On Thursday, Microsoft revealed that for the second year in a row, Xbox Game Pass fell short of its growth targets, this time by a sizable margin. Oddly, this is a metric directly tied to CEO Satya Nadella’s salary, as well as other Microsoft executives, so it’s clearly very important to them.
Here are the past three years of Xbox Game Pass growth targets and actual results:
- Fiscal 2022: 72.88% target, 28.07% actual
- Fiscal 2021: 47.79% target, 37.48% actual
- Fiscal 2020 – 71% target, 85.75% actual
The good news is… growth is growth, and the issues may not lie with the rate of adoption of the service, but rather with Microsoft’s expectations of it. The only year it exceeded Microsoft’s lofty goals was the first year of the pandemic when everyone was quarantined and gaming spending skyrocketed, and nothing beats instant access to a full library of games. when you’re home and can’t go anywhere.
But there’s no real indication that Game Pass’s wild growth is likely to continue this far into its lifespan. Phil Spencer acknowledges the obvious here in a quote he gave on a WSJ Tech broadcast:
“I’ve seen the growth slow down, mostly because at some point you’ve reached everyone on console who wants to subscribe.”
The key word here is “console,” because it’s also true that PC Game Pass subscriptions have exploded, growing 159% year-over-year. And while Phil Spencer accidentally showed off a prototype streaming console that, in theory, could be just for cloud gaming, further expanding the reach of Game Pass, Microsoft says such a unit is still years away.
Another interesting number here is that Spencer said that Xbox Game Pass accounts for 10-15% of Microsoft’s gaming revenue, and yes, it’s profitable for the company. Given that Microsoft seems to be promoting Xbox Game Pass almost entirely when it comes to the Xbox ecosystem, and how it releases every first-party game it makes as a Game Pass day one release, I’m a little surprised let it be so low. I guess you have to add everything else, console sales, game sales, microtransaction cuts, unbundled Game Pass Xbox Live subscriptions, but again, 10-15% just seems a little low.
As for its profitability, I wonder how it is calculated. Say Halo Infinite costs $100 million to make. It launches on Game Pass. Is there a master spreadsheet where total Game Pass revenue is calculated against the costs of games launched on it? Where are the people going do buy real copies of the game fit in? Where are the microtransaction sales going? What happens when it’s not just one mega game launching on Game Pass every year, but a few, as Microsoft’s studio buys begin to mass-produce deals?
And would Microsoft dramatically After profit if they launched out-of-service games? It’s just extremely hard to see day one launches of Call of Duty, Diablo 4, Starfield or Elder Scrolls add enough new Game Pass subs to earn more than those games would have done in 60-70 copies $. Good for the gamer, I guess, as a great way to tempt everyone into joining Xbox, but the math still looks really weird.
Either way, Game Pass continues to grow, and Microsoft has some great games coming in 2023. Maybe those growth expectations are unreasonable, but I wonder about the long-term prospects for Game Pass, and Phil too suggests that a price increase is likely.
Follow me on Twitter, Youtube, Facebook and instagram. Subscribe to my free weekly content newsletter, God rolls.
Pick up my sci-fi novels Herokiller Series and The Earthborn Trilogy.
#Xbox #Game #Passs #continued #underperformance #raises #questions