Clueless take. Game Pass is a financial hit for Microsoft. It was even up significantly in the last few earnings reports.
Xbox hardware is what's been declining.
Game Pass is what's keeping Xbox alive.
*for now, but let's take a long look at the cost of all those acquisitions and then recap what the real margin is for Xbox Gaming division.
It ain't a positive sum. MS is still running losses on gaming because they're clueless. They have a strategy, but no real insight or feeling with this market and it shows every time. Its one misfire after another, and Game Pass will suffer the eventual same fate as GFWL, Xbox Kinect, and the rest of the long list of gaming failures in the MS stable. Let's recap also the number of truly original titles coming out on Xbox. Its one franchise sequel after another, and the rest is available anywhere.
Its telling that even Sony still releases more new games, despite them releasing fewer than they ever did.
People want content. Gaming is content. If anything, that's what Game Pass underlines for us: content is king. But why does anyone use Game Pass now?
Price and exclusivity. So again... what are the real margins of Xbox gaming?
Here's the Q2 summary
- · Windows revenue increased 9% with Windows OEM revenue growth of 11% and Windows Commercial products and cloud services revenue growth of 9% (up 7% in constant currency)
- · Devices revenue decreased 9% (down 10% in constant currency)
- · Xbox content and services revenue increased 61% (up 60% in constant currency) driven by 55 points of net impact from the Activision acquisition
- · Search and news advertising revenue excluding traffic acquisition costs increased 8% (up 7% in constant currency)
Microsoft doesn't mention Game Pass and they historically barely do. Net margins for Xbox division are unchanged YoY. All we hear from them is that its just a small segment of their gaming division. Of course, its probably a bit bigger because when this was said they had to get the Activision deal done. But still. Game Pass does not tangibly influence the profitability of Xbox. Its mostly been investing for the future, with the Activision deal paying off faster in revenue streams. Revenue is not profit.
Just because they keep investing in it doesn't mean its profitable. Quite the opposite: it needs
help to become profitable. Otherwise they wouldn't invest.