Xbox Game Pass’s Continued Underperformance Raises Questions

Games Xbox Game Pass’s Continued Underperformance Raises Questions Paul Tassi Senior Contributor Opinions expressed by Forbes Contributors are their own. News and opinion about video games, television, movies and the internet. Following New! Follow this author to stay notified about their latest stories.

Got it! Oct 28, 2022, 08:52am EDT | New! Click on the conversation bubble to join the conversation Got it! Share to Facebook Share to Twitter Share to Linkedin Xbox Game Pass MS On Thursday, Microsoft revealed that for the second year in a row, Xbox Game Pass has failed to meet its growth targets, this time by a fairly significant margin. Weirdly, this is a metric directly tied to CEO Satya Nadella’s pay, along with other Microsoft execs, so clearly it’s pretty important to them. Here are the last three years of Xbox Game Pass growth targets, and actual results: FY2022 – 72.

88% target, 28. 07% actual FY2021 – 47. 79% target, 37.

48% actual FY2020 – 71% target, 85. 75% actual The good news is…growth is growth, and the problems may not be with the pace of adoption of the service, but instead Microsoft’s expectations of it. The only year it exceeded Microsoft’s high targets was during the first year of the pandemic where everyone was quarantined and gaming spending exploded, and there’s nothing like instant access to a full library of games when you’re home and can’t go anywhere.

But there’s really no indication that Game Pass’s wild growth should continue this far into its lifespan. Phil Spencer recognizes the obvious here in a quote he gave during a WSJ Tech show: “I’ve seen growth slow down, mainly because at some point you’ve reached everybody on console that wants to subscribe. ” LOS ANGELES, CALIFORNIA – JUNE 09: Phil Spencer, Executive President of Gaming at Microsoft, speaks .

. . [+] during the Xbox E3 2019 Briefing at The Microsoft Theater on June 09, 2019 in Los Angeles, California.

(Photo by Christian Petersen/Getty Images) Getty Images MORE FOR YOU The ‘Backsies’ Billionaire: Texan Builds Second Fortune From Wreckage Of Real Estate Empire He’d Sold Apple Stock Takes On Meta Staying One Step Ahead Of Emerging Technologies The key word there is “console,” as it’s also the case that PC Game Pass subscriptions have exploded, growing 159% year over year. And while Phil Spencer accidentally showed off a streaming console prototype that in theory, could be purely for cloud gaming, expanding Game Pass’s reach further, Microsoft has said that such a unit is still years away. Another interesting figure here is that Spencer said that Xbox Game Pass is 10-15% of Microsoft’s gaming revenue, and that yes, it is profitable for the company.

Given that Microsoft seems almost wholly into promoting Xbox Game Pass when it comes to the Xbox ecosystem, and how it’s launching every single first party game it makes as a day one Game Pass release, I’m a little surprised it’s that low. I guess you have to add in everything else, console sales, game sales, microtransaction cuts, Xbox Live subscriptions unbundled from Game Pass, but again, 10-15% just feels a bit low. As for its profitability, I have to wonder how that’s calculated.

Say Halo Infinite costs $100 million to make. It launches on Game Pass. Is there some master spreadsheet where total Game Pass revenue is calculated against the costs of the games that launch on it? Where do people who do buy actual copies of the game fit in? Where do microtransaction sales go? What happens when it’s not just one mega game launching on Game Pass each year, but a few, as Microsoft’s studio purchases start mass producing offerings? Diablo 4 Blizzard And would Microsoft be making dramatically more profit if they were launching games off-service? It’s just extremely hard to see day one launches for Call of Duty, Diablo 4, Starfield or Elder Scrolls ever adding enough new Game Pass subs to out-earn what those games would have made as $60-70 box copies.

Good for the player, I suppose, as a great way to tempt everyone to join Xbox’s side, but the math of it continues to seem really strange. In any case, Game Pass is still growing, and Microsoft has some big games coming in 2023. Maybe these growth expectations are unreasonable, but I do wonder about the ultimate long term prospects of Game Pass, and Phil also hints that a price increase is likely coming.

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