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Phil Spencer: Game Pass is a Sustainable Business Model

Phil Spencer: Game Pass is a Sustainable Business Model - News

by William D'Angelo , posted on 07 April 2020 / 3,687 Views

Microsoft has been pushing its Game Pass subscription service. For $9.99 you gain access to over a hundred games, including first-party titles at launch and for $14.99 you gain access to Game Pass on Xbox One and Windows PC, as well as Xbox Live Gold. 

Head of Xbox Phil Spencer speaking with Stevivor in an interview said the Game Pass model is sustainable and they are not trying to trick people to sign up before they raise the price in the future. 

"Game Pass for us right now is a good business," said Spencer. "It’s something that we’re comfortable running the way it is and it’s more than doubled in size, year over year. It’s on a great trajectory.

"I  know some people — I’ve seen it — some people say, 'Oh, they’re just kind of burning money left and right in order to gain customers so they can trick you into raising the price later.' There’s no model like that, for us.

"We feel good in the business that we’re running now. We’re definitely investing in it, but not investing in a way that’s unsustainable. We’ll do promotional deals and stuff — any service will, but it’s a business and it’s a business that does well."


A life-long and avid gamer, William D'Angelo was first introduced to VGChartz in 2007. After years of supporting the site, he was brought on in 2010 as a junior analyst, working his way up to lead analyst in 2012. He has expanded his involvement in the gaming community by producing content on his own YouTube channel and Twitch channel dedicated to gaming Let's Plays and tutorials. You can contact the author at wdangelo@vgchartz.com or on Twitter @TrunksWD.


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32 Comments
khotboat (on 07 January 2020)

Gamepass is amazing for its price. Hope Sony steps up for Ps now and adds more games

  • +12
MIXSTER37 khotboat (on 08 January 2020)

PS Now has 4 times the amount of games with over 850 games.

  • +1
Barkley (on 08 January 2020)

At full price probably. Not with the current deals they are giving out it's not. Upgrade from Gold to Gamepass ultimate for free??? Free month for turning renewal on? Free 2 months with discord nitro (gamepass ultimate gave you discord nitro for free too.)

I paid £76 in November and have gamepass ultimate until April 2022. That works out at £2.62/month or roughly $3.40/month.

That isn't sustainable.

  • +5
shikamaru317 Barkley (on 08 January 2020)

I don't think the plan is to keep those deals permanently. Those deals are there just to grow Gamepass while they are working on fixing their 1st party. Once the get their 1st party sorted out, they will be releasing several 1st/2nd party AAA's a year, plus a bunch more 1st/2nd party AA and A games. Once they reach that point many people will decide to just sub to Gamepass permanently.

  • -3
Tridrakious (on 08 January 2020)

I just don't see how companies profit on Game Pass. Game development is so expensive and this service gives them away for pennies.

  • +3
Immersiveunreality (on 07 January 2020)

It is a great value for consumers in the short run indeed but i question the profit for some devs that release early on gamepass and i'm all for the hardworking studios getting every penny of profit that there is to get out of the product they made,it is good for microsoft but i worry that some studios might suffer under this.

  • +3
Mr Puggsly Immersiveunreality (on 07 January 2020)

I think your logic is flawed. If developers didn't feel launching a game on Game Pass wasn't worthwhile, then they simply wouldn't get involved. Instead they keep doing it so MS must be paying them fairly well.

Also, the entire Xbox userbase doesn't have access to Game Pass content. It has a few million active subscribers at best.

  • +1

I would not agree with you telling me my logic is flawed,but ofcourse the current information i have that is available is eh kinda flawed? By what i see,i see a steady income for Microsoft and developers that have assurance of having an ok income for their game. Now that is good and all but i see missed income for developers that make games that players would otherwise invest more money into when not integrated to gamerpass.
My opinion might change overtime but i'm partly blind to the effect it causes to our gameindustry atm and dependant on the current information.

  • 0
MIXSTER37 Immersiveunreality (on 08 January 2020)

It's a no brainer for most studios to launch their games or offer them on Game Pass because the hard core fans of those games would purchase the games regardless and they get money from outlets that would likely never buy their games. Also keep in mind those developers also make their money from PC, Switch and PS4 which has a larger foothold seeing that they've all sold more than the XBOX One.

  • +1
MIXSTER37 Immersiveunreality (on 08 January 2020)

It's a no brainer for most studios to launch their games or offer them on Game Pass because the hard core fans of those games would purchase the games regardless and they get money from outlets that would likely never buy their games. Also keep in mind those developers also make their money from PC, Switch and PS4 which has a larger foothold seeing that they've all sold more than the XBOX One.

  • 0
melbye (on 07 January 2020)

i am one of those people who thinks Game Pass is too good to be sustainable in the long run. At some point games will have to be designed around it and that means microtransactions

  • +3
Jranation melbye (on 07 January 2020)

Its good for the gamers

  • 0
Immersiveunreality melbye (on 07 January 2020)

I do not like it,i'm uncertain this is good for gamers in the long run unless you like consolegames to behave like mobilegames.

  • +1
Cerebralbore101 melbye (on 07 January 2020)

I think what will happen is similar to what is happening to anime studios thanks to streaming services. The anime industry is slowly dying. But that sort of thing takes decades to happen, and game devs are already overworked as it is. So for the next 10-20 years we all get hundreds of games for ten dollars a month. And by the time 10 to 20 years have passed 90% of all games will be MTX infested trash anyway.

  • 0
Mr Puggsly melbye (on 07 January 2020)

@melbye - But why is it too good to be sustainable? If the service becomes really popular then it will generate enough money fund several games a year. While all the other content on the service is 3rd party stuff they they generally add after sales have declined. The games that launch on the service is 1st party content and smaller indie games mostly.

The masses are still buying games and will continue to do so. Game Pass is a side thing being used by a few million people.

  • 0
Cerebralbore101 melbye (on 07 January 2020)

@Mr Puggsly - Well with the Anime industry people straight up stopped buying physical anime. The $8-$12 a month of streaming services isn't enough to cover the costs of making an entire season of an anime, let alone multiple anime. Right now games are still sold individually, so it's fine. But if enough investors decide they want in on the streaming market, and enough companies decide to get in on the action, then individual sales could become a very small percentage of the market. A lot of times investors will burn money just to try to get in on a growing industry. Good examples of this are Uber, and Lyft's early years, or the fracking boom. In the case of Anime, and Fracking though investors have misjudged the payouts. The result is the slow closure of anime studios, and the imploding of the fracking industry. The same thing could happen to games in 10-20 years. Or not. :P

  • 0
Mr Puggsly melbye (on 07 January 2020)

@Cerebralbore101 - People no longer wanting to pay a lot of money for anime probably hurt that industry in general. They way we consume music and TV/movies has changed significantly and it can be streamed.

I don't think games will be affected the same way. It just a different kind of entertainment, more engaging.

  • 0
Random_Matt (on 07 January 2020)

I fear for retail, my countries High street is dying already. Shops won't sell Xbox stuff if there is no money in it. People will just subscribe to game pass.

  • +1
Azzanation Random_Matt (on 08 January 2020)

What's the actual issue here? The consumer just want good deals.

  • -2
Mr Puggsly (on 07 January 2020)

I am not sure why there is debate about this service being sustainable. If it becomes really popular then it will generate enough money to fund AAA games on its own. Millions of active subscribers annually translates to hundreds of millions of dollars.

  • 0
mjk45 Mr Puggsly (on 07 January 2020)

He basically said they are putting money into it but doesn't think it's unsustainable and that may well be down to what you said, about the percentage using it, atm they only have to subsides a portion of the overall sales that accrue to a given game, now they may well have done modelling that shows game pass leveling off to a point where they can benefit on a number of fronts , the question seems to be what happens if it becomes a runaway success and bites deeply into the retail and digital earnings.

  • 0
Mr Puggsly Mr Puggsly (on 07 January 2020)

By chance if it becomes a huge success and eats into sales significantly, then its potentially funding games on its own. I imagine the larger the userbase they would have to pay more for 3rd party content but that all balances out by the increased revenue.

I think people look at Netflix and other streaming services increasing in price over time but that's
because they're in an arms race of constantly creating new shows and movies. Services like Netflix and YouTube are so concerned about maintaining and growing their market share that profit doesn't even seem to be a concern.

Game Pass doesn't really have that pressure. MS really just needs to pump out 2 or 3 AAA games a year along with some smaller stuff here and there. Most of the 3rd party content that gets added is fairly old or had modest sales, so its not that expensive to add I imagine.

  • 0
mjk45 Mr Puggsly (on 07 January 2020)

You would be right if the increased volume made it cheaper but here it just means more subsidised games downloaded .
The netflix model is based on the content being paid by subs and while there is a period of growth in those types of ventures where building both content and subs takes priority over profit, but it eventually leads to a point where subs revenue makes a profit or you go bankrupt, in that case if netflix increases it sub take up they make money but with xbox the way it is now it amounts to more subsidies .

  • 0
Mr Puggsly Mr Puggsly (on 07 January 2020)

A word like subsidies might evoke thoughts you may not intend be suggest. Therefore I'm not going to respond to that.

But lets say Game Pass does really well and attracts 5 million active subscribers annually, people actually paying $10 or $15 a month. It very possible those people are giving MS more money then they would normally.

That many subscribers paying full price would be huge revenue, enough to fund games, but still not enough subscribers to kill actual sales. That would require 10-15 million subscribers in my opinion, which won't happen.

  • 0
mjk45 Mr Puggsly (on 08 January 2020)

It doesn't matter how many subscriptions you have 5 million or 50 million it comes down to whether those subs pay for the costs , your scenario only works if they make a profit from that revenue and it looks like the answer is not at the moment and it might well be that with an expected influx of next gen games coming to game pass, its true work is just beginning and breaking even is fine, it may well be that its real value lies in the point of difference it gives MS in relation to Sony going forward .

  • 0
Mr Puggsly Mr Puggsly (on 08 January 2020)

I am arguing the number subscribers absolutely matters. At a certain point sales no longer matter to fund the current output of 1st party content and then some.

I don't expect that to happen though, I only see Game Pass being used by a fraction of the audience because it can only offer 1st party content and a limited selection of 3rd party content at a reasonable price.

  • 0
mjk45 Mr Puggsly (on 08 January 2020)

The last part of your statement agrees with my very first reply , it's the first part that doesn't add up, you argue that at a subscriber numbers matter and at a certain point sales no longer matter, but then run a counter argument that says it can only offer limited Ist party and 3d party at a reasonable price with a smaller subscriber base , that's been my reasoning all along, I feel that Phil and the division was aiming game pass at the next gen from the beginning and Gamepass is a feature to attract customers for next gen that Sony doesn't have, not yet anyway and Phil and the team now have a fair idea of the likely uptake percentage and feel comfortable that they can sustain it at that level.

  • 0
Mr Puggsly Mr Puggsly (on 08 January 2020)

I assume the current Game Pass subscriber base does not generate enough revenue to fund a years worth of exclusives on its own. If it ever got really successful though, then it would.

The percentage of revenue spent on 3rd party licensing might also decrease if the userbase grew significantly but thats speculating. They might invest more in bigger or more titles.

I dont feel Game Pass was just a next gen strategy. I think the goal is getting more engagement in 1st party content and leaning into the instant library strategy of all streaming video services.

  • 0
DonFerrari (on 07 January 2020)

He wouldn't say otherwise anyway. But yes if they keep the price people will keep signing up.

  • 0
xl-klaudkil (on 07 January 2020)

When you can also sell your game at retail and digital yes, noo way you can finance hundreds of games for 15 dollar a month.
Just like movies and cds everything has a place

  • 0
Azzanation (on 08 January 2020)

Its obvious in the long run this is a way to make a fortune. $10 x 12months = $120, $120 x 1m Subscribers = $120m, $120 x 5 years = $600m. Now if they increase the members to 2m subscribers than that's $1.2b they made in 5 years, If they increase there subscribers to 5m than that's $6b in 5 years, I think we get the point here. GamePass will pay for itself if its successful.

  • -1
mjk45 Azzanation (on 08 January 2020)

the trouble is according to Phil it isn't breaking even and that's with a large catalogue of games that from a sales perspective are past their use by date,so with a new gen the costs will rise , but it seems to me phil and the team have used the experience to gain an understanding of the sort of uptake they can expect and are now confidant that they have a point of difference from sony going forward that will attract customers to the new xbox and while costs may mean it doesn't make huge profits the extra customers and point of difference make it a winner.

  • 0