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Phil Spencer: Game Pass is Profitable, Spends Over $1 Billion to Add 3rd-Party Content to Game Pass

Phil Spencer: Game Pass is Profitable, Spends Over $1 Billion to Add 3rd-Party Content to Game Pass - News

by William D'Angelo , posted on 02 January 2024 / 10,578 Views

Microsoft Gaming CEO Phil Spencer in an interview Windows Central revealed Xbox spends over $1 billion a year on third-party content for Xbox Game Pass and the service itself is profitable.

"We have a service that is financially viable, meaning it makes money, in Game Pass," said Spencer. "We've put a lot of money into the market, over a billion dollars a year supporting third-party games coming into Game Pass. 

"What we see in Game Pass is a service that supports all kinds of games, from the biggest games, to the unknown indie games that you didn't know you would love until you played it. If you're an individual publisher, you really have to think about 'how do you get everybody playing my game.'

"I think a lot of the publishers are naturally drawn to making games that are big hit games, as big as possible. We want to do that as well, of course. But because we have a platform, and we have a subscription service, having people play more and stay engaged on the platform, frankly, regardless of the types of games they're playing, is a very viable part of our strategy. 

"When you look at things we've done over the past 12 months. If you look at things like Pentiment, Hi-Fi Rush, long-term investment in games like Grounded, all of these games have had real success for us in our subscription and in our platform. The diversity of business models allows us to invest in different kinds of content and still have financial success with that content.

"When we look at the back catalog of games from Bethesda, we get really excited. We look at the back catalog from Activision and Blizzard, we get really excited about the things we can do. It's early days, so we need to be talking to that teams that are fully staffed and working on things already. It's not like 'hey, there's a spare team' that you can just go and put on something. You need to make sure those teams have passion for what they want to go work on.

"I will say that the diversity in business models that we have in Microsoft Gaming really lets us supports different kinds of games, different sizes of games, and not every game we build has to be the kind of game that takes up all of your time."

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 and taking over the hardware estimates in 2017. He has expanded his involvement in the gaming community by producing content on his own YouTube channel and Twitch channel. You can contact the author on Twitter @TrunksWD.

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TheLegendaryBigBoss (on 03 December 2023)

Does this also include the cost for 1st party games going on GP day 1? Well, I couldn't care less whether GP is profitable or not, I get to play way more games for much cheaper!

  • +7
Shatts (on 02 December 2023)

I wonder if they are including marketing costs, server fees and all of that kind of stuff. Or are they only calculating revenue - content cost.

  • +1
Azzanation Shatts (on 03 December 2023)

Considering they own the servers they use, not sure how that comes at a cost

  • -4
Shatts Azzanation (on 03 December 2023)

Yeah that's my point. Since Microsoft is a big corporation obviously, they have other divisions they can rely on to divert some of the cost. For example, they can say the servers they use for Gamepass is considered a part of their cloud division. Obviously all the maintenance cost and stuff like that isn't free, but they can exclude it from the calculation. That's what I was wondering specifically. Would be awesome if they shared a detailed breakdown of the cost for the service.

  • +2
Azzanation Shatts (on 03 December 2023)

I doubt they will be paying for the services; it most likely comes out of MS under maintenance etc. This is just revenue for GamePass. They invest $1b and clearly make more than that back.

  • -2
DekutheEvilClown Azzanation (on 03 December 2023)

Costs are costs, they have to be assigned somewhere in the accounts. The point is that if MS produced actual accounts for a “Gamepass Division” those accounts would look very differently, all costs would need to be assigned correctly, even costs accrued from other internal divisions. They don’t produce those accounts so they can basically assign costs however they want. They are likely not accounting for any of the costs associated with those first party games that are added day one either.

  • +7
j2001m DekutheEvilClown (on 03 December 2023)

Nope, as Xbox uses the same backend I.e. they have to pay for the backend anyways, I.e. they included saves in the cloud anyways, even if you do not signup for gamepass unlike ps5, , this helps them pay for all parts of the backend, they have even said in the past that it cost less or very close to selling a game on steam with there cut, as it’s then hosted in a big way on there backend

  • -2
DekutheEvilClown j2001m (on 03 December 2023)

Literal gibberish

  • +3
Azzanation DekutheEvilClown (on 03 December 2023)

Sure, but do the maths.
25m paying $10 for a year is $3b, -$1b for adding games and you still have $2b leftover for what tax you want to add.

  • 0
DekutheEvilClown Azzanation (on 03 December 2023)

Yes, but it’s not that simple. There’s a lot of “hidden costs” or little costs that add up. Twitter has costs of around $5-6b a year but their staff at peak was around 7,000 which even at an average salary of $120,000 would be under $1b a year. So there’s a lot of costs hidden here to get to their $5-6b that makes them a loss every year.

As an example PS Plus generated around $3.5b in the last year and I doubt they even spent close to $1b on third party content. Do you really think they’re making $2b+ profit on that? That’s more than the profit for the entire PlayStation Division.

  • +4
DonFerrari DekutheEvilClown (on 04 December 2023)

Don't lose your time asking for precise accounting from MS here because all you are going to hear is the simplistic they get 3B revenue, expend 1B on third party and everything else doesn't cost GP anything because MS would do it anyway so it is 2B profit.

  • -4
Azzanation DekutheEvilClown (on 04 December 2023)

Never stated they are making exactly $2b. That's based on maths. You really think the hidden costs are $2b worth that GP isnt profitable?

  • 0
DekutheEvilClown Azzanation (on 06 December 2023)

Yes, absolutely. I don’t believe there’s a single possibility that Gamepass is profitable when all costs are properly accounted for.

Disney plus makes $3-4b yearly losses still and it has like 150m subscribers.

  • 0
Azzanation DekutheEvilClown (on 06 December 2023)

The article says its profitable.

  • 0
DekutheEvilClown Azzanation (on 07 December 2023)

It's definitely true then

  • 0
ArchangelMadzz Azzanation (on 03 December 2023)

Xbox will pay to use Azure at a discounted rate. The same way Twitch pays to use AWS.

  • 0
Azzanation ArchangelMadzz (on 04 December 2023)

Yes or course. However its not $2b worth of renting

  • 0
JRPGfan Shatts (on 03 December 2023)

I think this is just revenue - content costs. Stuff like the marketing, server upkeep and maintenance are probably not included.

  • 0
Imaginedvl Shatts (on 03 December 2023)

That's how "profitable' is usually calculated... Revenues - Costs (including marketing...) > 0 then it is profitable, there is really no other way to put it...
Costs are costs. If another division is taking care of something (marketing, servers, etc), then money is changing hands and this is recorded as a lose for one LOB (Line of Business) and a revenue for the other one.

  • 0
JRPGfan (on 03 December 2023)

We don't know exactly how much "over $1 bn dollars" a year is. It could be $1.1 bn, could be $1,4 bn.
However we know that at the very least, ~25m subscriptions should atleast be over $1.5 bn in revenue pr year.
So there should be a certain amount of profit left over. Gamepass isn't makeing tons, but atleast viable now.

  • 0
JRPGfan JRPGfan (on 03 December 2023)

As long as xbox can grow gamepass numbers, the profit margins should continue to grow alongside that (unless they instead turn to increase the amount of games offered on it).

  • 0
DekutheEvilClown JRPGfan (on 03 December 2023)

Gamepass makes a little under $1b a quarter, which is roughly what PS Plus makes btw. PS Plus very likely spends way less on third party content and loses way less sales of its own games, so PS Plus must be super high margin using this as a comparison. However PS division is currently struggling to generate significant profit, so clearly something doesn’t add up.

  • +2
tslog (on 02 December 2023)

I’m sure Xbox was grossly overpaying for most 3rd party Game pass games, not only because they were desperate in last place, but also because they are desperate to grow the game pass subscription service.

But now that Xbox has a lot more influence & power, maybe that up-front expense to get on game pass might come down, and we might be getting bigger 3rd party games ????

  • 0
hellobion2 (on 02 December 2023)

Well there are eliminating consoles in the next twenty years so that makes sense.

  • -3
Imaginedvl hellobion2 (on 03 December 2023)

And who said that? Are you the same that said it 10 years ago? Or 20 years ago?...

  • 0