Why 'Xbox Game Pass' Wanting To Be the 'Netflix of Gaming' Makes No Sense

We're living in a pretty connected world in 2017. That you're probably reading this on your cell phone while you're pretending to do things at work is a testament to that. Faster internet speeds and increased device connectivity has given us the opportunity to have near unlimited media consumption at our fingertips. That's why industry shifting platforms like YouTube and Netflix are growing steadily and will probably keep growing as the years roll on. As long as they keep up with the times, that is.

But what about the gaming industry? Subscription based, on-demand game streaming seems like an idea that a lot of gamers would appreciate, but even now it's not really top of mind. People still buy their games either at stores or online via platforms like Steam or, God forbid, Oracle.

Microsoft wants to change that dynamic with their introduction of Xbox Game Pass with the idea that it will become the Netflix of gaming. There's only one problem with that, that notion has a high likelihood of being dead on arrival.

Going By The Numbers

Being able to play games without buying them isn't a new concept. It's been around almost as long as home gaming has been around. I can clearly remember going to Blockbuster to try out the latest games with the intent of either beating it or buying it later if it was worth the money.

Gamefly came out and made it even easier for someone to have access to game rentals by having them delivered right to your door. The company is still up and running today, but not nearly at the same level as Netflix. Michael Pachter, a gaming analyst, recently broke down difference between the two when speaking about Xbox Game Pass and its ambitious goals to match Netflix.

"This [Xbox Game Pass] isn't the beginning of Netflix style programs, Gamefly was the beginning of Netflix style programs. Gamefly was exactly what Netflix was in 2006, DVD's by mail. The price was a lot higher, twenty bucks and I don't know their numbers today, but the last published thing I saw they had not got to 1 million customers paying twenty bucks a month."

Contrast that with Netflix's pricing grid that starts at $7.99 for basic and premium subscriptions sticking to $11.99 and there's already a gap in value for money.

Netflix has the volume at 93 million subscribers with the potential to get to 100 million late this year. If an already existing subscription service like Gamefly is dragging by a large margin, then Microsoft is going to have to come up with something really good to try and reach those kinds of numbers.

The issue with that, however, is how the gaming industry works and how game publishers make their money.

Publishers Don't Want to Work for Pennies

It's important to note that this has been attempted a few times before. You have services like Playstation Now and in 2015 it was announced that Gamefly would enter the cloud based streaming business themselves. The biggest issue for both was getting good and current games on their roster for streaming.

The reason Gamefly has managed to keep going is because it rents out physical copies to gamers. That means that it operates on a first buy basis with the company purchasing the games and then renting them out.

When you're streaming content, revenue for the publishers come from a cut of the subscription fee. With Xbox Game Pass starting at $10 per month, that means that publishers would be getting a fraction of what they would usually get from just selling games directly to consumers. The Wu-Tang Clan elaborated on this issue well when they said that "cash rules everything around me, CREAM, get that money. Dolla, dolla bill, ya'll."

Pachter touched on this as well.

"Game publishers are reluctant to put anything out there on Game Pass that they believe they can still sell to you. If they can sell it to you for $30-40, why are they going to give it to you for $10 a month and only get a small percentage of that?"

That means that the type of games that you get from the service might not even be the titles you actually want to play. Attracting current games to a streaming service would need major monetary incentive for the publisher.

What you have then is a balancing act of making sure everyone gets a nice slice of the subscription pie without having the price balloon to a point where the model ceases becoming viable. But at their current price, it would take a dramatic shift in consumer habits for Microsoft's model to work.

Why work for pennies when you can get dollar bills, right?

Looking at Overall Value for Money

The next thing to look at is the subscription price which, at $10 a month, seems like a pretty solid deal, right? That's until you look at that number on an annual level and really break down what $10 a month actually means.

The games on [Xbox Game Pass] are pretty much $20 games, if you buy them physically for 20 bucks, and you play them for a month to make the most of game pass you'd have to go through 8-10 games a year. It really costs you 10 dollars per game, so the only way game pass makes sense is if you're going to play 12 games a year.

There are certainly people out there who would do that, but not at the same volume as Netflix subscribers. Pachter estimates that perhaps there would be one to two million people who would fall under that category and the rest would be under utilizing their service from the standpoint of what you put in versus what you're getting out of it.

Casual gamers would be better served to wait for the price for a game they want to go down or to purchase used games instead.

Ambition That's Dead On Arrival

So as we look at it today, Xbox Game Pass has three major hurdles to overcome: attracting publishers in order to have current games on streaming their line up, giving the consumer good value for money, and attracting enough subscribers to have a big enough revenue pool to keep the entire operation going.

That's why when Pachter was asked how long it would take for Microsoft to reach the same level of success as Netflix, he didn't even have to think about his answer.

"That's an easy one, eternity."

Source: Daily Star