Former PlayStation exec questions the Xbox Game Pass model

Former PlayStation executive Shawn Layden has questioned the long-term prospects of the Xbox Game Pass business model.

During his time at PlayStation, Layden held a number of senior roles including CEO of Sony Interactive Entertainment America, VP of Sony Computer Entertainment Europe, and president of SCE Japan. He was chairman of worldwide studios when he departed in 2019.

In a GamesIndustry.biz interview published on Tuesday, which focuses on his recent appointment to Streamline Media Group’s advisory board, Layden expressed scepticism about the sustainability of Xbox Game Pass and its potential to expand the console market.

Game Pass launched in June 2017 and has become central to Microsoft’s gaming business, attracting over 18 million subscribers as of January 2021. It offers members access to over 100 titles, including all first-party games at launch.

Sony has said on multiple occasions that the Game Pass model wouldn’t work for PlayStation. Speaking to GI.biz last September, SIE boss Jim Ryan claimed a subscription-type model would be unsustainable for PlayStation Studios because it often sees its first-party game budgets grow to “well over $100 million”.

Layden, who last year called overall AAA development “not sustainable” and suggested that game length and pricing may have to be adjusted to combat ballooning game budgets, echoed Ryan’s sentiment.

“It’s very hard to launch a $120m game on a subscription service charging $9.99 a month,” he said. “You pencil it out, you’re going to have to have 500 million subscribers before you start to recoup your investment.

“That’s why right now you need to take a loss-leading position to try to grow that base. But still, if you have only 250 million consoles out there, you’re not going to get to half a billion subscribers. So how do you circle that square? Nobody has figured that out yet.”

The number of people who own consoles today is thought to be around 250 million, which is about the same as it was in the late 1990s. And Layden suggested to GI.biz he was doubtful that Xbox Game Pass and its cloud gaming offering are the answer to growing this number.

Xbox Game Pass Ultimate, the subscription service’s $15 / £11 premium tier, includes the ability to play games from the cloud. Initially available to Android users, Xbox Cloud Gaming was also rolled out to subscribers on PC and iOS in July 2021, “adding over a billion devices as a path to playing in the Xbox ecosystem”, according to Microsoft.

“Of course, if you add in mobile phones you get to hundreds of millions of players,” Layden said. “But those are related but distinct categories. We’ve learned over time that mobile gaming isn’t necessarily a gateway into console, but just a different thing for people to do at a different time of the day.”

He added: “People don’t buy consoles because they want more steel and plastic in the living room. People buy consoles because they want access to the content. If you can find a way to get the content into people’s homes without a box, then yes, indeed. Everyone has a streaming solution of some form. Most of it is limited by whether you have a decent internet connection. And they haven’t constructed the business model that works yet for that.”

Further reading

1

Xbox says Game Pass subscribers ‘spend 20% more overall’

Exec says users continue to spend via in-game transactions and additional content

Microsoft said in June that it is working with global TV manufacturers to embed the Xbox experience directly into internet-connected TVs, and that it’s building its own streaming devices to bring cloud gaming to any TV or monitor without the need for a console.

While it’s been claimed that Xbox Game Pass has yet to amass enough subscribers to make it profitable, Xbox boss Phil Spencer said last October that the company has no plans to increase the price of the service.

“We like the value that Game Pass is today and from a business model it’s completely sustainable the way it is,” he told the Dropped Frames podcast.

UPDATE: During Microsoft’s quarterly earnings call on Tuesday, CEO Satya Nadella claimed Xbox Games Pass is “growing rapidly”, with subscribers playing approximately 40 percent more games and spending 50 percent more than non-members.