Microsoft has missed annual internal growth targets for its popular subscription service Xbox Game Pass, according to a new financial filing, Axios first reported. Others say it’s the only metric related to CEO Satya Nadella’s compensation, which is interesting to say the least.
This is the second year in a row that Microsoft has missed its target. The company initially planned to achieve a growth rate of 72.8% in the fiscal year ending June 30, 2022. However, Microsoft can only achieve a 28% growth rate.
Microsoft did exceed its planned growth rate in 2020, but 2021 and 2022 were not successful in meeting its service goals. It’s also now clear to us that “Xbox games generated a jaw-dropping $16.28 billion in total revenue for Microsoft in calendar year 2021”, with Xbox Game Pass accounting for 18% of that.
So, Microsoft’s performance isn’t all bad. Although, Paradise could be in trouble if growth rates continue to decline; services, for example, grew 37% in 2021, 9% higher than this fiscal year.
Even more fascinating was what Microsoft gaming chief Phil Spencer had to say about Xbox Game Pass at yesterday’s Wall Street Journal conference. According to Spencer, the service is “profitable.” He also noted that Game Pass growth on PC was very good, but slowed down significantly on consoles.
Axios also noted that the drop in growth rate may be due to a lack of major releases. Microsoft hasn’t released any big exclusive games for its platform in a long time. We can expect Starfield to arrive next year, but don’t know when Fallout or the new installment of the Elder Scrolls universe will arrive.
On top of that, the UK Competition and Markets Authority remains concerned about Microsoft’s deal with Activision, of which Game Pass is one. For example, if Call of Duty were to become available on Game Pass after the deal, there were concerns that this would significantly reduce competition.
Of course, Microsoft insists this won’t have a huge impact on its rivals, and Sony can compete by offering better exclusives.
As for Microsoft CEO Satya Nidella’s thoughts on earnings in the first quarter of fiscal 2023, he shared the following on Microsoft’s conference call on the matter: “In gaming, revenue was slightly Growth, up 4% in constant currency, with better-than-expected console sales, Xbox hardware revenue up 13% and 19%, and Xbox content and services revenue down 3% in constant currency, driven by lower first-party content 1% growth and third-party content, our shorter engagement time and higher monetization were partially offset by an increase in Xbox Game Pass subscriptions.”
“PC Game Pass subscriptions grew 159% year over year. With Cloud Gaming, we’re changing the way games are distributed, played and viewed. To date, over 20 million people use the service to stream games. We’re adding support for new devices support, such as handhelds from Logitech and Razer, as well as Meta Quest.”
“And, as we look ahead to the holidays, we’re offering the best value for games through Game Pass and Xbox Series S. Nearly half of Series S buyers are new to our ecosystem.”
