Did Microsoft Bet on the Wrong Horse with Subscriptions? An Analyst Says Yes!

Microsoft’s latest wave of layoffs might be tied to Xbox’s years-long gamble on using Game Pass to conquer the gaming industry — a gamble that seems increasingly questionable.

 

Back in October 2017, CEO Satya Nadella told investors that Microsoft aimed to recreate Netflix’s success with a subscription-based gaming service. Game Pass had launched a few months earlier, but Nadella’s comments made clear that the company was going all in. Starting in 2018, Microsoft began acquiring studios — Ninja Theory, Compulsion Games, Playground Games, Undead Labs, inXile Entertainment, Obsidian Entertainment, and later Double Fine in 2019 — to bolster its Game Pass lineup.

These studios’ titles launched on Game Pass day one, offering consumers tremendous value on paper. But Xbox soon realized that wouldn’t be enough to convert tens of millions of users. To really move the needle, Microsoft opened its wallet and dropped $76.2 billion acquiring ZeniMax Media (Bethesda’s parent company) and Activision Blizzard — securing IPs like The Elder Scrolls, Fallout, DOOM, Call of Duty, Warcraft, and StarCraft.

However, it quickly became evident that these major franchises couldn’t be locked to a single platform — especially not one as underperforming as Xbox. Keeping them off PlayStation and Nintendo consoles would have meant losing billions in revenue. Thus came the multiplatform strategy, which many Xbox fans have since criticized. Meanwhile, Game Pass growth stalled, falling well short of Microsoft’s ambitions. While PC subscriptions have increased, the momentum hasn’t matched expectations. Cloud gaming, too, failed to take off as hoped.

WCCFTech spoke to Rhys Elliott, Head of Market Analysis at Alinea, who offered a blunt assessment: subscription models simply don’t fit the gaming market.

“Like many industries, gaming overreached post-pandemic. During those years, everyone was home, interest rates were low, and game spending exploded. That created a dangerous growth-at-all-costs mindset. Many companies assumed double-digit growth would continue, so they launched risky strategies and went on M&A sprees. But the market has matured. Inflation is high, borrowing is more expensive, the cost-of-living crisis is real, and publishers have had to lay people off and adapt to a new normal. For Xbox, though, the issues run deeper.”

“It all started with the Xbox One. Since then, Xbox has been trying to recover. Game Pass was their big bet — but the games didn’t deliver the punch they needed. Xbox bet on the wrong horse. Many claimed subscriptions would become the default method of accessing games, like Netflix or Spotify. But that hasn’t happened. Consumers — and the market — have spoken. The attention economy is already saturated, and games demand far more time than other media. You can listen to hundreds of songs or binge dozens of shows in a month. Most people — even dedicated gamers — only have time for a handful of games.”

“And that’s just the tip of the iceberg. Only the most hardcore players get value from multi-game subscriptions. The majority are fine with free-to-play options or buying a few premium titles a year. Xbox followed that same trend, despite giving Game Pass a recent boost by adding Call of Duty. Day-one access is great for players, but it cannibalizes base game sales. With growth stalling, Xbox has begun shifting toward becoming a third-party publisher.”

“Microsoft hoped to transform its gaming business by acquiring Bethesda and Activision Blizzard — and it did, just not in the way fans expected. Xbox is now a publishing giant with IPs like Call of Duty, Minecraft, Fallout, and The Elder Scrolls. But the division is in flux, caught between its traditional role as a console brand and a platform-agnostic future. Whether this yields a stronger or just more diluted Xbox remains unclear. Honestly, I’m not optimistic. The old Xbox is fading — and it’s left far too many casualties behind.”

There’s no doubt that Game Pass hasn’t lived up to Microsoft’s vision. The market is flooded with games, many of which receive updates years after launch — distracting from new releases. There just isn’t enough time to play everything. Quality, not quantity, will win out. And higher prices are acceptable for quality. But let’s face it — Microsoft has rarely led the way on delivering truly high-quality games.

Xbox isn’t what it used to be, and Game Pass hasn’t taken off in the way it needed to. And yet, despite internal reservations, Phil Spencer — Xbox’s head — went all in on the subscription model.

Source: WCCFTech

Spread the love
Avatar photo
Anikó, our news editor and communication manager, is more interested in the business side of the gaming industry. She worked at banks, and she has a vast knowledge of business life. Still, she likes puzzle and story-oriented games, like Sherlock Holmes: Crimes & Punishments, which is her favourite title. She also played The Sims 3, but after accidentally killing a whole sim family, swore not to play it again. (For our office address, email and phone number check out our IMPRESSUM)

No comments

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.