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Why do we pay for Xbox Live when it’s got so many ads?

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I read a rather exceptional piece by The Penny Arcade Report’s Ben Kuchera this weekend – highlighting just how damned profitable all those adverts that bog down Xbox Live are for Microsoft – and it really makes me question why on earth we still pay for the service.

According to Kuchera, he’s managed to get some details on Xbox Live advertising from some sources who’d rather remain unnamed about how much Microsoft charges to advertise on Xbox Live – and really, it should subsidise the service. Over the years, the Xbox dashboard has “evolved.”We’ve gone from the launch era “blades” interface, to the flashy Avatar-loaded NXE – and most recently to the Metro-styled, Kinect-compatible one – each time sacrificing game visibility for more adverts.

Here’s an excerpt from the report:

The data shared with the Penny Arcade Report shows that Microsoft estimates 16 million impressions for an ad during a holiday, so an ad with a $21.50 CPM (Ed: that’s “Cost per thousand Impressions”) would cost you a stunning $344,000 to control that spot for the day. You can also buy half-day increments. Microsoft estimates that ads during a normal weekday in the first part of the year enjoyed 9 million impressions, with 15 million impressions over the weekend. Based on these numbers, Microsoft estimates that it would cost $193,500 to control the entirety of an ad spot for your average Monday with what’s called a "road block" ad. Start layering on the features, however, and that price can begin to rise very quickly.

Nearly $350,000 from a single ad for a single day? That’s a lot of money. The biggest problem is that with all of these money-generating ads taking  priority, there’s less of a focus on actual games; and developers who realy on selling their games through Microsoft’s Xbox Live Arcade service are left without a rather important awareness channel – meaning fewer game sales, and less money to pay the rent with. Couple that with the money that Xbox makes with the addition of those monthly subscriptions (two years ago that was sitting at $1 Billion per annum) and the money made through its online rental and pay-per-view services and it’s easy to see that Xbox Live is ridiculously lucrative. Charging your customers and filling the service up with cash-generating ads? Genius.

Sony’s PSN – though short on a few features – is free – and is delivered to you ad free. Of course, it’s not out of some benevolence; Sony’s been looking for ways to monetise its online portal – and you can bet they wish they’d thought of it first.

Last Updated: July 16, 2012

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