"It's very hard to launch a $120m game on a subscription service charging $9.99 a month. You pencil it out, you're going to have to have 500 million subscribers before you start to recoup your investment. That's why right now you need to take a loss-leading position to try to grow that base. But still, if you have only 250 million consoles out there, you're not going to get to half a billion subscribers. So how do you circle that square? Nobody has figured that out yet."
I mean for sure yeah, it is a very difficult thing to do, but this is where economies of scale come into play. If you're a company and you have a shitton of cash at your disposal that can act as a security net, then in the case things don't work out, you don't bleed nearly as bad as the company who's ten times, twenty times smaller doing the same thing at that same scale.
I think back to things like SEGA's Gameworks investments in 1997, how those were hitting around $1 billion (supposedly) and just thinking to myself now like "there's no way they can sustain this", and there wasn't...but maybe if SEGA was 20 times as big in terms of cash reserves and net worth, they could've done stuff like that without it negatively impacting their console investments of the time (Saturn...Dreamcast arguably because some of that $1 billion probably could've gone into a DVD drive).
About Shawn's quote here, I don't know if the math actually checks out. If 500 million people are subscribing at $9.99 a month, that's $5 billion....a month. $60 billion a year. I think that's unrealistic for ANY subscription service tbh, but in terms of a game-oriented one you don't actually need nearly that many subscribers to start recouping investments. For starters, there are probably parts of a given investment that can be written over to other departments, as those components could be shared resources. Let's take Microsoft/Zenimax for example: things like the Orion (or is it Origin?) tech could fall into that department, because it can facilitate not just game streaming but also their mixed mesh VR cloud solution for enterprise environments, so that's something the Azure department could absorb costs-wise.
Also have to take into account that not all AAA games cost the same to develop. The type Sony in particular make can end up being costly because they focus a lot on mocap animations and high-priced VA talent, in some cases celebrity actors/actresses etc. making appearances, and their pricing can get expensive. Since some of those games don't offer a lot of avenues for additional post-launch revenue, they have to push the theatrical presentations very high to warrant high buy-in volumes at release, when the game is full-priced, to get the most potential profit.
But that's not the case for all AAA games, especially ones with multiplayer built at their foundation. Those kind of games may not push certain visual theatrical presentations as much as the aforementioned, but they still excel in their given genre or field, and have game designs that encourage further spending in that game's ecosystem (usually fairly and sensibly; there have been some bad examples however). The budgets on these kind of games may tend to be lower than the aforementioned, and that helps with creating bigger profit margins.
So let's say you create 4 AAA, $200 million a pop games in a year for a subscription service. I'm going to assume Layden included marketing costs in this because when I see similar figures for Hollywood blockbusters (i.e Marvel-like films) those larger figures also tend to including the marketing budgets. So... $800 million a year. That's a lot; assuming you'd want a 100% return in profit over the budget (so. $1.6 billion in revenue), you would need... "only" 16 million monthly active users of that subscription service @ $10/mo each, to reach that target.
That's FAR lower than 500 million users (which, again, is unrealistic for any sub service), and IIRC Microsoft have said their goal is 4 AAA releases a year, one each quarter, starting relatively soon. Supposing each one were ridiculously expensive to produce (which wouldn't be, if they're all sharing tech and other resources internally), technically speaking Microsoft are already at a subscription base that could facilitate supporting that financially.
I say "technically" though, because not all of their subs are actually paying $10 a month. Some are paying $15/mo, and some may be doing the $1 conversion from Gold to GamePass. A few others may be on a free trail. So taking that low-end 16 million base (GamePass itself has more subs than that), and let's say 25% of that current base are on the $1 conversion or free subs, that still leaves 12 million who are paying in full. In all fairness, GamePass itself is probably well north of 20 million at this point, maybe shy of 25 million, but keeping the 25% rate in mind (which might be too high; I'm just assuming it's a typical figure companies keep in mind for a portion of their base that aren't actually paying or paying in full) still gives them a base of 15 million - 18.75 million active subs paying full for at least basic GamePass, but a portion actually paying for the Ultimate version instead.
So for what a company like Microsoft would want in terms of supporting 4 AAA games per year, their GP numbers very much already provide the financial support for that, assuming they want 100% return in profit over production & marketing expenses per game. Thing is, they obviously have other expenses tied to GamePass, in terms of server operation costs, salaries for the team operating those servers, third-party content deals (ranging in price, but they start to add up), etc. Supporting that content pipeline along with the internal AAA releases and even the smaller internal game releases to the service would probably need a bigger sub base than they currently have to fully make that both sustainable and with juicy profit margins.
They wouldn't need THAT many more paying subs for it, though. I think once they reach around 32 - 36 million active users (at the pace things seem to be going for them now, they can probably reach that within another 8 - 10 months, and I might be conservative on that estimate), that gives them the platform security, revenue stream and profit margins (again, if they want 100%; they may not need or want that for every game on the service so that can drop the minimum active sub base for GP down a couple million) to make it a very viable platform.
...and that's, like, 464 million less
variety.com
