Hey all
WHAT A LEAK! I've been spending a lot of time thinking about the economics of the vidoe game industry, and GAME PASS. I find it interesting that the smallest player - XBOX - is the only one pursuing this strategy while Sony says it is not doable.
I gave Phil Spencer the benefit of the doubt. but today's leak almost definitely proves that Sony is right. Moreover, I don't think XBOX will ever be able to scale the business to profitability.
My thread here with math and sources:
But I wanted to reach out to the Fami family because I find this topic so interesting and I don't have a lot of reach on twitter.
Punclhine:
I will explain
1. How and how much money does @Xbox Game Pass makes per user per month
2. How much it probably cost XBOX to acquire content and why do I believe it is loss-making despite claims to the contrary
3. Why @PlayStation is CORRECT that the economics of video games do not scale to the current subscription model
4. @Xbox will either never get meaningful AAA support and it will unlikely ever be profitable, even at scale
5. XBOX likely monetizes content at LESS than half the industry standard and has no cost advantage. This is an inferior business model
6. Best case XBOX GamePass and XCloud still look like a subscale version of the Apple App Store and Google Playstore.
1. How and how much money does @Xbox Game Pass makes per user per month
XBox makes $10/month/user and drives increased engagement and monetization.Now we know it is about $0.15 per hour from TWO different presentations.Avg gamer plays about 40 hrs a month so TOTAL MONETIZATION IS ABOUT $0.40/hour.$0.25 ($10/40h) from the subscription+ $0.15
2. How much it probably cost XBOX to acquire content and why do I believe it is loss-making despite claims to the contrary
3rd party content, which is about 80% of gamer hours COSTS AS MUCH AS $1.00 per hour.REMEMBER! Content spend is per hour, not per game. This is crucial.It explains why
@XboxP3 monetizing users via engagement is a worse business model than per game like @PlayStation says
Even if content cost is half (or about $0.50/hr) bc indie's cost less, timing, etc.. that's still a ($0.10) per hour GP3. We also need to add $0.06 or 15% of sales in costs for overhead, as we learned 1st revs have 85% GP% from ZeniMax
Finally, consider customer acquisition costs.If I assume a monthly churn of 5%-10% and an LTV of 2x-3x I get about $60.IF a new user plays 40hr/month for 10-20 months before churning, he or she will play ~600 hrs so Xbox spends $0.10/hr in CAC
3. Why @PlayStation is CORRECT that the economics of video games do not scale to the current subscription model
Let us put it all together$0.25 in subscription fees$0.15 in total monetization$0.40 in revenue per hour$0.06 in overhead costs$0.50-$1.00 in content cost per hour$0.10 in CAC$0.26-$0.76 LOSS PER HOUR.
Developers have a total cost per game equivalent of $0.30-$0.50/hr and they expect to make 2x-4x their cost in gross profit. It is going to be difficult to get AAA content meaningfully below $0.50-$1.00.Xbox is stuck paying MORE per hour of content than it can monetize at.
XBOX will either never get meaningful AAA support because
1. they either can't afford to keep paying enough
or
2. they'll pay but unlikely ever be profitable since costs > revenue
5. XBOX likely monetizes content at LESS than half the industry standard and has no cost advantage. This is an inferior business model
The key here is that Xbox's monetization model has switched to engagement. Console games are just too expensive and users don't spend enough hours to support the current model.
6. Best case XBOX GamePass and XCloud still look like a subscale version of the Apple App Store and Google Playstore.
Candy Crush has 250m MAUs (10x Game Pass) and monetizes at $0.35/user/month vs. GamePass MAUs at $16. Game Pass is too small to be a platform for Free-to-Play and too cheap to be a platform for console gaming. IF they raise prices further, they'll price themselves out of the market.
WHAT A LEAK! I've been spending a lot of time thinking about the economics of the vidoe game industry, and GAME PASS. I find it interesting that the smallest player - XBOX - is the only one pursuing this strategy while Sony says it is not doable.
I gave Phil Spencer the benefit of the doubt. but today's leak almost definitely proves that Sony is right. Moreover, I don't think XBOX will ever be able to scale the business to profitability.
My thread here with math and sources:
But I wanted to reach out to the Fami family because I find this topic so interesting and I don't have a lot of reach on twitter.
Punclhine:
I will explain
1. How and how much money does @Xbox Game Pass makes per user per month
2. How much it probably cost XBOX to acquire content and why do I believe it is loss-making despite claims to the contrary
3. Why @PlayStation is CORRECT that the economics of video games do not scale to the current subscription model
4. @Xbox will either never get meaningful AAA support and it will unlikely ever be profitable, even at scale
5. XBOX likely monetizes content at LESS than half the industry standard and has no cost advantage. This is an inferior business model
6. Best case XBOX GamePass and XCloud still look like a subscale version of the Apple App Store and Google Playstore.
1. How and how much money does @Xbox Game Pass makes per user per month
XBox makes $10/month/user and drives increased engagement and monetization.Now we know it is about $0.15 per hour from TWO different presentations.Avg gamer plays about 40 hrs a month so TOTAL MONETIZATION IS ABOUT $0.40/hour.$0.25 ($10/40h) from the subscription+ $0.15
2. How much it probably cost XBOX to acquire content and why do I believe it is loss-making despite claims to the contrary
3rd party content, which is about 80% of gamer hours COSTS AS MUCH AS $1.00 per hour.REMEMBER! Content spend is per hour, not per game. This is crucial.It explains why
@XboxP3 monetizing users via engagement is a worse business model than per game like @PlayStation says
Even if content cost is half (or about $0.50/hr) bc indie's cost less, timing, etc.. that's still a ($0.10) per hour GP3. We also need to add $0.06 or 15% of sales in costs for overhead, as we learned 1st revs have 85% GP% from ZeniMax
Finally, consider customer acquisition costs.If I assume a monthly churn of 5%-10% and an LTV of 2x-3x I get about $60.IF a new user plays 40hr/month for 10-20 months before churning, he or she will play ~600 hrs so Xbox spends $0.10/hr in CAC
3. Why @PlayStation is CORRECT that the economics of video games do not scale to the current subscription model
Let us put it all together$0.25 in subscription fees$0.15 in total monetization$0.40 in revenue per hour$0.06 in overhead costs$0.50-$1.00 in content cost per hour$0.10 in CAC$0.26-$0.76 LOSS PER HOUR.
Developers have a total cost per game equivalent of $0.30-$0.50/hr and they expect to make 2x-4x their cost in gross profit. It is going to be difficult to get AAA content meaningfully below $0.50-$1.00.Xbox is stuck paying MORE per hour of content than it can monetize at.
XBOX will either never get meaningful AAA support because
1. they either can't afford to keep paying enough
or
2. they'll pay but unlikely ever be profitable since costs > revenue
5. XBOX likely monetizes content at LESS than half the industry standard and has no cost advantage. This is an inferior business model
The key here is that Xbox's monetization model has switched to engagement. Console games are just too expensive and users don't spend enough hours to support the current model.
6. Best case XBOX GamePass and XCloud still look like a subscale version of the Apple App Store and Google Playstore.
Candy Crush has 250m MAUs (10x Game Pass) and monetizes at $0.35/user/month vs. GamePass MAUs at $16. Game Pass is too small to be a platform for Free-to-Play and too cheap to be a platform for console gaming. IF they raise prices further, they'll price themselves out of the market.
