Gamepass: Thoughts on How the Money Works

There have been a lot of discussions about Gamepass and how does the money aspect of it work out. Well I’ve been thinking about this and I think people have been looking at it wrong. Everyone seems to be trying to add up dollars trying to figure out where the profit is, but most have been overlooking something I think. Gamepass isn’t necessarily supposed to bring in profits itself, Gamepass is more likely a replacement or alternative for full or timed exclusives.

So lets step aside for a minute and look at timed exclusive deals. Does anyone ever really question the profitability of these deals? I think there is a general understanding that these deals are made to get people to buy the console and hopefully spend on other games and services. Everyone just assumes the console maker will make it up somewhere else, so why isn’t this the case for Gamepass?

Now I don’t really have an idea how much money a console manufacturer actually spends on these exclusive deals but I’m going to try. If we take a basic exclusive deal I would assume the amount paid will be based on how much the publisher is going to lose being kept off other platforms. That would be something like estimated sales, microtransactions, etc… minus the 30% cut, and then adjusted for getting upfront money (time and risk), probably development costs and other things factor in too. So if you take something a 1,000,000 seller in the exclusivity period on one console that is $60M ($42M after the cut). Then we’ll subtract some money for lump sum and time and we are looking at what $30M or so to buy an exclusive. Now for the one paying this amount how do they make that back? They don’t necessarily have to make it back directly as in console transactions, they may just consider it a “marketing” expense.

Now if keep that amount in mind and think about Gamepass and a potential game appearing there instead of a deal like the above. With Gamepass MS doesn’t necessarily ask the developer/publisher to be exclusive, most likely they will sell on other platforms. So what actually happens is there is a potential loss of sales from only the Xbox, so it is kind of like an exclusive from the Xbox while on the Xbox! So the cost of getting a game on Gamepass would be at most be what an exclusive would cost. Here’s the thing though, people can still buy the game on Xbox while on Gamepass. Plus there are other benefits to being on Gamepass, the most important one being the game is way more visible for the developer. The game will be seen by more people not less.

That means it is going to a lot cheaper to convince a developer to put a game on Gamepass. They can replace one exclusive deal with multiple Gamepass deals paying developers upfront. Not only that, since MS isn’t paying for a definite loss in sales they can structure the deal like this. “Ok X-Developer you might lose Xbox sales here, so we’re paying you upfront, but we’ll ask for a higher cut of your Xbox digital sales while you are on Gamepass. If you sell nothing, then you aren’t losing anything, if you sell a lot, you still have all of the upfront money and a cut. MS has a ton of flexibility in structuring very fair deals here. So essentially MS can use their “third party exclusive” budget to bolster Gamepass while having more avenues of that money coming back (+subscriptions).

TL,DR: Gamepass doesn’t need to use subscriber revenue to pay developers to be on Gamepass. They don’t need to have the games be a service either. Quite simply it works the same as “buying exclusives” but just a lot cheaper. The hook to the consumer is play these games for a low monthly price instead of this is the only place to play them.


You might be on something, sounds reasonable but equally games with services has more potential for post launch revenue and don’t forget DLC’S.

Just today I bought the We Happy Few season pass.

Also I see a difference with games with low budget. The upfront security for indie games is such a relief for developers. Even if they potential could sold more the risk of a flop is always a option.

AAA games on the other hand don’t really need this security. So those deal probably work like a timed exclusive.

Gamepass helps smaller devs in 2 ways:

  • minimises risk. It’s not spoken of but it’s highly probable that the 6 month deal usually pays for the devs costs of the game so any sale instantly puts them in the black

  • discoverability. You are guaranteed to be at the top of the app in the new arrivals section for at least a month, people play the game and then their friends see you play the game. Word of mouth gets out and suddenly you have dozens leading to hundreds leading to thousands of people paying for your game because they don’t want to pay for a sub instead.

On the Microsoft side it’s no secret this isn’t a profit driver but it’s probably not a loss leader either. Really once they hit 25 million players it’s will be a self sustaining service where devs take smaller deals, leading to more deals and more games and more subs

This is the disruption that will change the AA equation in the coming gen in my opinion

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True games with services work well in the system too but it isn’t needed. Like do people expect those timed exclusives to be all “service games” thinking the console manufacturer need to make that money back somehow? Paid exclusives are just seen as a sort of cost of doing business to increase console sales. So why not the same for Gamepass?

AAA works the same way. It’s like an exclusive deal, but with less drawbacks for the publisher/developer. Sure they may lose some sales on the Xbox by being in Gamepass, but they would lose all of their sales from the other platforms in a true exclusive deal with a specific platform. MS and the dev/pub can even add tiers, incentives, etc… in either direction to the deal since it isn’t a payoff of sorts. Only the “where is the money coming from” needs be thought of as coming from MS exclusives budget.

I don’t really care from the consumer perspective to be honest. All I know that the value of Game Pass is insane. I can see becoming huge like Netflix in the coming years. Especially with budget friendly Series S.

Subscription services bring in a constant predictable cashflow instead of an unknown risky amount of money after slaving for 5 years.

Suscription services also increase engagement and the chance to make even more money with these customers.

CFOs and shareholders obviously love these models.

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I’ve heard they also have a sort of bonus for vertain games that do well… So it makes sense that games that do better make a bigger piece of the pie or something?

The subscription money is not “shared” or divided up between the developers on the service. That’s the common misconception. MS just pays developers up front based on projections of the sales (or if they are trying to help a developer) and if a developer reaches milestones while in the service, they get more payout. These are all single deals done with each developer. This is similar to Netflix (and you should note that this entire model is based off of Netflix outside of extra monetization like DLC/MTX) and Phil actually went to meet with the CEO of Netflix I believe years ago about how to pull it off.

MS gets all the revenue from the subscriptions…how they use it beyond that, is probably never gonna be known and I think that’s fine.

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There are some bonuses for developers who have a well performing game on the service. And I’m sure having a well performing game on the service will give the publishers some negotiation power for contract extension.

I think its great marketing for smaller games. I felt that I heard more about that game crosscode when it joined gamepass. Positive word of mouth will make people try out games on other platforms or possibly non GP subscribers to purchase game.

I believe with most subscription services the developers get a lump sum, but there might be some added incentives if they hit certain goals.

I do wonder if Microsoft like Netflix will start cut down on content launching on service once they have enough studios to release couple of games a quarter.

To me gamepass is like a marketing deal. And customers are paying to somewhat fund those deals. In return they get games at cheaper price.

Gamepass works because there are literally thousands of games on the Xbox platform which no sane person can play. Even with 100 top games on gamepass, no sane person can play them all. At the end consumers take the flexibility of choosing from 100 of games at a low monthly price.

The other smart thing is that games still do sell at full price as well. This makes gamepass a very different subscription service.

You can’t buy songs on Spotify. Can not purchase shows/movies on Netflix.

Xbox has the best deal in the entire market.

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ultimately its in Microsofts best interest to keep buying studios or just straight up pay a developer and fund the total development and keep it exclusive to game pass and Xbox/PC. Looking at Netflix they paid a lot for content from outside sources in the beginning until they could build up their own material that can’t be seen anywhere else. Microsoft needs to continue to invest in studio acquisitions to make game pass grow. Even with 10 million subscribers at the lowest entry point of $10 is 100 million dollars a month that could easily fund a AAA single player game. Unfortunately games take a lot longer to make then movies and TV shows and the wheels a just starting to get rolling

I think the key part of GP is when they don’t make the content exclusive. When you do this you don’t have to compensate the developer for potential loss of sales on the other platforms and MS gets to say “this will boost your sales on other platforms” it makes a cheaper and stronger case to get games on GP. If they wanted to play the exclusives game they could just do what Sony is doing. They still can do exclusive content deals with developers that need more money, but I don’t think that should be their focus. Also having the game on more platforms increases its visibility for GP. So for example CrossCode is getting some nice publicity thanks to GP which is helping it sell more on other platforms, but it works to other way too. The increase of sales on other platforms helps sell GP where the game is “free”.

There definitely needs to be a balance here and I do think MS is trying to strike that balance.

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MP games with cosmetic stores and battle passes are going to subsidise the AAA single player games in my honesty opinion. There will be both SP and MP AAA games , I guess SP games could have expansions/DLC which they could sell either standalone or include it in GP:U.

I do feel like Game Pass tiers will change in future too.

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