Is Game Pass Sustainable?
Is Game Pass Worth it?
With all the acquisitions Microsoft have been making to bolster Xbox Game Studios, can Game Pass ever reach the levels of Netflix? Based on earnings calls, interviews and historical data, it looks like Xbox won’t stop until they have 200 million subscribers. Let me tell you why
Back in September of 2020, Microsoft dropped a 7.5 billion dollar bombshell on the gaming landscape with the acquisition of ZeniMax Media, which included Bethesda among many other great gaming studios like Id, Arkane, MachineGames, and Tango Gameworks. All of these newly acquired studios brings Microsoft first party studios to 23, almost doubling their internal studios and their ability to product potential Microsoft exclusives. What exactly will happen with exclusivity is what most people are wondering.
In comparison, Sony has 13 first party studios, and although there is more of an established track record with studios like Sony Santa Monica, Guerilla, Insomniac and Naughty Dog, there is something to be said about 23 studios with the budget and long term expertise in the tech field with Microsoft. If the argument for PlayStation has always been they have the exclusives, then this move easily puts Microsoft on the same playing field, if not ahead. What Microsoft does with these studios and franchises, not only from the recent ZeniMax acquisition but before will be interesting to watch.
How much can be gained from viewing how Microsoft treated Mojang studios when it acquired them back in 2014 for 2.5 billion dollars. Microsoft could have easily turned Minecraft and any future releases from the studio into exclusives but the company understood just how much money it would be leaving on the table. They have to be looking at the data since 2014 to see how profitable Minecraft has been on all the other platforms to give them an idea of how to proceed.
Obviously, Microsoft’s play here is to grow Game Pass to the size where it becomes too big to fail and they are currently on their way. With over hundreds of games and the recent addition of EA as well as the new additions that Bethesda Studios will bring, Game Pass will soon be in the same category as Netflix where even though you might not find value from it every month, you won’t cancel it and you will still find something to play.
At the most recent Microsoft earnings call near the end of January, it was revealed that Game Pass currently has over 18 million subscribers, which is up from 15 million from their September report, which is up from 10 million from its April report. Game Pass launched in 2017, which shows great growth for the service. Game Pass is a domino effect with the more users, the more Xbox has the ability to bolster the offerings on the service and this cycle will continually repeat itself.
As someone who follows publicly traded gaming companies and reads earnings reports to see how the company and specially hardware and software are performing, its nice that Zenimax is now part of Microsoft who is a publicly traded company and will mean that we will now have more data regarding the studios that are under the Zenimax umbrella. Albeit, Microsoft has been pretty vague on their specific data since the early days of the Xbox One generation when sharing specifics on a losing console became detrimental to the company. Instead, Microsoft now focus on more macro level details including Game Pass.
On the Xbox Wire, Phil Spencer, Head of Xbox and the man who has seemingly been behind the turnaround since taking over had some things to say on the matter of the Zenimax deal finalizing. A few of the statements that Pho said that are worthy of mentioning include “ With the addition of Bethesda creative teams, gamers should know that Xbox consoles, PC and Game Pass will be the best place to experience new Bethesda games, including some new titles in the future that will be exclusive to Xbox and PC players”
It seems that there are just some titles that are too big to be Xbox exclusive from this list. They way I see the deal going based on what Phil Spencer said in the Xbox Wire post plus how he was talking at the Xbox/Bethesda Round Table that happened this week, is that these games will be Xbox exclusive and titles that release on other platforms will be the exception, not the rule. With over 115 million PS4’s sold and PS5 off to a faster start, I don’t think it would make sense to leave that money on the table but then again we don’t understand what Microsoft would be willing to pay to make Game Pass as big as they want it to be.
Is Game Pass The Netflix of Games
Before moving ahead and you might be thinking that Netflix is too big and that there is no way that Xbox Game Pass can ever get that big, remember that just 20 years ago Netflix only had 400K subscribers and that was back when it was mail only. Fast forward to the when Netflix was almost exclusively streaming only and that was in 2010 and guess how many subscribers Netflix had…18 million. At their last earnings report, Netflix announced more than 203 million users.
In just one generation with the right moves, Microsoft can turn Xbox Game Pass into a service of monolithic proportions. In 2020, Netlfix generated 24.99 billion, which certainly could be a glimpse into what Microsoft is willing to do to get there. Even just last summer, head of Xbox Marketing, Aaron Greenberg said in an interview with Whats Good Games “not a big profit play but ultimately pay dividends down the road if everything goes to plan” So far the plan looks like it is moving along.
If you extrapolate the business model roughly from Netflix to Game Pass and assume that they can get to 200 million users in another 10 years based on Xbox users, PC users and xCloud users. Rough calculation of the monthly fees plus small price increases similar to how Netlfix has done and in ten years the price of game pass could be 20 per month.
Theoretically, with 200 million subs at 20 bucks a month, that works out to around 50 billion dollars of revenue annually just from Game Pass. During the last quarter of financials that Microsoft reported, the company brought in 48 billion dollars of revenue and when you see that Game Pass has the potential to account for 20-25 percent of Microsofts total annual revenue, I would say that nothing is off limits in terms of what it will take to make Game Pass succeed.
The other note worthy thing that Phil Said was “To properly celebrate this special moment, we are bringing additional Bethesda game into Xbox Game Pass later this week” True to their word, Microsoft announced a massive new list of games that is now on the Game Pass service. 20 additional Bethesda titles came to Xbox this past week with a few of the games receiving FPS boosts from the power of the Xbox Series X|S including most notably Skyrim.
The other titles coming to the service include Dishonored 1 & 2 , Doom 1, 2, 3, 64, & Eternal, Elder Scrolls Morrowind, Oblivion, Skyrim, & Online, Evil Within, Fallout 4, 76, & New Vegas, Prey, Rage 2, Wolfenstein: New Order, Old Blood & Youngblood round out the new additions. Xbox Game Pass was already an incredible deal and with these new games you are already seeing what the future will look like with Bethesda now owned by Microsoft.