Microsoft just reported in new filings and its earnings call on Thursday that yet again, Xbox console sales are down ~30%, after they were already down 30% in April. Microsoft has been well behind its competitors Sony and Nintendo for years now in terms of hardware sales, and now it’s clear it simply wants to transform into a different kind of gaming company entirely.
Microsoft’s hardware declines this time around were driven by “lower volume of consoles sold,” as relayed on the earnings call, a repeat of a similar statement from April which had an almost identical decline.
Microsoft will continue to make hardware. It’s not just going to…stop. But it is making it a less and less important piece of its business over time. It’s not shocking to see these numbers drop because with every new decision Microsoft is making it less and less necessary to own their hardware to play their games. Where to a point, it is at least somewhat close to becoming a third party publisher.
The thing is, Microsoft’s gaming division isn’t tanking. Revenue is up, and in this report, Xbox broke records for game streaming hours, usage of its consoles and the monthly active devices playing its games. In the past week, Microsoft has had more games on the PlayStation Store’s top 25 most-played titles than there were PlayStation games, which include the recent surge of interest in Fallout games, now a Microsoft-owned property, Call of Duty and recent ports like Sea of Thieves. Gaming revenue is up 51%, Xbox Content and services up 62%, though it should be noted all these increases and records are hugely impacted by the Activision Blizzard acquisition.
Modern Warfare 3
The future is uncertain. Microsoft will still make hardware but it will never reclaim its former level of comparative sales to its rivals, because Microsoft frankly doesn’t care to. Or at least that’s what they say publicly. Game Pass is fast approaching a subscription ceiling, if it hasn’t already. Microsoft is also heavily relying on game streaming as the future, which remains a tiny part of the market and far from the best way to play most games. There are plenty of challenges ahead, and I’m not sure just opening up its IP to other platforms is going to do all that much in the grand scheme.
I do think they needed to pivot, however. Those console sales were not coming back, and they are trying to evolve their gaming ambitions while not abandoning hardware entirely. Sony, meanwhile, remains locked into its huge-scale games releasing just within its console ecosystem or rarely PC, either just for multiplayer titles like Helldivers or years later for its single player games. That is its own sort of struggle especially with game budgets ballooning. And it cannot compete with the value of Game Pass in the present moment, and have few streaming ambitions. Its hardware investment into things like PSVR2 and PlayStation Portal has also been questionable.
It’s a really interesting time in the market, and both companies have challenges ahead.
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