Xbox Game Pass has been a mixed success. Microsoft claims that it is a profitable subscription service, but the recent studio closures and layoffs suggest that the current business model is not entirely sustainable. While there’s no denying that Game Pass adds value to Xbox gamers, it’s less clear whether that value translates to sustainable game development and profitability for both game studios and Microsoft as a whole over time.
One thing seems clear: Giving away big tentpole games on day-one that would normally sell millions of copies at full-price is probably not a great business move, which is why nobody else in the industry is doing it.
Take the example of Horizon Forbidden West, one of Sony’s biggest exclusives in recent years. Leaked documents from the Insomniac Games data breach revealed a pretty telling piece of information about that game’s sales once it was added to PS+ during its second year.
In the leaked documents, Sony says that it was expecting 30% year-on-year revenue of $124 million in Year 2 sales of Forbidden West, but after being added to the service sales flatlined and those projections were slashed to just 9%, or $35 million. That’s an enormous $85 million drop. “I talked to all publishers they unanimously do not like Game Pass, because its value destructive,” PlayStation chief Jim Ryan told investors last year, saying it’s a “very commonly held view by publishers.”
What does this data-point suggest about Microsoft’s ongoing practice of releasing its biggest games on day-one on Game Pass as part of a monthly subscription? How many unit sales were lost for Starfield when it was released on Game Pass? How many more unit sales were lost because Starfield was not released on PlayStation?
Microsoft recently acquired Activision-Blizzard and with it one of the biggest, most profitable video game franchises of all time: Call Of Duty. The debate now is whether Call Of Duty 2024 (code-named Black Ops Gulf War) will come to Game Pass on day-one or not. We do know that, unlike other Microsoft acquisitions, Call Of Duty will remain multiplatform for the time being.
This means that even if the new entry in the first-person shooter franchise does come to Game Pass, at least it will sell units on PlayStation. Still, it’s worth considering what kind of profit loss giving the game away for free (potentially on both Xbox and PC) would represent. The number, I suspect, would be a rather large given that this is the best-selling video game nearly every year.
Game Pass can only grow so much at this point. And it’s unclear just how successful the service really is, or even how Microsoft is coming by its current subscriber count of 34 million (are Xbox Game Pass Core—aka Xbox Live Gold—subscribers part of that count or not?)
Sure, Call Of Duty could help it grow more, but would that growth offset sales losses?
Game Pass, I would argue, must change in order to survive, and it must change sooner than later. Call Of Duty provides Microsoft with a way to make that change, however gradually, and before it’s too late. People will not be happy about it, but the alternative is more layoffs, studio closures and price-hikes. Let me explain:
- Game Pass can’t sustain the kind of massive growth it needs to be a long-term solution for Xbox. Predictions of over 100 million subscribers by 2030 seem more like fantasy than prediction. This means that every big AAA game Microsoft releases going forward will be released at a loss, especially given how expensive these video games are to make, with budgets in the hundreds of millions. This is on top of the fact that every Xbox sold also represents a loss for Microsoft.
- Instead of releasing these AAA games on day-one, Microsoft should release them to Game Pass down the road, similar to how Sony adds games to its PlayStation Plus library. Some games could release sooner on Game Pass Ultimate to push subscribers into that tier.
- Timed exclusivity would work in Microsoft’s favor as well, with games like Halo and Gears Of War coming to Xbox before they come to PC. Releasing Bethesda titles on PlayStation also makes sense, also as timed exclusives with 1 or 2 years on Xbox prior to a PlayStation release.
- Game Pass should focus on day-one releases of smaller games and a vibrant back catalogue, including offerings from previous generations similar to Nintendo Switch Online and PS Plus’s higher-priced tiers.
- Call Of Duty should not be a day-one release on Game Pass, but older titles in the franchise should absolutely be included on the service. The new Call Of Duty should come with Game Pass perks instead, such as a Season 1 Battle Pass, special exclusive skins and blueprints, early access to the campaign and so forth.
Game Pass can still be an enormous value to consumers without day-one releases of the biggest, most expensive games. That way paves the road to ruin, with future studio closures and layoffs in the offing.
Meanwhile, Microsoft should absolutely focus on smaller, less expensive games that can drive player engagement and hype, critical acclaim and viral success and have these games at the center of the Game Pass project. The big, AAA, tentpole games can add further value down the road, after initial sales have run their course. Similar to how streaming has killed the DVD business and along with it a large slice of the movie industry’s revenues, Game Pass is taking risks with the entire video game industry.
If the company’s goal is to reach 3 billion gamers and hardware is becoming less and less crucial to that effort, structuring software sales and subscriptions to be sustainable, profitable and valuable to consumers is going to be an incredibly delicate balance, especially with the size of AAA game budgets.
A steady pipeline of new content will be more crucial than ever, but determining what content comes to Game Pass and when will play a massive role in determining whether this succeeds.
