Xbox Game Pass is in a healthy place for the overall Xbox business, with this segment making up around 10-15% of the revenue from Xbox content and services, and Phil Spencer stating that it is a profitable endeavour for the company. However, there are signs that its full potential is already in sight.
Speaking at WSJ Tech Live (as transcribed by The Verge’s Tom Warren), Spencer said, “Game Pass as an overall part of our content and services revenue is probably 15 percent. I don’t think it gets bigger than that. I think the overall revenue grows so 15 percent of a bigger number, but we don’t have this future where I think 50–70 percent of our revenue comes from subscriptions.”
Given the expenditure from Microsoft to secure games for Game Pass, as well as the way it’s partially fuelled by first party titles, this 15% slice makes Game Pass profitable and sustainable. However, it might also be approaching its limit, as a share of the overall profits.
“On console, I’ve seen growth slow down, mainly because at some point you’ve reached everybody on console that wants to subscribe,” Spencer said.
If Microsoft can grow their console install base, then that would be expected to see that 15% equate to more players. There’s also the continued potential for growth outside of consoles.
In a investor call, Microsoft CEO Satya Nadella stated that over 20 million users have tried Cloud Gaming at one time or another – the last hard figure we had for overall subscribers was 25 million from earlier this year – and while console growth has slowed, per Spencer, PC Game Pass subscriptions have increased 159% year-over-year.
With that in mind, the future of Game Pass is solid and steady, but there’s potentially turbulent waters ahead. There’s probably price increases coming in 2023 for both Xbox Series X|S consoles and Xbox Game Pass, as Microsoft react to inflationary pressures and shifting global economies. If Xbox Game Pass subscription prices increase, that could lead to a backslide in subscriber counts and slowed adoption in key markets, even if revenues go up.
Source: Tom Warren (The Verge), VGC
So if it’s 15% of current revenue, and growth is slowing and will eventually stop (as he’s said there), but the overall revenue keeps growing…
How does he work out that’ll be 15% of a bigger number? That’d be less than 15% of a bigger number. 15% of something is less than 15% of something bigger.
The only way that’d work is with a big increase in the price, which is sort of inevitable anyway.
Yes and no. It seems like an increase is coming, but they’re still reaching more PC players, they’re selling Xbox consoles to more people new to the brand and there’s still plenty of scope to push to new markets through things like buying Activision Blizzard. If it’s still around 15% of all people that engage with Xbox gaming as an entirety, then revenue keeps growing, regardless of a price change.