Sony and Microsoft spend millions every month with no direct return to keep gaming subscribers...

[Cal Jeffrey]

In context: In the current generation of console wars, a lot is riding on Sony's and Xbox's subscription services, maybe even more than ever. This supposition is supported by both companies recently restructuring PlayStation Plus and Game Pass. A filing with the US Securities and Exchange Commission (SEC) reinforces this notion.

In September, Snail Games filed an S1 with the SEC as it prepares to go public. The S1 is one of many routine financial documents the Commission requires before a company can apply for an listing shares on the stock market.

Snail is an independent developer and publisher best known for Ark: Survival Evolved, from developer Studio Wildcard. Snail leans heavily on this fact, mentioning the game by name at least 40 times in its S1.

Snail claims that for the fiscal year ending on December 31, 2021, the overwhelming majority of its revenue came from digital sales through online platforms like Steam, Xbox Live, and the PlayStation Network. That's not surprising, considering the physical game disc is on its way to extinction.

What is more interesting is Snail's acknowledgment that in November 2021, Sony paid $3.5 million to make Ark free for PlayStation Plus members for five weeks. The contract stipulated that the game had to meet or exceed certain unspecified "performance obligations" — legal speak for "your game must generate a specific number of downloads to receive the total contracted amount." That free period started on March 1, 2022, and Snail said it met its obligation on the first day.

Keep in mind that Sony paid $3.5 million without receiving anything in return except the hope that the game would help retain current subscribers and maybe bring a few new ones into the fold. However, Sony was not alone in forking over stacks of bills to Snail for the privilege of offering Ark free to customers.

Microsoft entered a licensing agreement with Snail in 2018 to offer Ark on Game Pass. While the publisher did not mention past years' revenues, it did say that Ark 1 raked in $2.5 million in just the first two quarters of 2022. It also noted that this gravy train was so good it amended its contract with Game Pass to be renewed "perpetually" every year with no expiration date. Snail also received another $2.3 million from Xbox this year, designated as "deferred revenue" for Ark 2, which releases next year. The Ark 2 contract is good for three years, but depending on performance, this could change as well.

What is staggering here is that this is just a single game. Sony has up to five free titles per month for PS Plus subscribers. While some are nothing to write home about, some decent and sometimes older gems are frequently in the bunch. Yakuza: Like a Dragon, FIFA 22, Ghostrunner, and Hitman 2 were all recently featured as PS+ freebies. Based on the Ark numbers, saying that Sony spends anywhere from $7.5 million to $17.5 million monthly to keep PS+ subscribers happy would be a conservative guess.

The big picture is that Sony and Microsoft are betting big on their respective subscription platforms. They spend millions of dollars per month on games that bring them no direct revenue. So one could say they are gambling on these perks to keep the subscription revenues not just flowing but growing.

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https://www.techspot.com/news/96297-sony-microsoft-spend-millions-every-month-no-direct.html

 

[brucek]

Doesn't "PS+ subscription revenue" count as direct revenue?

Even if it somehow doesn't, surely XBox Game Pass subscriptions count as direct revenue to offset the expense of the licensed "free games" the subscription gives access to?

 

[yRaz]

It's called a loss leader. They lose money in one section to make money in another. They can write it off as a marketing expense

 

[scavengerspc]

That's why we pay them. I read the game pass revenue intake from subscriptions alone was $3 Billion in 2021, and they have gained subscribers in 2022.

We pays to be kepts happy!

 

[Cal Jeffrey]

Doesn't "PS+ subscription revenue" count as direct revenue?

Even if it somehow doesn't, surely XBox Game Pass subscriptions count as direct revenue to offset the expense of the licensed "free games" the subscription gives access to?

No. Sub revenue is not direct revenue from Ark or any other game because there is no way to tally exactly how much money any given freebie game generates. However, they do indirectly contribute to Sony's (and Microsoft's) bottom line in exactly the way I mentioned in the article. Free games entice non-members to sign up and current members to keep paying Sony monthly.

Don't worry. The bean counters have this all figured out to the penny. Neither Sony nor M$ would just shovel millions to developers for older games without knowing it would turn a profit in the long run. They might have 3 months of stagnation or minor atrophy because of poor free game selection, and that's about the time they shell out for a bigger title. It all equates to billions in profit for Sony and M$ annually.

 

[brucek]

"Sony and Microsoft spend millions every month with no direct return keeping their service subscribers happy"

I'm going to focus just on Microsoft now because I don't know what else is involved with PS+. But for the MS game pass, the subscription buys exactly one thing - access to games, correct? If there were no games, there would be no subscriptions. While I understand that allocating the revenue across the portfolio of games involves some imperfect estimation in the form of downloads, minutes played, surveys, net subscriber additions, etc etc there is no doubt that the licensed games in aggregate are a direct, necessary, essential expense that is directly tieable to the aggregate subscription revenue, even if you can't tease apart one piece of content from the next. The byline makes it sound like the content is some charity give away when it is in fact the entire service.

To put it another way, would you run a story claiming that Netflix "spends millions every month with no direct return" to license and produce video content? How is Game Pass any different?

 

[McMurdeR]

No. Sub revenue is not direct revenue from Ark or any other game because there is no way to tally exactly how much money any given freebie game generates. However, they do indirectly contribute to Sony's (and Microsoft's) bottom line in exactly the way I mentioned in the article.

Our PS+ subs go 'directly' into Sony's bank account! That's good enough for them!

 

[Cal Jeffrey]

"Sony and Microsoft spend millions every month with no direct return keeping their service subscribers happy"

I'm going to focus just on Microsoft now because I don't know what else is involved with PS+. But for the MS game pass, the subscription buys exactly one thing - access to games, correct? If there were no games, there would be no subscriptions. While I understand that allocating the revenue across the portfolio of games involves some imperfect estimation in the form of downloads, minutes played, surveys, net subscriber additions, etc etc there is no doubt that the licensed games in aggregate are a direct, necessary, essential expense that is directly tieable to the aggregate subscription revenue, even if you can't tease apart one piece of content from the next. The byline makes it sound like the content is some charity give away when it is in fact the entire service.

To put it another way, would you run a story claiming that Netflix "spends millions every month with no direct return" to license and produce video content? How is Game Pass any different?

Semantics. No matter how you look at it there is no way to write down in a ledger that X free game brought in Y amount of revenue. PS+ revenue is made up of many factors with free games being in the expense column, not the revenue column.

 

[Plutoisaplanet]

Lots of companies do the same exact thing. Tesla operates its own fast charging network that doesn’t really make a profit and each 8+ stall station they put in costs them somewhere around $200k. They install in a minimum of 50 locations a month, it probably averages closer to 100 locations. That ends up costing them well over $100M+ each year in indirect expenses.

 

[dangh]

"Prisoner dilemma". Both companies losing money because one of them made a decision which was pushing borders.
I'm not paying for any, so I win I have no intention of someone else deciding on what should I play.

 

[dangh]

Lots of companies do the same exact thing. Tesla operates its own fast charging network that doesn’t really make a profit and each 8+ stall station they put in costs them somewhere around $200k. They install in a minimum of 50 locations a month, it probably averages closer to 100 locations. That ends up costing them well over $100M+ each year in indirect expenses.

No, Tesla do not making income, but covering expenses and investment. Covering indirect expenses is still not making the income, but they do not lose anything on that anyway.

 

[bviktor]

Keep in mind that Sony paid $3.5 million without receiving anything in return except the hope that the game would help retain current subscribers and maybe bring a few new ones into the fold.

Yeah, Sony got "nothing" in return, except for the subscribers. Who pay Sony to give them games.

In other words, Sony got nothing in return, except money.

The WHOLE POINT of these subscriptions is that you pay, and you get games. Apparently I'm too naive to expect something in return when I pay for such a subscription. Maybe I should just pay up and get nothing, and then poor Sony would be alright.

WTF is with this article lol. That $3.5 million equals to 60k subscribers' annually. So if we have 24 such games in a year, that's 1.5 million subscribers to break even, roughly.

Now guess how many PS Plus subscribers Sony have: almost 50 MILLION.

Poor Sony indeed, they must be BLEEDING money.

 

[waclark]

Semantics. No matter how you look at it there is no way to write down in a ledger that X free game brought in Y amount of revenue. PS+ revenue is made up of many factors with free games being in the expense column, not the revenue column.

I don't know what metrics Sony or MS track, but I guarantee you that some bean-counter out there is making a correlation between subs and free-game downloads. One way to look at this is the number of new subs and the games downloaded by new subscribers. So, if Sony gets 1M new subs this month and the-coolest-game-ever gets downloaded by 95% of those new subs, then you can say there was some subscription revenue generated by the free game.

Likewise, if you look at existing subs and the games downloaded, you can make a similar connection. In other words, take the top 20 games downloaded, free or paid, and you can assume those games are driving your subscription rates. You could also look at subs cancelled when free games are no longer free.

No, it's not perfect math and as you say, you cannot put that number in a ledger but I think you can make a reasonable assumption that the-coolest-game-ever is driving new and continued subscriptions if it's being downloaded/played in large numbers.

 

[Cal Jeffrey]

I don't know what metrics Sony or MS track, but I guarantee you that some bean-counter out there is making a correlation between subs and free-game downloads. One way to look at this is the number of new subs and the games downloaded by new subscribers. So, if Sony gets 1M new subs this month and the-coolest-game-ever gets downloaded by 95% of those new subs, then you can say there was some subscription revenue generated by the free game.

Likewise, if you look at existing subs and the games downloaded, you can make a similar connection. In other words, take the top 20 games downloaded, free or paid, and you can assume those games are driving your subscription rates. You could also look at subs cancelled when free games are no longer free.

No, it's not perfect math and as you say, you cannot put that number in a ledger but I think you can make a reasonable assumption that the-coolest-game-ever is driving new and continued subscriptions if it's being downloaded/played in large numbers.

Oh no. Don't get me wrong. I even said it in my first comment. The bean counters have it all figured out. But it boils down to a big-picture scenario. There are no exact figures that they can attribute to a given freebie, especially since there are multiple given away per month. At best, they would have to correlate the giveaways to sub-revenue as a group. But yeah, they absolutely know they're getting an ROI. It just isn't precise and will never be listed on a set of financials. Freebies are, as I said, in the operating expense column.

 

[Cal Jeffrey]

Yeah, Sony got "nothing" in return, except for the subscribers. Who pay Sony to give them games.

In other words, Sony got nothing in return, except money.

The WHOLE POINT of these subscriptions is that you pay, and you get games. Apparently I'm too naive to expect something in return when I pay for such a subscription. Maybe I should just pay up and get nothing, and then poor Sony would be alright.

WTF is with this article lol. That $3.5 million equals to 60k subscribers' annually. So if we have 24 such games in a year, that's 1.5 million subscribers to break even, roughly.

Now guess how many PS Plus subscribers Sony have: almost 50 MILLION.

Poor Sony indeed, they must be BLEEDING money.

Nobody said Sony was bleeding money.