9 Things We Just Learned About Xbox, Game Pass, And Microsoft’s Gaming Future

An Xbox Series S and X sit in front of a neon green grid.
An Xbox Series S and X sit in front of a neon green grid.

Microsoft is making big moves and Game Pass is just one piece of the puzzle. The subscription service has kept Xbox Series X/S relevant despite the lack of recent conversation-stealing first-party exclusives, but the company seems to be setting its sights on the mobile space for its next big gaming push. While PS5 console warriors argue over Call of Duty exclusivity, Microsoft is positioning Apple and Google as its real rivals.

That may just be a convenient pivot amid unprecedented antitrust scrutiny as it attempts to get its $69 billion takeover of Activision Blizzard through regulators in the U.S. and abroad. But it’s a convincing one when you consider that Apple’s total revenue from gaming surpassed both Microsoft and Nintendo last year despite the fact that the iPhone manufacturer doesn’t actually make games. Here are nine interesting takeaways from recent earnings calls, regulatory filings, and interviews that begin to fill in a picture of Xbox’s present and future.

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Game Pass is growing a ton on PC

While Game Pass’ best library of games is on console, it’s actually the PC side of the service that’s building up steam. Microsoft CEO Satya Nadella confirmed on the company’s most recent earnings call that PC Game Pass subscribers grew 159 percent from a year ago. The PC version’s game library has certainly improved in recent months, but the larger install base is likely an even bigger factor. “We’re seeing incredible growth on PC which is really where we’re focused,” Spencer said at WSJ Tech Live.

Game Pass is reaching its limit on console

Despite reaching 25 million subscribers overall, Game Pass’ overall growth is still far below Microsoft’s initial expectations. As Axios reports, the company was targeting 73 percent growth for the year ending June 2022, and instead only reached 28 percent.

On Xbox Series X/S, meanwhile, Spencer seems fairly confident that Game Pass will never be more than 15 percent of Microsoft’s total content and services revenue. “I don’t think it gets bigger than that,” Spencer said at WSJ Tech Live. “At some point you’ve just reached everyone on console who wants to subscribe.”

Microsoft knows it’s overdue for a big first-party exclusive

Part of the reason behind Game Pass stalling on console could be the lack of major exclusives. Spencer recently admitted that they’ve been missing overall from the company’s lineup recently. “One thing we’ve heard loud and clear is that it’s been too long since we’ve shipped kind of what people would say is a big first-party game,” he said on the Same Brain podcast. “We can have our excuses on covid and other things but in the end I know people invest in our platform and they want to have great games.”

At the same time, he suggested the era of covid-related game delays was over, at least for Microsoft first-party studios. Don’t expect the great holiday drought of 2022 to persist into next year, in other words. While Starfield and Redfall are both due out in the first half of next year, major releases like Fable, Forza Motorsport 8, Avowed, and others are still waiting in the wings.

The rumored streaming device for TVs was shelved (literally)

Project Keystone was supposed to be a dongle for TVs that would let you stream Game Pass in the living room without needing an Xbox. It was rumored to be coming right around the corner, but Spencer confirmed it was actually canceled in favor of more limited solutions through Smart TV makers like Samsung. That Keystone prototype he keeps on his shelf? Not going into production. “Will we do a streaming device at some point?” he said at WSJ Tech Live. “I suspect we will, but I think it’s years away.”

The company’s serious about an Xbox store on mobile

Microsoft hinted at its ambitions to begin competing in the smartphone space earlier this year, but a recent regulatory filing in the UK lays out the plans more clearly. “[Buying Activision Blizzard] will improve Microsoft’s ability to create a next generation game store which operates across a range of devices, including mobile as a result of the addition of Activision Blizzard’s content,” the company wrote in October.

Spencer doubled down on that vision at WSJ Tech Live, criticizing the 30 percent cut Apple and Google take of in-app purchases on their platforms, and arguing that the $69 billion acquisition is a play for making mobile more competitive rather than getting a stranglehold on the console market. “We have to break that duopoly of only two storefronts available on the major [mobile] platforms,” he said. It’s not clear how the company plans to do that, but more acquisitions, potentially in the mobile space, aren’t off the table.

Xbox Series X and S consoles are sold at a huge loss

While it’s been well understood that console makers often sell the devices at a loss, especially early in a new release cycle, we’ve never known exactly how big those losses were. In no uncertain terms, Spencer recently copped to the Xbox Series X and S losing Microsoft between $100 and $200 on average.

That’s the company’s defense for charging the same 30 percent fees on Xbox that it complains about Apple and Google charging on mobile, where smartphones are sold at a profit. At the same time, it’s also made the Xbox Series S a huge success. The company announced during its most recent earnings call that half of all the $300 Xbox’s users are completely new to the ecosystem.

Prices will go up in the future

Don’t expect that level of discount forever though. While Spencer didn’t get specific, he hinted during WSJ Tech Live that price hikes are coming. “We’ve held price on console, we’ve held price on games for us, and our subscription,” he said. “I don’t think we’ll be able to do that forever, I think at some point we’ll have to raise prices on some things.”

While he didn’t say which things those would be, Game Pass and individual game prices seem like the obvious bets. Subscription services across the board have been increasing their renewal costs recently, and Spencer pointed out that the $60 price point, which Microsoft held for Halo Infinite, is outdated and doesn’t reflect the growing costs of development or the additional hours many players get out of modern games.

Call of Duty is staying on PlayStation

Microsoft has been clearer than ever in recent weeks that it has no plans to make Call of Duty an Xbox exclusive. “It’s not a plan of, okay, we’re going to bait and switch somebody where they gotta play on the cloud or in two or three years we’re going to pull [Call of Duty],” Spencer said at WSJ Tech Live. “As long as there’s a PlayStation out there to ship to, our intent is that we continue to ship Call of Duty on PlayStation,” he said on Same Brain. He likened it to Minecraft which continues to be supported on PlayStation, and said he’d even like to see Call of Duty on Switch in some form.

Don’t expect a Microsoft VR metaverse anytime soon

“For me building a metaverse that looks like a meeting room—I just find that’s not where I want to spend most of my time,” Spencer said at WSJ Tech Live, despite his boss announcing Microsoft Meetings integration with Meta’s Horizons VR dystopia just weeks prior. The veteran gaming executive said he thinks companies should work on perfecting 2D gaming metaverses before moving them into virtual reality.

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