What is the future of Xbox? (Picture: Microsoft)
The idea of Xbox becoming a third party service, rather than a console, may depend on them getting Game Pass on rival hardware.
Back in 2021, Xbox boss Phil Spencer made it clear that, much as he’d like it otherwise, it was very unlikely that Game Pass would ever appear on PlayStation or Nintendo consoles.
That’s not a prospect that has been raised since, until Xbox chief financial officer Tim Stuart recently made a speech about how it’s Xbox’s ‘mission’ to bring all of its content and services to ‘to every screen that can play a game’.
Speaking at the Wells Fargo TMT Summit, Stuart dismissed the profit margins of the console business as being too small for Microsoft and that after spending $69 billion on Activision Blizzard it wants to expand its horizons.
‘When we think about the business – gaming as it relates to Microsoft and with Activision – operating leverage and margin expansion is definitely a piece of that puzzle,’ said Stuart.
‘At the highest levels, you go from what was a lower margin third party entity that we sold on our store to a high margin first party business. So, when you think about the Xbox component of Call Of Duty you go from that low margin business to a high margin business. Then what you do is you also expand and say, ‘We’re now driving high margin sales on PlayStation, on Nintendo’.
‘And that’s really, lastly, where we’re going in this business, is that expansion of operating leverage, where we think about placing our bets. First party, subscriptions, advertising – those are all high margin businesses that we want to expand into,’ he said.
Many Microsoft execs don’t seem to understand the games industry as well as Phil Spencer and his close cohorts, so it’s not entirely clear if Stuart realises the difficulties of getting Xbox content onto PlayStation or Nintendo hardware. In his speech he certainly doesn’t imply it’s a problem, but it’s hard to say if that’s bravado or naivety.
‘What you’ll hear from us more and more is a bit of a change of strategy. And, again, not announcing anything broadly here, but our mission is to bring our first party experiences, our subscription services, to every screen that can play a game.
‘That means smart TVs, that means mobile devices, that means what we would have thought of as competitors in the past like PlayStation and Nintendo. We’re going to Nvidia GeForce Now, their gaming subscription service.’
There’s a vast difference between getting Xbox content on PC streaming service GeForce Now and having it on PlayStation 5, but Stuart seems to imply that not only is that no longer the case, but that Sony aren’t even really a competitor anymore.
Xbox want Game Pass to transcend consoles (Picture: Microsoft)
It’s very hard to quantify where Microsoft currently stands in the games industry, given the integration of Activision Blizzard into their business hasn’t even begun (there won’t be any of their titles on Game Pass until next year, for example).
They keep as many details as possible secret in their financial results, so it’s impossible to know exactly how well the Xbox console or Game Pass is selling or, most importantly, how much profit, if any, they’re generating from them.
However, Microsoft is certainly making money from selling Minecraft across all consoles and the same will be true of Call Of Duty and Blizzard’s games, now that they own both publishers.
It’d be even more profitable if Microsoft could get Game Pass and its nascent cloud streaming service onto PlayStation 5 and Nintendo Switch, but Sony and Nintendo will not want to facilitate or advertise a rival, especially such a rich one as Microsoft – one that they have nevertheless managed to keep at bay for the last two decades.
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As it enters its third Christmas period, it’s clear that the Xbox Series X/S is still going to be a distant third in terms of console sales and the language now coming out of Microsoft is beginning to make it sound as if they not only see the console as increasingly unimportant but almost an impediment.
Sony and Nintendo would be much more likely to support Game Pass if the Xbox console did not exist. At that point Microsoft essentially becomes a third party publisher and no longer an existential danger to them.
Whether that’s a future Microsoft would accept, or even encourage, is difficult to say, but the language used by Stuart begins to make it seem as if console hardware is the least important thing Xbox does.
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The idea of Xbox becoming a third party service, rather than a console, may depend on them getting Game Pass on rival hardware.
