Microsoft explored reducing its Xbox store cut to shake up console gaming

Illustration by Alex Castro / The Verge

Microsoft had been planning to cut its Xbox store cut to just 12 percent, according to confidential documents filed in the Epic Games vs. Apple case. The software maker details its store fees and changes in a document from January, where it also lists the 12 percent cut to PC games it announced this week. While most of the important parts of the document are redacted, one page reveals Microsoft also wanted to reduce its 30 percent store cut on the Xbox console side.

A table reveals “all games will move to 88 / 12 in CY21,” which means Microsoft had been planning a significant cut to Xbox transactions for some point in the 2021 calendar year. While Microsoft has announced its PC cut, which is also listed in the same table, the company has stayed quiet about any Xbox plans. A change to 12 percent would be significant, particularly because Microsoft, Sony, and Nintendo all currently take 30 percent on digital game sales.

Microsoft’s confidential plans from January.

A Microsoft spokesperson initially said “we have no plans to change the revenue share for console games at this time,” in a statement to The Verge on Saturday, before issuing a clearer statement on Sunday.

“We will not be updating the revenue split for console publishers,” says a Microsoft spokesperson. Microsoft still refuses to answer whether the document is inaccurate, or simply that plans changed.

This document is part of the Epic Games vs. Apple trial that commences on Monday, and there could be questions over Microsoft’s fee plans here. Both Epic and Apple are calling on Microsoft’s Lori Wright, VP of Xbox business development, as a third-party witness next week.

The documents also reveal that Microsoft had been planning to adopt this lower store rate on the PC side with an important caveat. “There is a proposal currently under Gaming Leadership Team consideration to adopt 88 / 12 as a public PC games revenue share for all games in exchange for the grant of streaming rights to Microsoft,” reveals the document. We asked Microsoft whether this proposal went ahead, but the company refused to comment in time for publication. Microsoft is planning to cut its share of revenue for PC games to 12 percent in August, but it’s not clear if the streaming rights clause is still included.

Microsoft may have a caveat for the PC gaming cut.

The streaming rights clause would mean developers have to ensure games are available on xCloud for this improved revenue cut. Cloud gaming rights, and in particular Xbox Game Pass, have becoming an emerging battle ground for console exclusivity rights in many contracts recently. Nvidia also generated pushback from publishers and developers after publishing some games to its GeForce Now cloud gaming service without permission.

As we noted yesterday, Microsoft has also been quietly backing Epic Games’ action against Apple. Microsoft has previously defended its 30 percent cut for Xbox digital game sales, and Epic Games has been happy to keep it in place. “Game consoles are specialized devices optimized for a particular use,” said Rima Alaily, deputy general counsel at Microsoft, last year.

Alaily argues that the “business model for game consoles is very different to the ecosystem around PCs or phones,” because Microsoft subsidizes the hardware and consoles “are vastly outnumbered in the marketplace by PCs and phones.” An Epic Games executive also revealed in a court deposition this week that the company has never sought to negotiate with Microsoft to avoid using its commerce engine on Xbox. Despite defending its Xbox cut, Microsoft did admit last year that the company has “more work to do to establish the right set of principles for game consoles.”

Elsewhere, another confidential document shines a light on exclusivity with Xbox games. S.T.A.L.K.E.R. 2 is listed with a three-month console exclusivity deal, Tetris Effect: Connected with six months of exclusivity on connected updates, and The Gunk with perpetual exclusivity to Xbox.

The court documents also detail Xbox exclusivity deals.

Update, May 2nd 6:50AM ET: Article updated with additional streaming rights details.

Update, May 2nd 3:50PM ET: Article updated with new comment from Microsoft that makes it clear this cut is no longer happening.

Comments

Changes quite a bit of commentary surrounding last week’s PC cut, if true.

Particularly the streaming rights bit. That could be the viable way Microsoft makes this change on the Xbox side, to ensure games are available on xCloud.

Not just that, it’s a huge shot at sony. Without their cut from games Sony all of a sudden loses a huge margin and less publishers are likely to go exclusive due to it.
It hurts pretty much all of their competitors, perhaps not in the immediate future but looking forward it makes them far less enticing in comparison.

Yup, it puts the pressure on. I think if they were to go ahead with such a big cut, it would be to secure cloud gaming (the future) and to reduce 3rd party exclusives (the current).

I think Sony is in desperation mode at the moment. For years they kept MLB The Show as a PS exclusive, and now not only is it available on XBOX, but it is part of Game Pass which tells me they are desperately seeing revenue.

To Sony’s credit, this game is probably the best game I have ever seen/played and I bought it straight up after playing for just 10 minutes!

Sony is not in desperation mode. They just reported record profits in the gaming space, broke some all-time records for hardware sales, and dominated software sales.

Not to mention is in the process of launching another highly rated exclusive, and preparing to launch another next month.

The only one desperate here is Microsoft doing anything and everything it can to gain mindshare and regain relevant while Sony and Nintendo continue to dominate in all the things that matter. I’m not saying it won’t work, but they are desperately getting everything they can, while Sony and Nintendo just continue to dominate

MLB The Show ended up multiplatform due to the new deal struck between MLB and Sony (this year’s iteration is the first published under the terms of this new deal). Sony did not decide to spin up a publishing unit for Xbox, and rather let MLB publish the game for Xbox (which they had done for their RBI Baseball series). This gave MLB complete control over how to publish the game for Xbox, and Microsoft, presumably sensing the opportunity for a big win, struck the deal with MLB to launch The Show on Game Pass.

Seems like this could strike a blow at Sony if pressure grew on them to follow suit. I wonder what the revised financial model on the PS5 Digital would look like if Sony only took 12%…

It’s not just a shot at Sony, the xCloud requirements seem to exist to ensure that the Xcloud library is always ahead of Stadia and Luna.

Are you suggesting Microsoft’s move is anti-competitive behavior?

Microsoft’s top priority is to make Google and Amazon give up on cloud gaming.

Not so long time ago Microsoft already stated that they don’t see Nintendo and Sony as rivals anymore. Realize, Sony even use Microsoft’s servers to power PS Now, Sony’s success is Microsoft’s success at this point. Kinda like how Netflix is for Amazon.

Is it anti-competitive behavior? Not yet, but if Google and Amazon forfeit, Microsoft might have a cloud gaming monopoly, which will not be good thing for regular users.

OK. However, this:

Microsoft’s top priority is to make Google and Amazon give up on cloud gaming.

if you’re right, might well be anticompetitive behavior.

Same financials for the Series S.

Series S has Game Pass, plus it’s likely to have far lower component costs.

I think it’s a bit more complicated by the fact that it requires being on Xcloud. So you take home more of your game sales, but make less sales, and then add how Xcloud revenue splitting works.

We’ll have to see how it shakes out. I suspect the reduced cut would be offsetting the totality of it.

Where do you get it means fewer sales? Time after time developers have stated their actual sales have increased when their game goes into Game Pass. And that doesn’t even take into account DLC or any related microtransactions that these games could incur as part of being Game Pass and in turn streaming. And we know (expect) at some point XCloud streaming will (in order to be a complete answer) include as much of the Xbox catalog itself, not just the Game Pass catalog. This move tells you that is a motive to push games to support streaming. This all means that no console or even a PC (powerful or not) is needed to play but buying that content will still be necessary for streaming supported platforms (e.g. smartTV, mobile phones).

The game sales as an individual unit would decrease, because it’s already available in a catalogue. What those developers are saying is that their total play count increases, and I’m not denying that.

It’s game sales + Xcloud revenue share – game sales lost to being part of a catalogue

The total sum may be higher, but that’s the equation

This move by Microsoft is not aimed at Sony. It’s aimed at Stadia.

Keep in mind, 12% cut is only if the game developers support XCloud.

Not suprising, because head at Microsoft themself stated that they don’t see Nintendo and Sony as rival any more. Even if Stadia is not the most popular, Microsoft biggest rival is still Google.

It’s aimed at the both of them. Two birds with one stone.

It’s really not. It is clearly based at the PC market, and made because Microsoft hasn’t had a top selling piece of software in like a decade.

Wow this is amazing for developers and the end user. I’m happy there’s a company looking out for the regular people.

The end user? There will be no savings for the end user.

Potentially still could be, if devs are nice. But yea, smart money is on publishers clawing back as much money as possible. Still.. this COULD allow MS to discourage $70 games. MS has yet to price anything internally or with a marketing deal at $70 yet. Won’t ban that pricing, of course, but they could message as though $60 is the expected norm. Might piss off some of the big publishers looking forward to charging $70, but this might be the cherry on top to enable it.

Originally publisher gets 70% of $70 = $49. If this change went through and games stay $60 * 88% = $48. Not too bad.

"Nice." Haha.

I’ve somehow done the math wrong. Wow lol. Xbox has decided not to do this. But if they had, 70% of $70 = $49. Whereas 88% of $60 = $52.80. The publisher still makes MORE from charging less. (Maybe even better with sales tax.) Sure, that doesn’t mean they wouldn’t want to make more with $70. But, hey, some publishers supported Smart Delivery when they didn’t need to.

Plus, you know, in a backwards way, it does justify them charging $70 on PS5 – it’s not our fault, Sony’s just taking all the money. And they’d be telling the truth.

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