Okay, long one, but have thought about this a lot and have some time:
I think there is some over-thinking going on here about people and the state of their finances, and I don't think making assumption (or, rather, one assumption) about people's financial lives is the way to critique Game Pass. You can still buy games. Bottom line. Spotify and Netflix don't offer you that option - they just railroad you. I mean, you can go elsewhere and buy a lot of it but there's stuff exclusive to Netflix and there's - to a lesser degree - stuff exclusive to Spotify. Game Pass doesn't do that. If you want to keep buying, then keep buying.
Other than the concern of financial difficulty losing you access to your whole library (which will happen to people and, when it does, it will suck to hear those stories), the downsides are near negligible for people with steady incomes and careers. You talk about having people pay $60 a year to access games they'll never play and I just don't think that's true at all. People can still buy 3 months of Gold. If they play FIFA online for three months, they'll just pay for 3 months. And, right now, they may as well pay for 3 months of Game Pass to actually get access to FIFA! It also allows them to try a load of games that they never would have tried. Yes, you can lament the death of the demo, but that's not Game Pass' fault - that has been going on for a generation. People who aren't that interested in other games will find value. And if they don't find value, they'll cancel it when they're done. Simple as that.
With their current numbers of 15m subscribers (a 50% increase in less than 6 months), I'd estimate they are currently generating revenue somewhere in the region of about $1.8bn a year. If they can get up to 100m subscribers by the end of this generation, they'd be pulling in over $12bn a year using that same calculation. I'm averaging $9.99/month based on the various Game Pass tiers, trials (people who are paying zero) and people who converted their Gold to Game Pass for $1 (I am in that latter category and not paying a penny for Ultimate until 2022). And keep in mind that's a fairly conservative estimate as it's the same price as the single platform Game Pass options - I assume most will be Game Pass Ultimate - so average could be higher.
Of course, you have to take Gold costs out of that for a more accurate figure but, let's face it, they could very well yank the cord on Gold at some point when they get a high enough intake of GP subscribers. It'll be a nice PR boon when that happens and people who AREN'T Game Pass subscribers will actually get back the cost of a game per year.
Anyway, that doesn't include the revenue from DLC and people buying the games outright while they are discounted on the service. Nor the fees Microsoft generate from third-party game sales. It's all enough to go towards creating their first-party titles. A lot of talk of Microsoft just printing money to bankroll this but, as every year goes by, that money will lessen until Game Pass hits profitability (or doesn't) and they can stop loss leading. So this is a long-term project that won't be going anywhere anytime soon - especially since they already have 15m and will probably hit 20m by the end of the year. Investors will be happy with 100% growth in a year.
And this is the thing that I don't really see get talked about: once they make enough first-party games, they can drop the amount of third-party titles on the service. I think that's their ultimate goal.
Because then they don't need to negotiate as many licensing fees, nor will most games disappear from the service for the user. It will be more like a vault and there will be less temporary stuff. Rather than overspending on payments to third parties, who will try to take a profit for their investors on top of their studio/publisher costs, they'll be in total control of this process.
I think this is the big reason why they have bought Bethesda who will generate double digit first-party titles per generation. At a base count, they developed/published 21 games across PS4, Xbox One and PC during the last cycle. So that's 20 or so titles probably coming to Game Pass, probably at least another 15+ this generation, and another potential 15-20 from Xbox 360 and Xbox for BC.
So, by the end of this generation, there's a good chance that Bethesda alone will have something in the region of 50 games you can play on Game Pass. If they can get to 100m subscribers, that yearly revenue is enough to buy Bethesda over and still have a few billion left over for that year.
They can always bolster their first-party games with a limited third-party selection alongside a lot of indie games, while the big third-party publishers will try and develop their own services using their own back catalogue (which will likely increase given the Amazon announcement).
It really depends on how fast they reckon they can hit their targets. If they feel they are on target, they'll try and keep it the same price. If not, they'll raise the price by a couple of bucks a month to compensate. The main thing to consider is that they have options. They can go in a number of directions with Game Pass until they can make it sustainable but, like I said, my belief is that they are filling out with third-party stuff for now until they can rest on their first-party laurels later. Heck, perhaps by the end of this next generation, it will simply be called the 'Xbox Vault' - a way to access all their first-party games. That would be the worst-case scenario for everyone and that still isn't that bad.
And I didn't even factor in Cloud Streaming to all of that. The value of that on the service will be great for people who like that sort of thing and for those who travel a lot for work, while also a great 'emergency' option to have for others if they have any tech hiccups that would have otherwise stopped them from being able to play their console or on their TV for a few days/weeks.
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