You’re describing the opposite of that. You’re saying, “I’m going to spend all the money upfront to make people come onto the service. Then the game developers who are not going to build their own subscription bundles, they’re going to come on to Game Pass and make a lot of money.”

That’s our goal. That’s absolutely our goal. We see it, and not in all cases. This is all learning every day, but we see it. Even things like EA Play coming on to Game Pass was us working with our partners at EA to say, it’s not about a per-title thing, let’s actually bring the channel that you guys want to go drive and grow value in, called EA Play. Let’s bring that to Game Pass on console and PC, so you see growth in people’s attachment to your service through the distribution power of Game Pass. That’s real strength for them.

Actually, for a content partner like EA or someone else, it helps them create the kind of moat around their content that says, “No, this EA Play thing has value.” We love that.
How do you pay out developers? I’m a developer, I make a game, I say I’m going to put it in Game Pass, a customer pays [you] $14.99 a month. How do you decide how much to pay me, the developer?

Our deals are, I’ll say, all over the place. That sounds unmanaged, but it’s really based on the developer’s need. One of the things that’s been cool to see is a developer, usually a smaller to mid-sized developer, might be starting a game and say, “hey, we’re willing to put this in Game Pass on our launch day if you guys will give us X dollars now.” What we can go do is, we’ll create a floor for them in terms of the success of their game. They know they’re going to get this return.

[In] certain cases, we’ll pay for the full production cost of the game. Then they get all the retail opportunity on top of Game Pass. They can go sell it on PlayStation, on Steam, and on Xbox, and on Switch. For them, they’ve protected themselves from any downside risk. The game is going to get made. Then they have all the retail upside, we have the opportunity for day and date. That would be a flat fee payment to a developer. Sometimes the developer’s more done with the game and it’s more just a transaction of, “Hey, we’ll put it in Game Pass if you’ll pay us this amount of money.”

Others want [agreements] more based on usage and monetization in whether it’s a store monetization that gets created through transactions, or usage. We’re open [to] experimenting with many different partners, because we don’t think we have it figured out. When we started, we had a model that was all based on usage. Most of the partners said, “Yeah, yeah, we understand that, but we don’t believe it, so just give us the money upfront.”

If you look at every other model [like that], Spotify is always in a fight with the [music] industry. [The usage] model makes a lot of logical sense — we’ll pay you based on if people use it — but it seems to lead to an enormous amount of conflict down the line.

My hope is we will get there, and maybe not 100 percent, maybe some hybrid model, which I think could work. We already have a revshare relationship with most of the content creators because we have a store, a digital store on our Xbox, which is basically a usage-based thing if you think about it. I buy the game, we take a cut, they take a cut, and we build success together. I’m hoping we can get to a model, where as we see upside, they see upside. There’s some downside risks that we can help cover which gives us certain capability with the content, but also helps them go do some things that maybe they couldn’t get greenlit on a pure retail model.

The thing that’s been heartwarming to me, as somebody who’s been building games for so long, is to see games come to the service that wouldn’t have been built if there wasn’t this engine called Game Pass that allows us to go off and help fund a certain game to go build. When the team, if they’re just out there pitching the publishers on a retail game, if it doesn’t fit into some Excel spreadsheet that tells you what the retail outcome will be, then it doesn’t get green-lit. You see this in things like Netflix. There are clearly shows on Netflix that would have never been greenlit by NBC or CBS, or ABC in the old model, and frankly, can have real success. And my hope is that Game Pass can get to that same level.
Microsoft’s Phil Spencer on the new Xbox launch - The Verge