Can a Multi-Game Subscription Focused Model Be Viable For Sony?

Yobo

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I decided to take a look at the numbers with some very crude calculations to get a rough idea if it's viable. Really wanting to work out if Sony aggressively pushed MGS to replace the current buy to play model (like Xbox is doing), could it work for them?

In 2021 Sony made $24.4 billion. 26% of that came from software sales.

B2P Model$24,400,000,000
Add On Content$7,564,000,00031%
Hardware$5,368,000,00022%
Digital Software$5,124,000,00021%
Network Services$3,660,000,00015%
Others$1,708,000,0007%
Physical Software$1,220,000,0005%

That gives us all software revenue of $6.34 billion. We know royalties are usually set at 30% (though it can vary). From that we get:

All Software$6,344,000,000
70% Paid to devs-$4,440,800,000
30% Royalty$1,903,200,000


Essentially this gives us two things
The revenue Sony makes on software after Dev payments: $1.9 billion
And what Sony could spend in licensing costs: $4.4 billion

If we make some assumptions that the revenue of software sales and network services flip while everything else stays the same, then we have a new potential model

MGS Model$24,400,000,000
Add On Content$7,564,000,000
Hardware$5,368,000,000
Digital Software$2,684,000,000
Network Services$6,344,000,000
Others$1,708,000,000
Physical Software$732,000,000.00


To get to this point if we assume $180 per year in subs like Gamepass, then it would require a minimum of 35,244,444 subs to effectively replace the reduction in software revenue.

That is assuming software revenue doesn't drop even further

If we made a more extreme estimation that traditional software revenue drops to zero then the model looks like this:

MGS Model$24,400,000,000
Add On Content$7,564,000,000
Hardware$5,368,000,000
Digital Software$0
Network Services$9,760,000,000
Others$1,708,000,000
Physical Software$0

To get to this you need 54.2 million subscribers

So all of this means that if Sony switched to a Multi Game Service model they would need between 35 - 55 million paying the full $180 per year

That's all for revenue. Working out profit is another issue, but we can assume Sony would have to spend at least $4.4 billion to on game licensing per year for the development community to be making the same that they do in the B2P model.

What we don't know:
We don't really know what licensing costs look like at all for Xbox for example. How it's calculated. There's potential that it's well above $4 billion per year which would change everything

Conclusion:
There's a lot of gaps in the data but at a glance it seems viable, which isn't really what I expected to find. Multi Game subscriptions could work but you need to sacrifice a lot before you get to the level of subscribers paying the full $180 cost per year where it is as viable as Sony's current model

The interesting thing is as it goes above our numbers it has the potential to far exceed the current model for Sony if they were to get subs to 80 million, 100 million etc

For Sony right now, they have the numbers in terms of PS Plus subs (47 million) but they are not paying enough. The average PS Plus sub is paying ~$80 where it needs to get to $180

Sony will be hoping they can get more and more people to switch to PS Plus Extra to make this viable for them, I think they have found in their own numbers that it can work but they are taking baby steps.

We've gotten to the point where it seems the one year mark is the point to add games to PS Plus Extra. But they may need to bite the bullet eventually and go day one releases and licensing big AAA games if they really want momentum in this space.

The money is there to be made but I think the longer they stall the harder it will be as Gamepass soaks up subscribers.
 
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nongkris

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Really interesting numbers and cool calculations!

If PS Plus has plateaued at <50 million subs for a few years now, you can logically predict that the baseline for a higher priced tier will be even smaller. GamePass has proven that there is not a large market for game subscription services like their is for film and music (both industries are plagued with no/slim profit).

I'm curious OP, is that even how you want to consume games from Sony? The current buy to play model is working just fine, and with free to play games becoming so popular a subscription service is even less needed now than when GamePass was first conceived.
 

Gods&Monsters

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People barely have time to play the games they already have + the numerous sales you can get games cheaper than subs.

MS is paying fuck tons of money to get and produce "Day 1 games" and when the stats come out they always suck (Plague Tale, Hifi). Very few people actually play those games.

Sony said it's not worth it and they're 100% right. MS just wants to choke them out.
 
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Yobo

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Really interesting numbers and cool calculations!

If PS Plus has plateaued at <50 million subs for a few years now, you can logically predict that the baseline for a higher priced tier will be even smaller. GamePass has proven that there is not a large market for game subscription services like their is for film and music (both industries are plagued with no/slim profit).

I'm curious OP, is that even how you want to consume games from Sony? The current buy to play model is working just fine, and with free to play games becoming so popular a subscription service is even less needed now than when GamePass was first conceived.
I pay for PS Plus Extracurrently so if games were added to it day one for me it would be useful

I'm still going to get the games I want regardless

What I want though is that the types of games Sony makes which are my preference to actually be viable

You make a good point of PS Plus stagnating at 50 million though, it may be the upper limit of people who would do it on a console

Of interest the last known Gamepass numbers are 25 million with a console userbase around 60 million, maybe some through PC too. But roughly 40% of the userbase have subscribed there. More or less the same % as PS Plus subs.

It would be a good target for Sony if they could get 40% to the extra tier
 
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Yobo

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People barely have time to play the games they already have + the numerous sales you can get games cheaper than subs.

MS is paying fuck tons of money to get and produce "Day 1 games" and when the stats come out they always suck (Plague Tale, Hifi). Very few people actually play those games.

Sony said it's not worth it and they're 100% right. MS just wants to choke them out.
They said it doesn't make sense for Sony in 2020 but they have since created a competitor. The only difference at this point is that Gamepass is more aggressive with day one licensing and their own content on day one
 

laynelane

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I think the issue is that the gaming market hasn't shown that subscription services are what they want. Everyone knows about Game Pass, but it still has missed its growth targets for the past two years. And even after all these years, it's only at about 25 millions subscribers (across all platforms). That's why I'm uncertain if this would be a workable strategy for Sony or any company besides MS. The customer interest just doesn't seem to be there to the degree needed to get the counts you outlined.
 

arvfab

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The problem with such kinds of calculations is that they only concentrate on one part of the equation.

Imagine if all pubs start reasoning like that, not only the console manufacturers. You will soon have multiple 150+$ sub services, all with some kind of exclusive content and no other way to acquire them.

All of them will fight to get a portion of the pie, which will lead to a decrease in quality because of major pressure to release content continuously. And majority of gamers will be ok with it, because "oh well, I didn't need to pay extra for it" reasoning we already see in GamePass shills.
 
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The problem with such kinds of calculations is that they only concentrate on one part of the equation.

Imagine if all pubs start reasoning like that, not only the console manufacturers. You will soon have multiple 150+$ sub services, all with some kind of exclusive content and no other way to acquire them.

All of them will fight to get a portion of the pie, which will lead to a decrease in quality because of major pressure to release content continuously. And majority of gamers will be ok with it, because "oh well, I didn't need to pay extra for it" reasoning we already see in GamePass shills.
The pubs don't seem to have the content levels to make it truly mass market which is why they are piggy backing on Gamepass and PS Plus now.

I agree there are a lot more factors to it though, but at a broad level my question was would Sony really this solution unworkable for them and I don't think they would.

The bigger problem I have with these models is the focus on retention rates and engagement changed the types of games being made
 
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I think the issue is that the gaming market hasn't shown that subscription services are what they want. Everyone knows about Game Pass, but it still has missed its growth targets for the past two years. And even after all these years, it's only at about 25 millions subscribers (across all platforms). That's why I'm uncertain if this would be a workable strategy for Sony or any company besides MS. The customer interest just doesn't seem to be there to the degree needed to get the counts you outlined.
Could be factors like the supply issues having a flow on effect there, so for the most part it's already current Xbox owners and GP subs upgrading to Series

Also lack of content from Xbox last year won't have helped them at all
 
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laynelane

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Could be factors like the supply issues having a flow on effect there, so for the most part it's already current Xbox owners and GP subs upgrading to Series

Also lack of content from Xbox last year won't have helped them at all

That's true. I suppose we'll have more data to work with over the upcoming years. I do think the overall numbers since its inception aren't really amazing, though. As well, both MS and PS have said they don't believe subscriptions will ever become the dominant model in gaming (from this article). Unless there is a big change in consumer behavior, I'm not sure that will change. That said, it will be interesting to see whether the release of games such as Starfield will cause a surge in subs. And, if so, what the retention rate will be.
 
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Gediminas

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Never going to happen. Gamers are different bread. This subs service is just corporate strategy to control and it is just a pipe dream. It is huge money pit and company ending strategy.
Even, if, at first it would work, later, decreased quality would alianate gamers.
 
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Nhomnhom

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PS+ Essentials and Extra are fine and if they push for it any harder people will definitely stop buying their games close to release. Premium is the one that they need to drastically improve by actually making their library of legacy games accessible on PS5.

PS+ needs better marketing if anything the value is already there to most people but if they push for it too hard like MS end up with people unwilling to buy games.
 
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PS+ Essentials and Extra are fine and if they push for it any harder people will definitely stop buying their games close to release. Premium is the one that they need to drastically improve by actually making their library of legacy games accessible on PS5.

PS+ needs better marketing if anything the value is already there to most people but if they push for it too hard like MS end up with people unwilling to buy games.
Is it enough though?

MS made $15.56 billion last year. Lower than Sony sure, but they made up 39% of the PS+XB combined revenue while having only 30% of the marketshare

That means MS is making more money on every unit they sell

What happens when they add another $8b per year from ABK and keep growing their subs and userbase. Sony is going to get outpaced despite selling way more software and more hardware
 

Nhomnhom

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Is it enough though?

MS made $15.56 billion last year. Lower than Sony sure, but they made up 39% of the PS+XB combined revenue while having only 30% of the marketshare

That means MS is making more money on every unit they sell

What happens when they add another $8b per year from ABK and keep growing their subs and userbase. Sony is going to get outpaced despite selling way more software and more hardware
You can't just look at revenue.

MS already runs a bigger operation now that they absorbed so much and the finances of the Xbox division are obfuscated and include stuff like Minecraft, third party sales on PS and their service is also available on PC, mobile over cloud, etc.

The key thing is that we don't know the cost of the operation, it's likely a business model that would make Sony lose a lot of money and that's why they try so much to resist it.

Do you honestly think that God of War Ragnarok, GT6, Horozon FW, FFXVI not being released on PS+ is costing Sony money? That's pretty much the main difference between PS+ and Gamepass right now. Sony is not willing to put their games there day one to push people in that direction.

For all the talk about Gamepass we are yet to see a single big AAA single player release on the service without some sort of multiplayer after about 7 years because Halo sure as hell was not it.
 
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Yurinka

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I decided to take a look at the numbers with some very crude calculations to get a rough idea if it's viable. Really wanting to work out if Sony aggressively pushed MGS to replace the current buy to play model (like Xbox is doing), could it work for them?

In 2021 Sony made $24.4 billion. 26% of that came from software sales.

B2P Model$24,400,000,000
Add On Content$7,564,000,00031%
Hardware$5,368,000,00022%
Digital Software$5,124,000,00021%
Network Services$3,660,000,00015%
Others$1,708,000,0007%
Physical Software$1,220,000,0005%

That gives us all software revenue of $6.34 billion. We know royalties are usually set at 30% (though it can vary). From that we get:

All Software$6,344,000,000
70% Paid to devs-$4,440,800,000
30% Royalty$1,903,200,000


Essentially this gives us two things
The revenue Sony makes on software after Dev payments: $1.9 billion
And what Sony could spend in licensing costs: $4.4 billion

If we make some assumptions that the revenue of software sales and network services flip while everything else stays the same, then we have a new potential model

MGS Model$24,400,000,000
Add On Content$7,564,000,000
Hardware$5,368,000,000
Digital Software$2,684,000,000
Network Services$6,344,000,000
Others$1,708,000,000
Physical Software$732,000,000.00


To get to this point if we assume $180 per year in subs like Gamepass, then it would require a minimum of 35,244,444 subs to effectively replace the reduction in software revenue.

That is assuming software revenue doesn't drop even further

If we made a more extreme estimation that traditional software revenue drops to zero then the model looks like this:

MGS Model$24,400,000,000
Add On Content$7,564,000,000
Hardware$5,368,000,000
Digital Software$0
Network Services$9,760,000,000
Others$1,708,000,000
Physical Software$0

To get to this you need 54.2 million subscribers

So all of this means that if Sony switched to a Multi Game Service model they would need between 35 - 55 million paying the full $180 per year

That's all for revenue. Working out profit is another issue, but we can assume Sony would have to spend at least $4.4 billion to on game licensing per year for the development community to be making the same that they do in the B2P model.

What we don't know:
We don't really know what licensing costs look like at all for Xbox for example. How it's calculated. There's potential that it's well above $4 billion per year which would change everything

Conclusion:
There's a lot of gaps in the data but at a glance it seems viable, which isn't really what I expected to find. Multi Game subscriptions could work but you need to sacrifice a lot before you get to the level of subscribers paying the full $180 cost per year where it is as viable as Sony's current model

The interesting thing is as it goes above our numbers it has the potential to far exceed the current model for Sony if they were to get subs to 80 million, 100 million etc

For Sony right now, they have the numbers in terms of PS Plus subs (47 million) but they are not paying enough. The average PS Plus sub is paying ~$80 where it needs to get to $180

Sony will be hoping they can get more and more people to switch to PS Plus Extra to make this viable for them, I think they have found in their own numbers that it can work but they are taking baby steps.

We've gotten to the point where it seems the one year mark is the point to add games to PS Plus Extra. But they may need to bite the bullet eventually and go day one releases and licensing big AAA games if they really want momentum in this space.

The money is there to be made but I think the longer they stall the harder it will be as Gamepass soaks up subscribers.
You forgot to consider that there is a percentage of their software sales are 1st party games and that Sony gets 100% of their revenue. Sony lists that percentage in their quarterly fiscal report. Can't remember the number for 2021, but should be around 18-21% aprox.

Also, the revenue numbers posted by Sony is the money that Sony gets, their 30% of 3rd party games combined with the 100% of their first party games. You don't need to remove the 70% from there, Sony already removed it. Also, the 70% is for digital games and addons, the percent is smaller for retail games because there are extra costs (retailer cuts, shipments, disc, boxes, extra taxes, etc).

You also have to consider that Sony in 2022 merged their game subs, created new tiers and while keeping their subbers amound basically flat highly increased their ARPU because many migrated to more expensive tiers.

According to your numbers in the OP Sony's game subs did $3.66B in 2021 and with digital+physical game sales Sony did $6.34B. So ignoring they highly increased their game subs ARPU in 2022, that mean that to replace their game sales with game subs with the business model they had in 2021 they'd need to almost double their subbers amount to almost 100M. I assume that with the 2022 numbers the jump needed would be smaller.

You also have to consider that the PS4 player on average bought around 12-14 games/console, so on average that would be less than around a couple of games per year. Meaning that to move to the current PS Plus Premium tier ($120/year, ignoring possible discounts) would mean they would spend more per year with subs than buying games and would get more games rented in exchange of not being able to choose them.
 
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You can't just look at revenue. MS already runs a bigger operation now that they absorbed so much and the finances of the Xbox division are obfuscated and include stuff like Minecraft, their service is also available on PC, mobile over cloud, etc. The key thing is that we don't know the cost of the operation, it likely a model that would make Sony lose lot of money and that's why they try so much to resist it.
While true the lines arent clear on what's driving revenue, you'd think on the surface level with a glance at their hardware sales and abysmal retail software sales that their revenue would be way off course. Yet somehow they are above Nintendo

My opinion is they could very well be making a killing in their profit margins by under charging devs on licensing, we just don't know. But Satya being so gung ho about Gamepass does make me think that could be so
 

Nhomnhom

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While true the lines arent clear on what's driving revenue, you'd think on the surface level with a glance at their hardware sales and abysmal retail software sales that their revenue would be way off course. Yet somehow they are above Nintendo

My opinion is they could very well be making a killing in their profit margins by under charging devs on licensing, we just don't know. But Satya being so gung ho about Gamepass does make me think that could be so
Gamepass ain't what is making them money if they are still stuck around 25m or 30m subs. It doesn't add up or else Sony would be making a killing being close to 50m subscribers for so long, while not sacrificing B2P at all.
 
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Yobo

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You forgot to consider that there is a percentage of their software sales are 1st party games and that Sony gets 100% of their revenue. Sony lists that percentage in their quarterly fiscal report. Can't remember the number for 2021, but should be around 18-21% aprox.
Could calculate it but it's captured in the overall software numbers. I think ultimately Sony wouldn't want to see their overall revenue and profit margins decrease so that means a lot of higher paying subs that can offset that

I don't think day one first party works unless you're reaching those numbers
 
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Yobo

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Gamepass ain't what is making them money if they are still stuck around 25m or 30m subs. It doesn't add up.
Its likely 4.5 - 5.4 billion, not accounting for all their discounting, plus they then add XBL Gold only subs (unknown number), hardware and add on content which should be the largest slice of the pie like Sony

Its all conjecture but something is going right in the strategy to be 3rd in sales but 2nd in revenue