Phil Spencer presented the ultimate pitch for the future of Xbox
Hello and welcome to Protocol Entertainment, Your guide to the business of the gaming and media industries. On Friday, we take a look at Xbox chief Phil Spencer’s comments during his wide-ranging interview at the WSJ Tech Live conference and what that means for Microsoft’s gaming ambitions.
The head of Xbox, Phil Spencer, is paving the way
Microsoft has an ambitious plan to grow its gaming business from primarily Xbox consoles to cloud services, subscription platforms, and screens of all sizes. And if Game Pass is the driver for making this happen, the acquisition of Activision Blizzard is a major source of fuel.
On Wednesday, Xbox head Phil Spencer Take the podium at the WSJ Tech Live Conference It provided news on a series of Microsoft’s strategic areas, including Game Pass, cloud streaming, and the company’s pricing approach. A master of blending unreasonable behavior with particularly clever interview answers, Spencer explained that while regulators are concerned about Activision’s $70 billion offering, the company is focused relentlessly on growing its audience outside of the stagnant console market.
Spencer came ready to make the news. Speaking to reporter Sarah Needleman, Spencer made some key figures and announcements about areas Microsoft is particularly focused on in gaming.
- He revealed that Game Pass is actually profitable and accounts for at most 15% of the Xbox’s content and services division, giving Game Pass annual revenue of About $1.9 billion.
- “Game Pass as part of our overall content and services revenue will likely be 15%,” Spencer said, As written by The Verge. “I don’t think it’s getting bigger than that. I think total revenue is growing, so 15% of the biggest number, but we don’t have that future where I think 50-70% of our revenue comes from subscriptions.”
- Spencer has softened his language about Game Pass, clarification recently That while Microsoft would like to have the Xbox app on every device, it will also more realistically need to rely on a diversified revenue stream. In other words: He doesn’t put all his eggs in the Game Pass basket.
- Spencer also said Game Pass’s growth is slowing on console, “mainly because at some point you get to everyone on console who wants to sign up,” Spencer said, while growth on PC has been “amazing.”
- In terms of pricing, Spencer said Microsoft is keeping them at current levels through the holiday season, but expects it will have to raise console, game, and subscription prices.
- “We kept the price on our console, we kept the price of the games… and our subscription. I don’t think we’ll be able to do that forever,” he said. “I think at some point we will have to raise some prices on certain things.”
Spencer was talking to the players, but also to Sony and the organizers as well. The most vocal critic of Microsoft’s acquisition of Activision Blizzard now is the UK Competition and Markets Authority, which has expressed concern that Microsoft will use the deal to harm PlayStation.
- But in his comments on Wednesday, Spencer tried to make it clear that he’s not much interested in grabbing Sony customers. Instead, the head of Xbox wants Microsoft’s business to decouple from the gaming hardware market and move beyond that — primarily to mobile.
- “This opportunity is really about mobile for us,” Spencer said of the Activision deal. “When you think of the 3 billion people who play video games, there are only about 200 million households on console.”
- “Today it is certain that the largest gaming platform on the planet, which is a mobile phone, is controlled by two companies: Google and Apple,” he added. “It is essential to our business. There is no way to be successful as a gaming company without reaching out to mobile players.”
- “In developing markets such as Latin America and Southeast Asia, mobile represents the potential to reach a wide audience, especially consumers who do not have the ability to purchase a console or PC or do not have access to stable bandwidth,” Dennis Yeh, Game Insights President told me At the analytics firm Sensor Tower.
- “I also continue to believe that cloud gaming is for the future, even with the recent shutdown of Google Stadia, and accessibility in developing markets will be a key aspect of potential viability,” Yeh added.
Game Pass’s growth depends on large acquisitions. While Microsoft has a bunch of games coming from its in-house studios, many of its biggest upcoming releases are games from the companies it has acquired, including Bethesda’s Starfield, Arkane’s Redfall, and Elder Scrolls.
- in regulatory filings And the general dataMicrosoft and Spencer stressed the importance of using content acquisitions to make Game Pass more attractive and to help it better compete with market leader Sony, which has more than double the install base of the Xbox platform.
- “By bringing more value to players, we hope to continue developing Game Pass, and expand its appeal to mobile phones and any connected device,” said Spencer. Written in a public appeal to the organizers Last month.
- In addition, Activision Blizzard operates a number of highly successful mobile games, including Call of Duty Mobile, Candy Crush, and Diablo Immortal. In response to UK regulators, Microsoft described its position in the mobile market – the largest segment of the global gaming industry by a wide margin – as “out of place”.
- “Mobile experience in a rapidly changing environment is invaluable,” Yeh said. “With King, Microsoft has acquired a premium game maker with extensive experience with live operations and free monetization, as well as the data that comes with it.”
- “We have to break this monopoly of just two storefronts on the biggest platforms. We’ve also invested a lot in cloud broadcasting,” Spencer told WSJ Live. The platforms on which players play… We want to be in a hub with content, players, and storefront capability to take advantage of.”
Sony and regulators aren’t Microsoft’s only concern. The Xbox business faces a number of major challenges in fulfilling Spencer’s dream of putting Microsoft games on as many platforms as possible.
- First, as Game Pass user acquisition approaches the cap on consoles, Microsoft is losing ground.
- The service company grew in fiscal year 2022, which ended in June, by 28%. This was well below the 73% target that dictates the company’s executive performance bonuses, such as Reported by Axios yesterday. This is the second year in a row that Game Pass has lost its growth target.
- One obvious reason is the significant delay in the game. Earlier this year, Microsoft postponed Bethesda’s Starfield and other exclusives until 2023. These delays are contributing to subscriber swells as Game Pass members decide to let their subscriptions lapse so that the catalog can improve in the future.
- Part of Microsoft’s ambition to grow Game Pass outside of Xbox is cloud streaming, but the company put the streaming hardware product on ice earlier this year and I decided instead to partner with Samsung Smart TV app.
- “Keystone was the code name for something we were incubating internally, which was … a streaming console, so no local gameplay, low cost, plug it into a TV, and you’ll be able to stream Xbox games,” Spencer said on WSJ Live. “Are we going to do a streaming device at some point? I think we will, but I think it’s a long way off.”
- Without dedicated streaming hardware, Microsoft has to rely on hardware controlled by the monopoly that Spencer said his company is trying to break, and only Apple owns I’ve grown bolder in recent months In terms of charging App Store fees from developers despite mounting regulatory pressure.
Spencer covered an amazing area in one interview, And Microsoft clearly sees clear benefits in having Xbox’s most famous public face repeating the company’s gaming positions amid a fierce regulatory battle.
It makes sense: If Game Pass is profitable yet growth slows, perhaps regulators will see more credence in Microsoft’s argument that it needs new content to expand. And if mobile really is Xbox’s next frontier, and not just the pointless gaming hardware market, Microsoft may look like a multibillion-dollar tech giant bullying the competition and more like an underdog trying to catch up against the incumbents.
It is, in some ways, a matter of perspective. But putting Spencer’s clever placement in the context of the gaming business is all about ensuring that Microsoft’s point of view looks as compelling as it can be.
– Nick instead
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