Microsoft posted its latest earnings report on Thursday, which was broadly speaking good news for the company. For its embattled Xbox department, however, there are mixed signals.
This is the second quarterly report from Microsoft that included the effects of its record-setting acquisition of the formerly independent game developer Activision Blizzard King.
- Xbox content and services revenue grew 62% and gaming revenue as a whole grow 51%, both of which were primarily credited to Activision.
- At the same time, Xbox hardware revenue declined by 31%, and the report notes that the overall impact of the Activision acquisition includes a $350 million loss in operating income.
- That loss includes a series of adjustments for the “movement of Activision content” across the ecosystem, as many of Activision’s current titles have needed updates to bring them into compliance with Xbox’s first-party practices.
It’s illustrative of what was actually at stake for Microsoft over the course of the last year, as it defended its Activision acquisition in courts in the U.S. and U.K. Without Activision’s software lineup on its side, the financial story might’ve been much worse for Xbox.
Two different stories
This is a useful example of the “yes, but” sorts of stories that have come out of Xbox so far this year. Overall Xbox revenue is up, but it’s due to having conveniently acquired the rights to several of the most popular franchises in the Western world. The news isn’t that bad, but there’s an asterisk on it.
Microsoft also had to deal with a consistent stream of bad publicity due to the consumer perception that Xbox, for all its efforts and successes, is permanently stuck in third place in the ongoing console market.
In 2024, Xbox’s reputation and its revenues are telling two different stories.
As I noted earlier this year, the announcement that Xbox would publish four of its console exclusives for competitors’ systems was met with a certain degree of horror by Xbox fans. Going cross-platform with system exclusives is traditionally seen as a sign of surrender in the video game market, with some analysts predicting this would mark the end, or at least the beginning of the end, of Microsoft’s Xbox project.
Instead, it seems to have paid off. Earlier this week, reporters noticed that Microsoft currently has more best-sellers on the PlayStation Network than Sony does.
Seven games from Xbox Game Studios broke into the PlayStation top 25 as of April 22, versus only five of Sony’s first-party projects. The Xbox best-sellers on PlayStation included the newly-released Sea of Thieves and Grounded; perennial hits like Minecraft; two games in the Fallout franchise, spurred by the hit live-action show Fallout on Amazon Prime; and Blizzard’s team-based shooter Overwatch 2.
The changes at Xbox are also coming at a point in time when both of its major competitors are hitting a significant lull in their release schedules. Both the PlayStation 5 and Nintendo Switch are primarily propelled by their first-party exclusives.
Nintendo appears to be quietly sunsetting the Switch, however, with no planned first-party releases on the system for the rest of the year at time of writing. The rumor is that the Switch’s follow-up is currently scheduled to premiere early next year, although Nintendo itself has yet to make any announcements on the subject.
Sony is currently in the process of transitioning many of its first-party efforts to “games as a service,” with the help of its new subsidiary Bungie. It confirmed in February that it wouldn’t release any big first-party PS5 exclusives for the rest of 2024. Sony is still publishing a number of games from other companies for the PS5, such as this week’s Stellar Blade, but its internal studios have been quiet since last year’s Spider-Man 2.
Xbox, by comparison, has a fairly packed schedule for the rest of 2024, with upcoming console exclusives like Hellblade 2 and a new Indiana Jones game. Activision Blizzard King also has a big year ahead, with expansions on the way for both Diablo IV and World of Warcraft, and Microsoft has confirmed that this holiday season will see the debut of another entry in the Call of Duty franchise.
It’s likely that Xbox, one way or another, will have a good 2024, if only because it’s stubbornly insisting on continuing to show up to the party. The ongoing issue, however, is convincing fans and analysts alike that there’s a method to its madness.
In the console gaming market, success is typically defined by selling a lot of games and consoles. Xbox’s move has been to throw out the old playbook and reclassify “success” in more nebulous terms like currently active Game Pass subscriptions. To go by its quarterly reports, that approach is working, but it’s low visibility, low yield.
