loss of detectable marketshare, so they couldn't sell at MSRP.

 

[DaGwaphics]

Remember when everyone laughed when MS tried to sell the Xbox ONE S Digital for $250? I would not be surprised if that was the only way it could be profitable. And they were forced to cut the price on that very quickly.

The issue is that Xbox is less desirable than Playstation for more than a generation now, so despite having the same raw material costs Xbox had to be sold at a discount, basically permanently. Not being cheaper would cause loss of detectable marketshare, so they couldn't sell at MSRP.

Especially when they had such a noticeable performance disadvantage with the similarly priced competition. They weren't so aggressive with pricing on the 360 (once the prices were matched there at the end), they might not be again this time. We'll see.

 

[jakinov]

sorry but those costs do not amount to even a fraction of $60 a year per user, I would be surprised if its even $1 per year per user. The mere existence of steam makes any pay to play online service ridiculous.

I never said they broke even or didn't make a profit. I said since the first post you quoted was that they made a profit. The contention is that you think it's cheap to run the service and it's just free money because you only looked at it as running a bunch of cheap game servers, I'm pointing out that it's way more expensive and complicated than you think. I don't know how many employees Microsoft has doing support and engineering and exactly how many servers it all takes, and how expensive all the stuff besides their salaries like health insurance and all that crap actually costs. But it's expensive and there's a lot of it. If they didn't charge for it it'd be looking at high tens possibly hundreds of millions in loses for the Live division in operating costs. Before PlayStation started charging for online, there were reports of them losing millions due to running the services and if I recall correctly the year or so before PS+ they announced they were looking into subscription services to offset those costs.

Steam half-asses a lot of things. It cost more and takes more time to build native operating system features and fully native applications than it is to build a glorified browser and hardly ever update your UI. People on consoles have higher standards. People use to complain about the lack of social features and integrations with games with the PS3. People complain when things are ugly (they do for Steam too but they teased a library update and then released it two years late while leaving most of the app in tact). People have been complaining about adding features to Steam since the black steam was still in BETA. People used to hate it when Sony tried to offer a cheap web-view for their PlayStation store and so they revamped it into a native application. People expect flashy fast applications on their TV and Sony/Microsoft delivers that to them. Steam doesn't even have full fledged support systems. They only offer ticket based support. Steam monetize in many different ways besides their store front and on their storefront they actually monetize better than Microsoft or Sony has been when they first introduced pay for online which is again a point I brought up in my original post. Steam has been making almost triple the money on every game sold than MS/Sony does via retail and operates slower/cheaper. So as I said in my original post, as Microsoft and Sony go full digital and get way better margins on every game sold; they should just eat the costs of running the online service. At least before their excuse was that they only made royalty money and these was an extra cost that ate into it and they were already selling you consoles at a lost.

 

[Strider Highwind]

I think its pretty hilarious that all these companies are having their shit(info) put in the street because of Tim Sweeney and Apple going at it lol

 

[Spacefish]

I never said they broke even or didn't make a profit. I said since the first post you quoted was that they made a profit. The contention is that you think it's cheap to run the service and it's just free money because you only looked at it as running a bunch of cheap game servers, I'm pointing out that it's way more expensive and complicated than you think. I don't know how many employees Microsoft has doing support and engineering and exactly how many servers it all takes, and how expensive all the stuff besides their salaries like health insurance and all that crap actually costs. But it's expensive and there's a lot of it. If they didn't charge for it it'd be looking at high tens possibly hundreds of millions in loses for the Live division in operating costs. Before PlayStation started charging for online, there were reports of them losing millions due to running the services and if I recall correctly the year or so before PS+ they announced they were looking into subscription services to offset those costs.

Steam half-asses a lot of things. It cost more and takes more time to build native operating system features and fully native applications than it is to build a glorified browser and hardly ever update your UI. People on consoles have higher standards. People use to complain about the lack of social features and integrations with games with the PS3. People complain when things are ugly (they do for Steam too but they teased a library update and then released it two years late while leaving most of the app in tact). People have been complaining about adding features to Steam since the black steam was still in BETA. People used to hate it when Sony tried to offer a cheap web-view for their PlayStation store and so they revamped it into a native application. People expect flashy fast applications on their TV and Sony/Microsoft delivers that to them. Steam doesn't even have full fledged support systems. They only offer ticket based support. Steam monetize in many different ways besides their store front and on their storefront they actually monetize better than Microsoft or Sony has been when they first introduced pay for online which is again a point I brought up in my original post. Steam has been making almost triple the money on every game sold than MS/Sony does via retail and operates slower/cheaper. So as I said in my original post, as Microsoft and Sony go full digital and get way better margins on every game sold; they should just eat the costs of running the online service. At least before their excuse was that they only made royalty money and these was an extra cost that ate into it and they were already selling you consoles at a lost.

the original chain began with you disagreeing that they make a killing charging for these services, you are arguing against the implication they don't cost very much to run or to develop relative to how much they earn. It is actually common knowledge that they are making a killing since they do sporadically announce the numbers of subscribers and ever since introducing PS+ Sony's profits skyrocketed. Tens of millions is absolutely nothing with the numbers were talking, PlayStation has almost 50million subscribers, they could charge 1 dollar and make tens of millions a year to cover that cost. The cost of native OS functionality is part of the cost of the system when you buy it, it has nothing to do with playing online, that's their responsibility as the platform holder. The fact that you even hint at the notion we should pay for the privilege of having a functioning store to buy things off is ridiculous.

in all my experience steam is a superior hub and platform for playing games, it provides so many features I couldn't even dream of accessing on consoles. Paying the amount we do for online is a complete scam, spending time and energy fighting against your own best interest is crazy.

 

[StreetsofBeige]

I thought the forum was older and smarter at this point but many of you still struggle with basic console economics.

1. Sell the hardware at cost or at a small loss
2. Charge 30% commission on software sales to pay for subsidies, certification costs, R&D, marketing, etc. and turn a profit
3. Make extra money on accessories and licensing
4. Continue to push to expand userbase to sell more software and accessories to

They would have to either shrink the userbase by charging more money for hardware or they would have to compromise the technology advancements in the console to make them more cost effective. We don't want that shit.

Totally.

It goes to show how much people dont understand business.

When our company gets hot priced ads where were on the front page, some stores will sell our product for a 20% loss. But it gets people in the door to buy other shit at profitable levels.

The worst thing any store wants is someone swooping by to hoard front page items and then leave buying nothing else.

 

[Polygonal_Sprite]

Consoles have always been a “give the razor for cheap so that customers buy expensive blades for years” type business model since the NES.

 

[jakinov]

the original chain began with you disagreeing that they make a killing charging for these services, you are arguing against the implication they don't cost very much to run or to develop relative to how much they earn. It is actually common knowledge that they are making a killing since they do sporadically announce the numbers of subscribers and ever since introducing PS+ Sony's profits skyrocketed. Tens of millions is absolutely nothing with the numbers were talking, PlayStation has almost 50million subscribers, they could charge 1 dollar and make tens of millions a year to cover that cost. The cost of native OS functionality is part of the cost of the system when you buy it, it has nothing to do with playing online, that's their responsibility as the platform holder. The fact that you even hint at the notion we should pay for the privilege of having a functioning store to buy things off is ridiculous.

in all my experience steam is a superior hub and platform for playing games, it provides so many features I couldn't even dream of accessing on consoles. Paying the amount we do for online is a complete scam, spending time and energy fighting against your own best interest is crazy.

No the original chain began with me making a comment on something someone said and adding more perspective to it and adding my idea that when things become fully digitally that. I was never trying to argue that they weren't making a profit or that it wasn't a lot of profit. It's common sentiment here that charging for online is free money and that they are just locking you from doing things. I commented thinking they had that sentiment.

Whether or not they could charge less and still cover the costs is neither here or there. I'm saying that it's expensive and more complicated than people think. It's expensive to make a video game or a movie but you don't say it's not expensive because of the return they made a lot of profits to do it. It's still expensive, just possibly rewarding too.

In regards to anything OS related that I mentioned, I'm referring to the service related features built natively into the OS which adds cost on top of the actual services. It's expensive to hire a bunch of engineering to build highly performant clients to consume these services.

I don't know where you got the idea that I was saying we should pay for the privilege of having a functioning store to buy things.

 

[laynelane]

No the original chain began with me making a comment on something someone said and adding more perspective to it and adding my idea that when things become fully digitally that. I was never trying to argue that they weren't making a profit or that it wasn't a lot of profit. It's common sentiment here that charging for online is free money and that they are just locking you from doing things. I commented thinking they had that sentiment.

Whether or not they could charge less and still cover the costs is neither here or there. I'm saying that it's expensive and more complicated than people think. It's expensive to make a video game or a movie but you don't say it's not expensive because of the return they made a lot of profits to do it. It's still expensive, just possibly rewarding too.

In regards to anything OS related that I mentioned, I'm referring to the service related features built natively into the OS which adds cost on top of the actual services. It's expensive to hire a bunch of engineering to build highly performant clients to consume these services.

I don't know where you got the idea that I was saying we should pay for the privilege of having a functioning store to buy things.

I don't have that sentiment - that it's free money and they are just locking us from doing things. I do believe they make a massive profit on it, though.

 

[Spacefish]

No the original chain began with me making a comment on something someone said and adding more perspective to it and adding my idea that when things become fully digitally that. I was never trying to argue that they weren't making a profit or that it wasn't a lot of profit. It's common sentiment here that charging for online is free money and that they are just locking you from doing things. I commented thinking they had that sentiment.

Whether or not they could charge less and still cover the costs is neither here or there. I'm saying that it's expensive and more complicated than people think. It's expensive to make a video game or a movie but you don't say it's not expensive because of the return they made a lot of profits to do it. It's still expensive, just possibly rewarding too.

In regards to anything OS related that I mentioned, I'm referring to the service related features built natively into the OS which adds cost on top of the actual services. It's expensive to hire a bunch of engineering to build highly performant clients to consume these services.

I don't know where you got the idea that I was saying we should pay for the privilege of having a functioning store to buy things.

half of the things you are highlighting are just the responsibilities of being a competitive console manufacturer, you are blowing tens of millions out of proportion, an amount that wouldn't fund the cost of a single mid budget game and arguing this this is a lot of investment and somehow is relevant when talking about charging a never ending yearly fee of $60 to use your own internet. If we don't disagree the amount of profit they are making is out of step with costs by at least a factor of 60 then this exchange is meaningless, we aren't actually disagreeing about anything. you're not going to convince me a few tens of millions to enable basic console functionality is a lot for a console manufacturer and certainly not that its a service worth paying for.

 

[FIREKNIGHT2029]

This wasn't a big shocker for me but it stood out....



The way some folks talk about GP saying Sony needs to adopt the GP model you would think that it's printing money for MS.

Yea, I know as a subscription service it's going through a growth period but there's still no guarantee it will grow to the point where it starts to make considerable profit for them.

I commend them for going the GP route since it's a smart decision considering the traditional model isn't working for them but this just highlights why Sony and Nintendo don't want to and don't need to follow MS' example.

 

[DarkMage619]

This basic fact should be kept in mind when people are suggesting MS should have spent even more upping the specs on the XSS. They wanted to keep the cost of the box low and it's sale price is also lower than any other current generation console. They struck a good balance.

 

[Spacefish]

This wasn't a big shocker for me but it stood out....



The way some folks talk about GP saying Sony needs to adopt the GP model you would think that it's printing money for MS.

Yea, I know as a subscription service it's going through a growth period but there's still no guarantee it will grow to the point where it starts to make considerable profit for them.

I commend them for going the GP route since it's a smart decision considering the traditional model isn't working for them but this just highlights why Sony and Nintendo don't want to and don't need to follow MS' example.

Netflix has racked up 15 billion in debt in the past decade and still hasn't paid it back, this is a long term play. If Sony is dumb enough to ignore it they deserve to be the next blockbuster.

 

[FIREKNIGHT2029]

Netflix has racked up 15 billion in debt in the past decade and still hasn't paid it back, this is a long term play. If Sony is dumb enough to ignore it they deserve to be the next blockbuster.

How many subs does Netflix have and they still haven't made a profit?



I just checked now and it says they are at approximately 204 million subscribers in Feb 2021: https://backlinko.com/netflix-users

GamePass is at 18 million last I checked. They have a LOOOOONG LOOOOOONG way to go before they start making money from that if they ever get there.

The gaming industry isn't anywhere close to being based in subscription services since most revenue still comes from games being sold digitally or in stores. I'd say by the time gaming subscription services start to make a dent then either Sony/Nintendo can jump in. At least Sony has their toes in with PS Plus and PS Now, nothing stopping them from revamping those services and going the full GP route if shit starts making big waves. At the moment though, we aren't anywhere close to that happening.

 

[StreetsofBeige]

How many subs does Netflix have and they still haven't made a profit?



I just checked now and it says they are at approximately 204 million subscribers in Feb 2021: https://backlinko.com/netflix-users

GamePass is at 18 million last I checked. They have a LOOOOONG LOOOOOONG way to go before they start making money from that if they ever get there.

The gaming industry isn't anywhere close to being based in subscription services since most revenue still comes from games being sold digitally or in stores. I'd say by the time gaming subscription services start to make a dent then either Sony/Nintendo can jump in. At least Sony has their toes in with PS Plus and PS Now, nothing stopping them from revamping those services and going the full GP route if shit starts making big waves. At the moment though, we aren't anywhere close to that happening.

Netflix has been profitable since 2003 when they were still doing DVD mailings. Their profit per year was pretty small, but really ramped up a lot the past 3-4 years. So for their business model the sub count around 2017 (whatever it was in 2017) was a big critical mass threshold where the profits jump going forward.

 

[Sir Vilhelm]

How many subs does Netflix have and they still haven't made a profit?



I just checked now and it says they are at approximately 204 million subscribers in Feb 2021: https://backlinko.com/netflix-users

GamePass is at 18 million last I checked. They have a LOOOOONG LOOOOOONG way to go before they start making money from that if they ever get there.

The gaming industry isn't anywhere close to being based in subscription services since most revenue still comes from games being sold digitally or in stores. I'd say by the time gaming subscription services start to make a dent then either Sony/Nintendo can jump in. At least Sony has their toes in with PS Plus and PS Now, nothing stopping them from revamping those services and going the full GP route if shit starts making big waves. At the moment though, we aren't anywhere close to that happening.

Apples and oranges, you can't compare what gamepass is to netflix. You make a lot of assumptions without any receipts

 

[FIREKNIGHT2029]

Netflix has been profitable since 2003 when they were still doing DVD mailings. Their profit per year was pretty small, but really ramped up a lot the past 3-4 years. So for their business model the sub count around 2017 (whatever it was in 2017) was a big critical mass threshold where the profits jump going forward.

Maybe I should be more clear. When I mean profit with Netflix, I'm not talking about just making money here, I'm sure they do.

What I mean though is to get all these shows and exclusive content they spend money right? Explains why they are $15 billion in debt despite having so many subs. Sure it's continuous revenue for them and I know every company wants that but you're still taking losses trying to secure content.


Isn't MS sort of doing the same thing with GamePass? They are making constant money with it from a revenue point of view but they still have to spend money getting deals with 3rd party on top of the money they are spending getting all these publishers/studios like Zenimax. At what point will they start making more money than they spend? That's the difficult question to answer and I believe that's why GP model isn't suitable for smaller companies like Sony and Nintendo yet. Seems like GP is based on a future promise that it will eventually start to make big profits but until then you have to be willing to take huge losses in the meantime. Something that Nintendo and Sony simply can't afford.

Apples and oranges, you can't compare what gamepass is to netflix. You make a lot of assumptions without any receipts

I'm not making any assumptions. If you know better explain to me instead of being condescending.

 

[Unknown Soldier]

I think its pretty hilarious that all these companies are having their shit(info) put in the street because of Tim Sweeney and Apple going at it lol

None of the other companies had to participate if they didn't want to.

The fact of the matter is, they want to. That says a lot.

This is a fight that affects literally everyone that runs a closed ecosystem of some kind. That's why they are all here. Nobody wants their ecosystem forcibly opened, they just want everyone else's. It's a classic prisoner's dilemma, and behind it all is China trying to find a way to break the power of American technology companies.

 

[ethomaz]

Netflix has been profitable since 2003 when they were still doing DVD mailings. Their profit per year was pretty small, but really ramped up a lot the past 3-4 years. So for their business model the sub count around 2017 (whatever it was in 2017) was a big critical mass threshold where the profits jump going forward.

Err... Netflix started to have profit this year.
It was the first year they didn’t have to borrow money.

 

[Spacefish]

Something that Nintendo and Sony simply can't afford.

If they don't respond in some way and gamepass does actually become as ubiquitous as Netflix it's game over. There are almost no companies who can compete with Microsoft when it comes to big spending, unfortunately they have decided this is worth using their financial muscle on and the mere fact that they had the foresight to get there first may mean it's already too late for Sony to win this battle. I don't like subscription services but I see no way this doesn't end up as Microsoft owning everything and Sony having a relatively minor, curated service equivalent to HBO. Had they moved first and got that mindshare they may have had a chance.

 

[StreetsofBeige]

Maybe I should be more clear. When I mean profit with Netflix, I'm not talking about just making money here, I'm sure they do.

What I mean though is to get all these shows and exclusive content they spend money right? Explains why they are $15 billion in debt despite having so many subs. Sure it's continuous revenue for them and I know every company wants that but you're still taking losses trying to secure content.


Isn't MS sort of doing the same thing with GamePass? They are making constant money with it from a revenue point of view but they still have to spend money getting deals with 3rd party on top of the money they are spending getting all these publishers/studios like Zenimax. At what point will they start making more money than they spend? That's the difficult question to answer and I believe that's why GP model isn't suitable for smaller companies like Sony and Nintendo yet. Seems like GP is based on a future promise that it will eventually start to make big profits but until then you have to be willing to take huge losses in the meantime. Something that Nintendo and Sony simply can't afford.


I'm not making any assumptions. If you know better explain to me instead of being condescending.

Who knows when MS will make money on GP. It's only been around since June 2017.

Amazon lost money almost every year for the first 10 years as Bezos started the company in the mid 90s. It looks like it took them 10 years to make some consustent quarterly profit and it was barely anything. And it looks like they also lost money again in 2012 and 2014. Similar to Netflix, critical mass hit about 5 years ago and now they make billions of profit.

 

[StreetsofBeige]

Err... Netflix started to have profit this year.
It was the first year they didn’t have to borrow money.

Thats not how income statements work.

 

[FIREKNIGHT2029]

Who knows when MS will make money on GP. It's only been around since June 2017.

Amazon lost money almost every year for the first 10 years as Bezos started the company in the mid 90s. It looks like it took them 10 years to make some consustent quarterly profit and it was barely anything. And it looks like they also lost money again in 2012 and 2014. Similar to Netflix, critical mass hit about 5 years ago and now they make billions of profit.

Thanks for the info. It still kinda proves my point though. MS can afford to take these losses since they are a very big company with billions in capital but I don’t really think Sony and Nintendo can afford to do 10 years straight taking losses like Amazon did during their early days. GP makes a lot of sense for MS and they are the only company with the resources to undertake something like GP in the gaming scene now. I just don’t see how it makes sense for either Sony/Nintendo to follow them now though seeing as neither of those companies can afford losses in the long term.

 

[TheFarter]

What an odd feeling I've encountered over the years. Although Xbox has made no profit on the consoles. I've enjoyed all the games for the most part, and have made wonderful friends through Xbox Live. Even though the console has never made a profit.

I am disgusted with myself.

 

[Handel]

Both Sony and Microsoft have historically taken losses on hardware, and made up for that with software cuts, subscriptions and accessories. Only Nintendo has profited on majority of their hardware sales from day 1, with Wii U and 3DS (after the price cut) being the major exceptions IIRC.

Playstation when it first started out benefitted greatly from having a multimedia giant behind it, allowing it to outmaneuver its competition in pricing and additional functions (PS1 as a CD player, PS2 as a cheap DVD player) that the solely game focused companies in Nintendo and Sega could not match. Like early Playstation, Xbox benefits from having a corporate giant behind it to sustain losses till they can be more profitable.

 

[Menzies]

What an odd feeling I've encountered over the years. Although Xbox has made no profit on the consoles. I've enjoyed all the games for the most part, and have made wonderful friends through Xbox Live. Even though the console has never made a profit.

I am disgusted with myself.

They just made 15.5 billion profit last quarter anyway, so if Xbox is such a drain it ain't showing.

 

[kruis]

These console manufacturers most likely can't wait for the day when streaming becomes viable and they won't need to worry about making losses on hardware being sold to end users.

If this isn't the last generation then the next one almost certainly will be.

There will come a time when the only option to play new games on local hardware will be through PC gaming.

That streaming future is a much bigger financial risk for Sony than selling console hardware. Just imagine the costs of building and maintaining dozens of server parks all around the world filled with millions of very expensive custom designed blade servers that can run multiple ps5 games simultaneously. When Sony sells a PS5, it immediately makes a profit and they have another gamer locked into their ecosystem. But in the streaming future they have to first build huge server parks without before they can start selling subscriptions. And those subscribers can switch anytime to another service because there’s no vendor lock-in.

 

[Handel]

All that being said though, I think that 360 not being profitable is unlikely. As in, I don't doubt that later in it's life Microsoft was making money on each console sold, and not selling the console at a loss. Now overall lifetime 360 might not have made much profit for the company because of lawsuits over RRoD, and other costs. That's probably what is being talked about here.

 

[jakinov]

half of the things you are highlighting are just the responsibilities of being a competitive console manufacturer, you are blowing tens of millions out of proportion, an amount that wouldn't fund the cost of a single mid budget game and arguing this this is a lot of investment and somehow is relevant when talking about charging a never ending yearly fee of $60 to use your own internet. If we don't disagree the amount of profit they are making is out of step with costs by at least a factor of 60 then this exchange is meaningless, we aren't actually disagreeing about anything. you're not going to convince me a few tens of millions to enable basic console functionality is a lot for a console manufacturer and certainly not that its a service worth paying for.

High tens or hundreds of millions. There's no exact numbers publicly available but there's a lot of expensive costs associated at the level of service and quality that Microsoft/Sony do things at. That's the only point I've been trying to make. No company no matter how rich just wants to lose millions if they can help it.

It's more complicated than just adding a lock to your Internet (not even close for that matter). I'm neither arguing that they should keep charging $60/year or trying to convince you that it's worth paying for. I do think it's fair for them to charge for it though not necessarily $60/year.

 

[MonarchJT]

is just the business model of the entire industry ...money are done with software..from ...basically always )

 

[DaGwaphics]

I think there is still some confusion there with regards to what the MS guy was telling the court. They haven't turned a profit from hardware as a standalone business, there is no way they haven't turned a profit on gaming software and services in the last 20 years. LOL

They were selling a lot of software in the 360 days and had a lot of live subs (before home gold many households had multiple accounts). Even with the $1b write-off I'm sure they were turning a profit then. Xbox was just part of division with all those failed projects at that time (web tv, zune, phones, there was other stuff as well).

Unless that guy said a lot more than has been reported here, he never made any statements about the profitability of GP.

 

[StreetsofBeige]

is just the business model of the entire industry ...money are done with software..from ...basically always )

Not just gaming.

Think of cable providers. That cable box costs them $100s of dollar to buy off a maker. So just to break even on the set top box, the company has to make enough pofit from monthly rental fees and how ever much profit they make off someone's cable tv package. Same goes for the modem/router.

Hardly anyone goes to their provider and asks to buy out the gear for $300. Most places won't even let you. Although I was able to off Rogers Cable way back when they allowed rent to own for $350 for a cable box. I think it was about 3 years at $10/mth and it's yours. Then they got rid of that program.

At some point down the line, they make enough money off you to cover the cost of gear, infrastructure and overhead. Then beyond that it's profit.

 

[e&e]

Obviously trying to point out that Xbox is no different from an iPhone.

But the iPhone is different! It’s basically a damn computer now!

 

[Sakura]

I'm sure there are tons of developers just waiting for the chance to jump from Apple Store to Epic Games store. Think these things through. Epic store offers "better" deal than steam in terms of cut and yet EGS is fighting an uphill battle to gain market share. Android has had the ability to sideload other app stores yet Google play store is the dominant store. PS Now and Xcloud are not competing in the same market as Apple store and neither is Epic Games store. Developers are not lining up to switch from Apple Store to EGS on iOS.

The crux of their argument is that it does cut into their profit, which is why MS has a walled garden on Xbox. It doesn't make money off console sales, their profit comes from their 30% cut, amongst other things. So if MS is arguing they'd lose money by opening up the platform, then why would that same argument not apply to iOS? Just because Apple also makes a profit off each iPhone sold, doesn't magically mean that they would be immune to opening up the store. They'd still be making less money than they would have otherwise.
Fortnite alone did 700 million in revenue on iOS. I don't know if that is pre or post Apple's cut, but either way that is hundreds of millions to Apple. How could you honestly say it wouldn't cut into Apple's profit at all? Nobody is saying Apple wouldn't be profitable period, but it doesn't take a genius to figure out that they'd be making less money than they would other wise. You only need a few big games to jump ship or go around Apple, and Apple would be making billion+ less in profit.

 

[Ozzy Onya A2Z]

The other nuance this thread basically ignores is "hardware" isn't just the consoles, peripherals make plenty of coin for all platforms i.e. it's not just software that makes bank.

 

[jakinov]

Err... Netflix started to have profit this year.
It was the first year they didn’t have to borrow money.

Just because you borrow money doesn't mean you aren't making a profit.

I like to use a real estate business as an example. Say this year, you get a mortgage to buy a new rental property and you have $0 in the bank. These rental properties can cost $1 million. After paying your mortgage, taxes and what not you are left with $1000 every month this year. Even though you are spending $1 million of borrowed money you are left with $12,000 in the bank. Even though you owe and spent $1 million dollars, you are left with $12,000 in the bank + the house and the interest/payments already accounted for in your costs. As you add more houses ever year with debt and your rent profit grows, it's hard to say that you don't have a profitable business and don't make a profit.

The Netflix case is a little different because their debt works differently but at the end of every year Netflix is left with billions more in the bank. Debt is just a way for companies to spend money that they don't have yet so they don't have to wait to get it. It helps them grow faster. It's risky and can be a bad sign for some companies.

Maybe I should be more clear. When I mean profit with Netflix, I'm not talking about just making money here, I'm sure they do.

What I mean though is to get all these shows and exclusive content they spend money right? Explains why they are $15 billion in debt despite having so many subs. Sure it's continuous revenue for them and I know every company wants that but you're still taking losses trying to secure content.


Isn't MS sort of doing the same thing with GamePass? They are making constant money with it from a revenue point of view but they still have to spend money getting deals with 3rd party on top of the money they are spending getting all these publishers/studios like Zenimax. At what point will they start making more money than they spend? That's the difficult question to answer and I believe that's why GP model isn't suitable for smaller companies like Sony and Nintendo yet. Seems like GP is based on a future promise that it will eventually start to make big profits but until then you have to be willing to take huge losses in the meantime. Something that Nintendo and Sony simply can't afford.

Netflix is in debt because they spent money they didn't have yet to create shows, movies, buy land, real-estate and studios, etc. so that they can grow faster. Netflix was always profitable and could operate without borrowing money but to be competitive they were leveraging debt. If say Devolver Digital wanted to be a big publisher they could wait til they sell enough indie games before they have enough to make their big bucket AAA games or they can borrow millions and just start making their games now. That's what Netflix did except things were more time sensitive for them. Today Netflix has $8.6 billion in the bank sitting there doing nothing that they don't really touch and they are on track to have over $1.7 billion in the bank every 4 months. The debt isn't an example of how the subscribers don't bring enough revenue for them to make a profit. The debt is just an example of their ambition that allowed them to get all those subscribers that give them a shit ton of profits that they make today.

Game pass makes constant revenue as you say, probably doesn't make a profit right now but as there's enough subscribers you don't really need to add more content because you have more subscribers or remake your apps as you add more subscribers so after a certain point things are just more and more profitable because as you add customers after some point you only pay for the cost directly incurred by that customer which is negligible. Unless you believe there's some reason why they can't scale well with more customers or that there's a limit to how many people will ever subscribe there's arguably great potential for Game Pass to be a profitable business.

 

[Menzies]

I'm getting more bullish on Epic's chances. Here was the EU's comment when fining Microsoft in 2004; -

""Dominant companies have a special responsibility to ensure that the way they do business doesn't prevent competition ... and does not harm consumers and innovation," EU Competition Commissioner Mario Monti said."

If Microsoft was dominant in 2004 with a billion users on Windows. Then Apple is dominant in 2021 with a billion users on iOS.

They're effectively blocking a billion people from a competitive store. The gall to just block Game Pass from the app store for no substantial reason really, when Netflix is allowed highlights their abuse of power.

 

[FIREKNIGHT2029]

Just because you borrow money doesn't mean you aren't making a profit.

I like to use a real estate business as an example. Say this year, you get a mortgage to buy a new rental property and you have $0 in the bank. These rental properties can cost $1 million. After paying your mortgage, taxes and what not you are left with $1000 every month this year. Even though you are spending $1 million of borrowed money you are left with $12,000 in the bank. Even though you owe and spent $1 million dollars, you are left with $12,000 in the bank + the house and the interest/payments already accounted for in your costs. As you add more houses ever year with debt and your rent profit grows, it's hard to say that you don't have a profitable business and don't make a profit.

The Netflix case is a little different because their debt works differently but at the end of every year Netflix is left with billions more in the bank. Debt is just a way for companies to spend money that they don't have yet so they don't have to wait to get it. It helps them grow faster. It's risky and can be a bad sign for some companies.



Netflix is in debt because they spent money they didn't have yet to create shows, movies, buy land, real-estate and studios, etc. so that they can grow faster. Netflix was always profitable and could operate without borrowing money but to be competitive they were leveraging debt. If say Devolver Digital wanted to be a big publisher they could wait til they sell enough indie games before they have enough to make their big bucket AAA games or they can borrow millions and just start making their games now. That's what Netflix did except things were more time sensitive for them. Today Netflix has $8.6 billion in the bank sitting there doing nothing that they don't really touch and they are on track to have over $1.7 billion in the bank every 4 months. The debt isn't an example of how the subscribers don't bring enough revenue for them to make a profit. The debt is just an example of their ambition that allowed them to get all those subscribers that give them a shit ton of profits that they make today.

Game pass makes constant revenue as you say, probably doesn't make a profit right now but as there's enough subscribers you don't really need to add more content because you have more subscribers or remake your apps as you add more subscribers so after a certain point things are just more and more profitable because as you add customers after some point you only pay for the cost directly incurred by that customer which is negligible. Unless you believe there's some reason why they can't scale well with more customers or that there's a limit to how many people will ever subscribe there's arguably great potential for Game Pass to be a profitable business.

You misunderstand me, I'm not arguing on the potential for GamePass to make a lot of money for MS down the road. What I'm saying is no one knows exactly when that will be. Is it 5 years or 10 years down the line? No one truly knows and for companies like Sony and Nintendo that don't have the capital and resources that MS has that's not a good option. MS can keep bleeding money with GP until it becomes profitable for them down the line but Nintendo and Sony can't afford to take prolonged losses for years, that all I'm saying. For them the idea of taking losses for a period of time on the hope that they make loads of money later isn't viable and that's why the GP model doesn't work for Sony or Nintendo for now at least.

 

[itsjustJEFF]

How in the world does Xbox turn a profit? Minecraft, xbox live gold, and controller redesigns?

Lots of different ways to make money. Advertising in the store, Subs and... user end data (the big one) I don't know if Playstation does the same, they really should be (they probably are), but user data is very very profitable.