Phil Spencer: 'Xbox Game Pass is very, very sustainable as it is'
Actually yes, Xbox Game Pass is sustainable already.
One of the things I've been told Xbox finds amusing is the discourse around Xbox Game Pass, with some industry commentators claiming it burns through cash and is unsustainable. I've said for a while that I've heard it's already sustainable, and it seems now we have some official confirmation that yes, it is indeed the case.
Speaking with Stephen Totilo of Axios, Xbox head Phil Spencer discussed Xbox Game Pass, its targets, and its future.
With regards to subscriber figures, Spencer reacted to reports a few weeks back that XGP missed internal targets, emphasizing that Microsoft frequently sets aspirational goals for itself. "I'm always going to set those targets high. Game Pass is doing very well from a business perspective and a creative and engagement perspective, so it continues to be, I think, a real differentiator for our platform and enabler for creators and players."
Totilo asked if it was wrong to claim that Xbox Game Pass is unsustainable, citing analysis that it could potentially eat into retail sales of upcoming exclusives like Starfield. Spencer quite frankly replied "yeah," inviting people to do the math themselves. "I mean you could do the math on Game Pass. I guess you don't know how many subscribers or how much each subscriber is paying, but you can make some fairly informed decisions and literally just do the math on what we think Game Pass could eventually be--you could do that on any part of the business. But absolutely, Game Pass is sustainable."
Spencer reiterated that Xbox Game Pass is designed to supplement Xbox, and it is just one of a range of focuses the organization has right now. Spencer noted that it's not the "only thing" growing within Xbox, and it's true that retail demand for Xbox Series X and Series S consoles continues to outstrip supply. Xbox is also seeing something of a resurgence in Japan, outselling the Xbox One console entire lifetime sales in just a year.
"I love to see it growing, because I see what it does to the diversity of games that people play and the games that we can fund to go create. And I think that's a very magical mix. But its growth is a part of Xbox. It's not the only thing that's growing in Xbox. It's not the only focus of the organization, and it, as a standalone thing, is very sustainable as it sits today, like just today. It's sustainable."
Will Phil Spencer's comments put the debate about Xbox Game Pass' sustainability to bed? Probably not, but Xbox hasn't typically shown itself to stick with businesses that are clearly failing. Microsoft killed off Mixer relatively soon after it became immediately clear it wouldn't be able to challenge the likes of Twitch and Facebook Gaming, and Spencer also ended gaming development of Microsoft's camera peripheral Kinect after it became largely rejected by the Xbox audience.
As Xbox celebrates its 20th anniversary, the future of the platform seems increasingly like a plurality of services and features to meet all types of gamers no matter where they are, with no single entry point serving as the dominant modality. Whether it's Xbox Cloud Gaming, Xbox consoles, or PC, through physical retail copies or subscription services, the next 20 years of Xbox seem likely to have something for everyone.
"I know there's a lot of people that like to write, We're burning cash right now for some future pot of gold at the end. No. Game Pass is very, very sustainable right now as it sits and it continues to grow."
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Jez Corden a Managing Editor at Windows Central, focusing primarily on all things Xbox and gaming. Jez is known for breaking exclusive news and analysis as relates to the Microsoft ecosystem while being powered by caffeine. Follow on Twitter @JezCorden and listen to his Xbox Two podcast, all about, you guessed it, Xbox!
In this world there is such as a thing as being too successful, in some eyes.
The SEC frowns on that, to say nothing about shareholders.
Average $10 a month, $120 a year.
Figure 20-30% churn and you still get well north of $2B a year.
Now figure MS runs 40 development teams each doing a $100M AAA game on a 4 year schedule.
That is still less than half the gross.
More than enough left for the EA and contracted games. Plus a few hundred million in profit.
And that assumes zero subscriber growth, zero DLC revenue, zero outright sales. All those are back-of-envelope numbers. Mr Spencer knows the accurate ones.
And since MS is a *publicly traded* company, lying about financial matters is legaly actionable.
So if he says GAMEPASS is sustainable today, it has to be sustainable, under penalty of lawsuit.
Believe him. The economics of subscription services are a whole new way of doing business but the established ones (PRIME, KINDLE UNLIMITED, NETFLIX, OFFICE 365) are all big money makers as well as bargains for subscribers. There is no reason why GAMEPASS can't keep on growing.
You ever hear of "price elasticity"?
Look it up: its economics 101. It's why Walmart is so big: they charge less for comparable products so shoppers that care about price (and they are legion) shop with them. The thing to remember is that not everybody buys a new game each month or buys them on day one at full list. A lot of folks wait until the price comes down. Or don't buy at all. The equation for GAMEPASS is people try more games and play games they would never buy. 20M people paying $15 a month brings in more net money than 10m buying two games a year at $70. Because the other 10M would be paying nothing.
It isn't. First of all, it is for people who value gaming diversity. Who play different kinds of games.
Yes, there are millions of folks that spend all their gaming time in Fortnight, Fallout 76, or whatever.
So what? GAMEPASS doesn't need them any more than it needs Playstation or Nintendo players. When Spencer says GAMEPASS is meant to bring in new gamers, people who aren't well served by the traditional business models and platforms believe him. It makes sense: why fight with Sony or Nintendo for the money of folks who grew up playing their franchises when you can draw in gamers who aren't already locked-in to them or, better yet, aren't gaming yet. Not everybody can afford a $500 console or to buy every game that catches tbeir eye.
Or plays enough to justify even $10 a month.
Gaming isn't a one size fits all world. There's folk that can afford to buy a game at list each month and there's folks tbat can barely afford to play a free to play phone game; tbere's folks that play 6 hours a day and folks that play 6 hours a week or not at all. They all count. Likewise, GAMEPASS isn't for everybody.
How about if instead of focusing on those who GAMEPASS isn't for, you consider tbose it *is* for?
Or, if it's not for you, just "move along, move along. Those aren't the droids you're looking for."