Xbox Shifts Its Stance on Game Pass

Microsoft's recent financial reports and Phil Spencer's remarks during the Wall Street Journal Live event marked a noticeable shift in tone. One key takeaway is that Microsoft failed to meet its Game Pass subscription growth targets for the second consecutive quarter. However, it's essential to consider the context, including the lack of major game releases and the post-lockdown summer, which inevitably impacted the gaming industry. What's more striking are the comments accompanying the news, with Phil Spencer estimating that Game Pass will account for around 15% of Xbox's content and services revenue in the future, stating that the company doesn't envision a future where 50% to 70% of its revenue comes from subscriptions. This projection seems low, given the significant investments Microsoft has made in games and developers for Game Pass. Despite this, Xbox has done an excellent job with Game Pass, establishing it as the industry's flagship subscription platform. The service has become a system seller, with the cheaper Xbox Series S attracting new users to the Xbox ecosystem. Nevertheless, Game Pass has faced obstacles, including a spotty release schedule, the reluctance of AAA publishers to include their new titles in the service, and the rise of free-to-play games. Microsoft is attempting to integrate free-to-play games into Game Pass, but it's still a work in progress. The reality is that, for many casual gamers, a subscription service may not be the best option. These factors contribute to Microsoft's more subdued expectations for Game Pass, particularly on consoles, where growth is slowing. This shift in tone may seem significant, but it's not drastically different from the company's previous stance. Microsoft has consistently stated that it doesn't expect subscriptions to become the dominant business model. The comments come as Microsoft's acquisition of Activision Blizzard is under scrutiny by regulators worldwide. By revealing that Game Pass accounts for only 15% of its content and services business, Xbox is emphasizing that even if Game Pass becomes the leading subscription service, it's just one aspect of the company's business. Microsoft is also highlighting its growth on PC, with Game Pass increasing by 159%, and its desire to challenge Apple and Google's control in the mobile market. The company believes that the acquisition will bolster competition on PC and mobile, with major brands like Diablo and Warcraft, as well as Call of Duty, contributing to a viable competitor to Steam. While this argument is compelling, there are still concerns about the potential impact on the console space and the viability of Microsoft's mobile ambitions. As the gaming industry continues to evolve, Microsoft will need to address these concerns and demonstrate how its acquisition will foster a more competitive market.