The Game Pass paradox — does the catalog model grow the gaming pie?

Phil Spencer's framing of Game Pass, repeated in roughly every Xbox press appearance from 2019 onward: Game Pass is bringing new players into gaming. The 'all you can eat' catalog converts people who'd never have bought a $70 game into people who'll try four of them in a month.

This is a coherent story and the slide deck supporting it is impressive. Game Pass subscriber counts have grown steadily, and Microsoft has consistently claimed that a meaningful share of those subscribers are people who weren't previously buying full-priced console games.

Sony went through their own catalog-tier rollout with PS Plus Extra and Premium in 2022. Three years on, their public disclosures suggest the tier-up subscribers were almost entirely existing PS Plus Essential subscribers who upgraded — not net-new PlayStation users.

This is the more boring outcome for the platform-economics nerds: the catalog services moved existing subscribers up the spend ladder rather than expanding the total subscriber base. It's still a revenue increase for Sony, but it's not 'we grew the gaming pie' — it's 'we re-priced our existing subscriber relationship'.

Both companies have access to roughly the same data. They can't both be telling a complete story.

Our read, based on industry conversations and what's publicly disclosed: Microsoft's claim is partially true in markets where Xbox has weak console penetration (most of Europe, increasingly Asia) — Game Pass is a cloud-streaming-first product in those markets and it does pull in genuinely new players who wouldn't buy a console.

Sony's reality is closer to the truth in markets where the console business is healthy. Existing PSN subscribers move up the tier ladder; net-new PlayStation users keep coming through console hardware sales the way they always have.

The difference between the two companies is partly that Microsoft has been more cloud-first in its messaging, and partly that Xbox-the-console hardware business has been weaker, which makes the cloud-streaming acquisition path more important for Microsoft.

If catalog services grow the total gaming audience, they're a net positive for the industry — more players, more revenue eventually flowing back to studios.

If catalog services mostly redistribute existing player spend, they're a net negative for the long tail of the industry. The casualty is mid-sized publishers who relied on $30–60 purchase price points and now compete against $19.99/month all-you-can-eat catalogues.

It's plausible that this is part of why the AA/AAA mid-tier has been struggling. There used to be a middle ground between indie ($15) and big-publisher AAA ($70). That middle ground used to sustain studios at 30–80 developers. It's much thinner now and Game Pass-style economics is at least part of the reason: a mid-tier game is much more profitable for the publisher when sold individually for $30 than when added to Game Pass for the catalog royalty rate.

Microsoft doesn't publicly disclose Game Pass royalty rates, but documents that have leaked over the last few years suggest the per-hour-played royalty for a Game Pass-included game is significantly lower than the implied per-hour revenue from a $70 purchase.

That means a publisher's incentive structure changes. If you make a 30-hour single-player game, you'd rather sell it for $30 than have it included on Game Pass at the standard rate. If you make a 200-hour live-service game, Game Pass economics might work better for you.

Industry effect: studios are biased toward long-tail live-service titles and against shorter, sharper single-player experiences. Not entirely Game Pass's fault — but Game Pass is a real input into that drift.

Honest public disclosure from Microsoft and Sony about what fraction of their catalog subscribers are net-new vs. converted from existing. Neither will share this, because the answer is probably embarrassing in one direction or the other, but it would be one of the most useful data releases for understanding the actual economics of cloud catalog gaming.

Until then, our working assumption: Game Pass and PS Plus Premium are both genuine consumer wins on a per-user basis, both have positive effects on cloud gaming adoption, and both are exerting downward pressure on the broader video game industry's mid-tier economics. All three of those things can be true at once. The honest version of the Game Pass story includes the third one.