Earlier this week, tech insider website The Information reported that Microsoft CEO Satya Nadella faced a difficult choice in 2021 regarding the Xbox business. He could either wind down the whole thing or double down by making massive investments, such as the $68.7 billion acquisition of Activision Blizzard (following that of Bethesda’s parent company, ZeniMax).
He obviously chose the latter option. However, The Information makes the case that the gaming business is failing to keep up with Microsoft’s growth plans despite these investments, starting with the fact that they didn’t even come close to reaching the 11% target necessary to trigger Nadella’s bonus, since growth stopped at 5.8%. It was the only division that fell short of reaching the bonus threshold for the Microsoft CEO.
The Information also shared a few comments on the situation gathered from investors and analysts. Denny Fish, a Janus Henderson Investors portfolio manager whose clients own over $800 million in Microsoft stock, said that the acquisition of Activision Blizzard has been disappointing so far.
It’s also a business that had some degree of consistency over, like, a three- to five-year period but was highly volatile from year to year, because you’re so dependent on the big releases like Call of Duty.
Truthfully, Call of Duty: Black Ops 6 did very well this year, though the jury is still out on whether its day-one inclusion on Game Pass was beneficial from a financial standpoint. Despite the boasting about record numbers, Microsoft did not reveal any updated figures for Game Pass subscriptions. The last official number we have is February 2024’s 34 million subscribers. As a reminder, the original plan before the Activision buyout was to reach 100 million active subscribers by 2030.
This was also Michael Pachter’s prediction for when the Activision titles would be added to Game Pass. Most of them are there now, though, and clearly, the numbers aren’t anywhere near that lofty figure. Pachter still sounds confident in the plan, anyway. Here’s what he told The Information:
Seventy billion dollars is not a pittance—it’s a lot of cash. They might lose money in the short term, which is fine, as long as they can prove that in the long run Game Pass is a solid source of recurring revenue.
Another investment manager, Gus Zinn from Macquarie Science and Technology Fund, has a different view:
I just think the majority of the game market doesn’t really want a Game Pass.
There are highly conflicting views on Microsoft’s game subscription service. Some developers absolutely swear by it, while others are skeptical, to say the least. According to former GamesIndustry.biz head Christopher Dring, developers can usually expect to lose up to 80% of premium sales on Xbox consoles if their game is on Game Pass.
Anyway, a Microsoft spokesperson has now denied the aforementioned rumor that Satya Nadella could have shut down Xbox a few years back. In a statement to Insider Gaming, they have noted Microsoft CEO’s prior comments about being all-in on gaming.
On another, not entirely unrelated note, Microsoft has cut some jobs in gaming as well as other divisions (security, devices, experiences), as reported by PC Mag. The cuts are reportedly very small compared to last year’s massive 1900+ layoffs in January.
