That's basically it. Rude ro is right in that subscriptions can be profitable. But they have to keep you there to make back the money.

Netflix for example has to produce their own content to keep you subscribed. That costs money. They have to license content from companies like Disney. That costs money. Maintain servers, employees, buildings, etc.

But if you look at Netflix. It's filled with content we all already watched as filler. And then they add medium level content to keep you looking as you're still subbed. The major movies like marvels titles only arrive after they hopfully made their money at the box office. You never see big movies day one on Netflix. It would be financial suicide for production companies. Not unless Disney were paid at least a billion or more for a marvel movie day one. That's insane money. Just to have one movie on there day one.

Expect an influx of medium titles with a few big titles here and there to keep you subbed. But never expect a high title unless Microsoft is willing to take the loss in favor of more subs. But if you use it once then cancel. Or get a free month, then cancel, they didn't make anything on you.

Subs work best with recurring content. Content which is worth paying for when it releases, instead of binge playing a game that might get content. TV media for instance, if its just one show, then you can sign up for a month, then cancel....like CBS all Access and Star Trek Discovery. Games though, if you put them up day one, and someone subs, plays it through for a SP game, and then cancels when they're done, MS is not making any revenue off the sale of the game. They might make more overall if enough people do it, but they're devaluing the product itself if its only for $10-20.

But if you have smaller bite size pieces of games coming out, then you have more of a chance of recurring revenue each month. That's the way that Netflix works by staggering its release schedule for all its different shows. They may have some off months, but people generally just stay subscribed because they are subbed anyways. The more bite size pieces they put up, the more value it appears to be, and the more people stay engaged over the long term. But those bite size pieces aren't really conducive to what we expect from AAA games nowadays. That's why I think that their current trend of putting AAA games on the service day one is more likely a promotional thing to get people to use the service, and hopefully remained subbed.

But, the sub numbers themselves require a massive user base in order to justify the AAA games over the long term, so more likely senario is we see fewer AAA games from them, and more games which focus on keeping people engaged in different ways.

While I 100% agree with you, you have to look at it more from how can they make more money. That's how businesses look at things.

To keep things simple.

Let say they have 2 AAA game a year, disregarding the smaller games they publish, and they put up there day one. Assume each person of that 5 million get it on game pass. Each one of those games has a $100 million dollar budget for production and marketing. That's $200 million in resources for that game.

It doesn't cost them any money to include it on game pass.

But, with 5 million people subbed, lets say they lose 1 million in sales at retail/digital purchases day one. That's approximately 40 million in revenue for them(based on average distributor pricing). That means they brought in less revenue. A total of 40% of the production/marketing costs of the game. That's a huge chunk of change to the investors, and MS putting it up on Game Pass essentially takes money away from them.....which investors don't like. What most people don't realize is that publishers don't often spend their own money on making these games, but get outside investment through the producer, which is often separate from the stock investors of a company. I could even invest in a MS produced game if I were so inclined. I've invested in a couple smaller Ubisoft and EA games in the past, and don't own a single share with either company.

Anyhow, they would have brought in $120 million from those 1 million customers over the course of a year, which is good, until you consider that of that $10 monthly charge, a good portion of it is going out to license more content, so they are making very little money per sub overall. But again, the investor isn't being accounted for.

The amount they make per user grows with larger numbers of subscribers, but realistically, that also means a larger drop in retail/digital sales.

I think the service can be profitable, but MS is not getting as much money in from any indiviidual game, and I can't see how they can continue making a large number of AAA games for day one release on this service and justify the cost to make said AAA games.

Spencer has already said that making SP game is complicated....which was referring to the return on investment for the people who actually pay to make a game. And in MS case, that would be their investors. If MS can make more by not releasing those games day one, then the investors will eventually start asking for them to do that. MS may be all about MAU's right now, but the investors care more about the money coming in, the money going out, and the potential for growth over the long term. You don't get that when you give away your expensive products for a pittance. It devalues the brand overall, unless you want to go full on services....which I still think MS wants to do, but may be a while before they can do that.

Or the more likely scenario, if we follow how its gone with the MP market becoming bigger, investors will say put the money in smaller projects, which will return the same amount, because its just going on a cheap subscription service, and there's no point making expensive games when cheaper ones will suffice.

Gamepass is about the total sum of it's content, not just the big budget titles, so the costs Vs income will no doubt balance itself out as the huge costly titles are fewer and further between.
Development costs are also accumulated over the development cycle, not everything at the start for the whole game's budget.

There's also the very likely situation that people who wouldn't normally play Halo, Gears or whatever will try those games, just because they're on the service.
Maybe they'll buy Halo for it's MP if Infinite leaves GP, just so they can keep on playing it, even if it's a sale copy, MS gets a sale or a player they didn't have before.

I get your point, but GP is more likely to garner users interested in the whole service, a bunch of games, maybe they would have bought Halo day one, but maybe they wouldn't have and this basically gets a person who wasn't so eager to get an XBox this gen.
I've had a 360 and OG XBox for ages, but wasn't really planning on getting an XB1 because of many factors, but a great console deal, great deal on Gamepass sold me to get one.
I'm betting a load of people will have done the same as me.

Yeah. Lot of paragraphs. But nothing said.

Name any 3rd party new release game that launched on game pass? You can't. They put old games there because the new release game has to sell. Old games have already gone through retail and sold through what they could. Microsoft is willing to take the loss to create continual subs. They would have to pay through the nose to get a 3rd party to do it.

You drank Microsoft's kool-aid when they told you it's doing great numbers. But they never gave you numbers to verify they're right. What color kool-aid did you drink?

No console sales numbers. No game sales numbers. No Xbox live gold numbers and how many are silver. Just useless metric numbers of shots fired or helmets collected. Engagement from any number of individuals that may not have even purchased the game.

Is Spider-Man on PS Now? How about Detroit? Horizon Zero Dawn? You think Ghost of Tsushima, Death Stranding, The Last of Us 2 or Days Gone will be on PS Now day one? Why not?

Because they need to sell to make up the cost of making the game. But if you can play the game for $10, and not buy the game, how does that make up the cost? How does a free month to play a new release make up the cost?

Yup. You still failed. You should go back and take Economics 101. It might help in your comments. Your common sense is not working.

@Apocalypse

The big 3rd party games aren't there because the 3rd parties have no incentive to do that for MS so MS can make something of its service. It's not because they wouldn't do it, its because MS hasn't made it worth their while. MS couldn't possibly make it worth their while, and still expect to make a profit. A 3rd party is going to see every subscriber as a potential lost sale of the game. So, if MS has 1 million subscribers, they're going to want $40-60 million to include it on Game Pass. That's not reasonable for MS at all.

More so, even MS 1st party isn't going to be able to sustain large AAA games indefinitely unless they have a huge subscriber base, and realistically, if it gets big enough, there is actually less incentive to include bigger games even with more revenue coming in. Furthermore, as a subscriber base increases, it actually becomes more expensive to license content, because the publishers see it as potential lost sales in the future. Even if they put all their AAA games on there, chances are, they're not going to be making a lot of them going forward, because they can make more, or the same, putting in less investment.

I think you get the points you're trying to express, despite being argued with above, but you aren't really explaining it very well.