In the wake ofXbox’s latest round of layoffs, game cancellations, and studio closures, much has been said about the cruelty of these firings. Xbox head Phil Spencer saidin a memo to stafflast week that Microsoft was actually doing very well – “we have more players, games, and gaming hours than ever before” – but that this success was only because of “tough decisions we’ve made previously”. The layoffs are to ensure future profit.
Industry figures have highlighted the short-sightedness of this strategy, includingEA Japan’s general manager, who pointed out that “foreign companies have increasingly demanded short-term results for large-scale investments, and there are not infrequent cases where a change in direction is made to meet shareholder expectations before sufficient time has been invested”.
Is Game Pass Profitable For Xbox?
On top of that,more and more industry figuresare also beginning to point fingers atGame Passas a primary source of Xbox’s ills. Raphael Colantonio, founder ofArkane Studiosand president of WolfEye Studios, said, “Gamepass is an unsustainable model that has been increasingly damaging the industry for a decade… I don’t think GP can co-exist with other models, they’ll either kill everyone else, or give up.” Michael Douse, head of publishing atLarian, added, “‘What happens when all that money runs out?’ is the most vocal concern in my network, and one of the main economic reasons people I know haven’t shifted to its business model.”
And The Game Business’ Christopher Dringrecently claimedthat when he pressed Xbox on Game Pass’ profitability, he was told “no first-party costs are included”. Separately, he wrote, “Costs associated with the Game Pass business is fees paid to third-parties, marketing, service costs… and by that measure, it’s profitable… What they don’t count is the lost revenue that Xbox’s first-party studios are seeing as a result of the service. I have to imagine if first-party studios received similar compensation, that profitability might not be correct."
Dring has clarified that according to his sources, even with the lost revenue accounted for,Game Pass is still profitable. Without actually seeing the numbers, though, nobody can know for sure.
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Game Pass Will Kill Xbox And Its Studios
It’s impossible to gauge if Xbox really is profiting off its Game Pass subscription service or if it’s bleeding money. It’s also worth noting that Microsoft has invested considerable funds into acquiring content for the service, and it’s unclear how this is being factored into the calculations of its profitability. Even if itisprofitable, this cycle is going to be incredibly damaging for not just Xbox, but the industry at large.
Game Pass, as a service, is already quite controversial – some will hail it for introducing its audience to indie titles they likely would never otherwise have played, while others say it’s the doom of the industry, since it devalues games so much. It’s good value for the gamer who buys more than a couple of titles a year and wants to explore Game Pass’ catalogue or play its first-party games without paying full-price, though its price hikeshavemade that value a little more negligible.
It aims to do what businesses like Spotify did – disrupt the industry by offering affordable access to a huge catalogue of media, elbowing traditional competition out. The money Spotify pays artists is so tiny that it’s become almost impossible for artists to make money through streaming residuals, but it’s so ubiquitous that youhaveto upload your music on it. Spotify was successful in disrupting the music industry, but Game Pass hasn’t managed to strangle its competition quite yet, despite having been around for the better part of a decade.
