Microsoft looks beyond Xbox hardware for gaming growth


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Microsoft is accelerating a push away from its own Xbox hardware, hoping to boost growth by selling more games on rival consoles as the industry reckons with a protracted slowdown.

The technology group plans to make a handful of games that were previously offered only on its Xbox available on Sony’s PlayStation and Nintendo’s Switch, in a departure from its previous strategy of keeping games developed in-house as exclusives for its own platforms.

Four months after closing its $75bn Activision Blizzard deal, Microsoft also said the first title from the portfolio of the Call of Duty creator would start appearing on its Game Pass subscription service next month.

Phil Spencer, chief executive of Microsoft Gaming, insisted the moves were “not a change to our fundamental exclusives strategy” but reflected a desire to expand the audience for certain games that have hit a ceiling on its own platforms.

In an interview with the Financial Times, Spencer said there was “some diminishing return” from focusing only on selling more games to its existing audience of Xbox owners.

“When I look forward, for our business, finding more players in more places, many of them on the devices that they already own, is a good thing for our own growth as well,” he said.

Content delivers higher margins than hardware for Microsoft, Spencer said, adding: “Extending the software and services and games to more endpoints improves the overall profitability of the [Xbox] division.”

The latest Xbox console generation, first released in 2020, has struggled to keep up with the PlayStation 5 and Switch. Some analysts estimate PS5 outsold Xbox by almost three to one last year, but both have been comprehensively outsold by the older Switch over its lifetime.

“We have more Xbox players off of Xbox consoles than on Xbox consoles today,” Spencer said, referring to those who play its games on PCs or other devices via cloud streaming. “Those lines will continue to diverge. That’s a good thing for the health of the business because the hardware we sell is not a profit driver for us in our organisation.”

Sony announced in December that PS5 hit a milestone of 50mn sales, but the Japanese group nevertheless this week downgraded 2024 forecasts for its gaming unit, as a new wave of lay-offs hit games developers across the industry in the first weeks of the year.

Enders Analysis estimates global gaming revenue rose by less than 1 per cent last year to $184bn, a slower rate than inflation. Enders’ researchers said in a recent report that 2024 was set to be a “bumpy and uncomfortable year across the industry” as “revenue growth is likely to be flat for the next 12-24 months”.

Microsoft is among those cutting jobs, saying last month it would lay off around 1,900 staff, or about 8 per cent of its gaming workforce, including some at Activision Blizzard.

Microsoft has for several years pushed its subscription service, Game Pass, which is available on Xbox and PC but not on PlayStation. About 34mn people subscribe to Game Pass, which costs $17 a month for full access to the latest games on consoles and PC, or less for access to a limited catalogue and multiplayer features.

“We are seeing good subscription momentum on PC and cloud,” Spencer said.

Most Activision Blizzard titles were already available on multiple consoles before Microsoft’s acquisition, and the Windows maker promised competition regulators who scrutinised the deal that it would not pull the games from rival platforms.

Making more Xbox originals available to buy on PlayStation and Switch was driven by the need for multiplayer games to draw in more players, Spencer said, but some of its in-house titles would remain exclusive to its own platforms.

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