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Does Xbox really intend to slice up the platform 'tax'?

And if so, where is the market headed as a result?

[The GameDiscoverCo game discovery newsletter is written by ‘how people find your game’ expert & GameDiscoverCo founder Simon Carless, and is a regular look at how people discover and buy video games in the 2020s.]

We’re back, fresh from watching the best Super Bowl half-time show of all time* (*except Prince, obviously) in a Famous Dave’s BBQ restaurant. BTW, did you know Dr. Dre and friends got paid ‘union scale’ (i.e. peanuts for them) for their appearances in 2022, and The Weeknd put in $7 mil of his money to do the show in 2020?

This made it essentially a paid discovery event! See - everything is discovery-related if you have a single-track mind like we do. Talking of that, let’s kick off with a look at some of Xbox’s public statements on platform fees, and what they may mean?

Xbox & console platform cut - will it get slimmer?

(Is Xbox slicing up your 30% cut? Pic by Caitlyn de Wild via Unsplash.)

So, Google’s chief legal officer Kent Walker lit up Microsoft on Twitter a few days back around the Open Apps Market Act being pushed in the U.S. Senate and by MS: “Disappointing that Microsoft would lobby so hard for a law targeting its competitors, while carving out its own exception for Xbox, which requires its own billing system, doesn’t allow loading of other stores and actually charges higher fees to developers.”

What does the Open Apps Market Act actually say? The Verge has a good explainer, noting that it it mandates “companies that operate app stores with more than 50 million US users [not to] engage in certain potentially anti-competitive behaviors.”

The bill would enable things like allowing choice in the in-app payment processor and allowing devs to be able to contact customers directly, plus allowing consumers to install third-party apps - including rival stores - without using the App Store, and even be able to use those stores as system defaults.

The kicker? The bill “defines the term as a ‘publicly available website, software application, or other electronic service’ on ‘a computer, a mobile device, or any other general purpose computing device.’” That appears to exempt consoles like the Xbox, PlayStation, and Switch, which “feature locked-down app stores but are specialized gaming devices.”

This is just one of a number of bills floating around, of course. But the basis of Epic’s legal attacks on Apple and Google - because this is largely who is being targeted here - also decided to take this ‘plz ignore consoles’ legal tack. So this loophole - which is ‘justified’ by saying many consoles are loss-making - isn’t a Microsoft-created construct. But it’s a good point for Google to push back on.

So how is Microsoft responding? As part of its recent, aggressively proactive attempts to set the antitrust/regulatory agenda around its acquisition of Activision Blizzard, given larger government scrutiny on big deals, Axios was briefed by MS: “In a new store, developers would someday be able to choose to use Microsoft's payment system and other services, such as streaming tech, or not.”

Specifically, Xbox’s Sarah Bond told reporters in a briefing alongside Microsoft’s Satya Nadella and Brad Smith: "We're going to evolve the business model [on Xbox] to support how much of the functionality we're providing them that they adopt.” Which is… a very interesting thing to say?

There is a marked lack of specifics here. But the implication is that Microsoft could provide a menu of services - payment platforms, use of streaming services, etc. So they would allow some developers and publishers to pick and choose, and pay Xbox less than 30% at some non-specified point in the future.

Is this a big deal, and what would it really mean for all of you? Here’s our view:

  • If you look at the money riding on this - yes, 30% of EA and other third-parties’ Xbox revenues is probably a decent sum. But Microsoft doesn’t have a massive percentage of its overall parent company riding on the ‘30% platform tax’ biz model. And that diversified portfolio is allowing it to say the previously unthinkable. (It also helps with ActiBlizz antitrust hurdles.)
  • Xbox saying ‘you don’t want your game to use cloud streaming? We’ll charge you 25%* instead of 30%’ is relatively logical. Minor, but logical. There may be other fractional services, which would allow Xbox to say ‘our base platform cut is 20%*, and you can take or leave this other 10%’. That’d be the clever pitch to make. (*All percentages made up by me.)
  • The most complex area is payment services. The big gotcha is that you still have to pay back the platform something afterwards - a whopping 27%, in the case of that recent Apple vs. The Netherlands test case. Even if Microsoft is more generous, player friction/confusion over payments may become an issue. So using a separate payment processor isn’t necessarily a slam dunk.
  • Most importantly - Microsoft’s ‘player-centric’ future strategy is around running both a large scale paid subscription service (Game Pass) and owning multiple live-service multiplatform titles (Minecraft, Call Of Duty, etc). Getting Xbox Game Pass fully onto mobile - or greater cross-platform control of its portfolio in general, with less walled gardens - is a business win for Microsoft that significantly overwhelms any hit to ‘Xbox as a walled garden’.

An important related detail: at no point are any of these gov bills trying to set a ‘fair percentage’ for platform cut. Nobody is going to wave a magic wand and do that. That’s simply too much of an over-reach by government. And even if tried, it would almost certainly be reversed by the courts.

My conclusion for most regular-sized devs would be, then: Microsoft could easily reduce its overarching platform cut on Xbox via this method, and may end up doing so in the next few months/years. But it won’t significantly shift the directional flow of players and revenues on the platform, which is towards recurring revenues via either subscription (Game Pass) or IAP/DLC (Games As A Service), and away from ‘one-off payments per game’.

That’s it for now. But I’m going to be exploring this area with two more newsletters in the near future. Firstly, Game Pass gets seen as the chief harbinger of biz model change for small/medium devs, and is sometimes (unfairly?) pilloried for it. But there’s an argument that a ‘no-reset PC/console generation paradigm’ is actually leading this shift. We’ll try to define and explain that.

And secondly, we’ll try to round up where we think the future is going for all parties, with help from Spry Fox’s David Edery. He’s seen a few paradigm shifts himelf - and worked on an early incarnation of Xbox Live Arcade, a precursor to wherever we are now. More on these soon.

[BTW, a side note to end: the Open App Markets Act, as written, would also apply to the Steam marketplace, as far as I can work out. So that would mean Steam would also have to offer alternate payment systems, if this was passed? That would be a bit wild.]

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