Following the rumors and then the confirmation from Microsoft that several Xbox exclusives (Sea of Thieves, Grounded, Pentiment, and Hi-Fi Rush) would launch on rival consoles from Sony and Nintendo, many gamers took that as an admission of defeat in the console war. However, Wedbush Securities analyst Michael Pachter shared a completely different view in his latest appearance on Pachter Factor, believing that to be an incorrect perception of Microsoft's true gaming plans.
He said the Windows and Xbox company intends to win the gaming business rather than the much smaller console business. They could do that by pursuing a much more aggressive pricing strategy on console hardware, which they would have the pockets to sustain, but that's not their plan. They will instead leverage the content they have at their disposal following the acquisitions to get the Game Pass subscription service up to 250 million.
I think the whole development and promotion of Game Pass was always an acknowledgment that the Xbox is a platform and not necessarily a device you need. I think that Microsoft will be perfectly happy in a future where there are no consoles and everybody has a dumb terminal attached to the Internet, to the cloud, and they stream all their games.
Game Pass, that's their long long game, and I think Microsoft recognized very early on in this cycle that the future is the cloud and that if you don't have to sell a console your addressable Market goes from 200, 250, 300 million people who own consoles to 3 or 4 billion people who play games. That's their endgame, much like Netflix said 'how many people watch TV?' and the answer is 4 or 5 billion, so Netflix has 260 million now.
I think that they, Satya Nadella being the architect and Phil Spencer being the field general executing the strategy, I think they're trying to get 250 million Game Pass subscribers without a console.
Is there anything Microsoft can do to regain ground this generation? Sure, cancel Game Pass and cut the price of the Xbox. If they did that, if Xbox is 200 bucks and they told every Game Pass member we'll give you an Xbox for 20 bucks because you've already paid for Game Pass, and by the way, if you buy Xbox you get all of our first-party releases free, they would pass Sony like they were standing still. They would just lose money, but they would do it. If Microsoft wanted to win the generation, they would win the generation.
That is not what they're trying to do. They're trying to win the game's business by offering games to 3 billion people, not to 300 million people. That's their endgame and to be honest with you, the way Game Pass is going to work is the price will drop from 15 bucks a month to 10 and then it'll drop to 5 with ad support. Every time you load up a game, you're going to be required to watch an ad.
People will tough that out and Microsoft's going to make a ton of money. More people are going to play games and they're going to pay less for the privilege, so I think they win. They just don't win the console generation.
Now they have all that other content. You're going to get Hellblade 2, you're going to get The Outer Worlds 2, you're going to get Elder Scrolls 6 one of these days, you're going to get the entire Call of Duty catalog, you're going to get World of Warcraft as a part of Game Pass. Yes, they will go to 200 million subscribers, so I think that they're absolutely executing brilliantly.
I think the gamer perception that they lost to Sony is just wrong. They lost in the console battle. If that's how you measure your worth, that you've got to sell more consoles or you suck, great. If the question is who's going to be more profitable, Microsoft, by 10x or 100x.
That has indeed been the plan for quite a while, with Satya Nadella saying over six years ago they'd like Game Pass to be the Netflix of gaming. However, the growth of the subscription business in gaming has largely stopped. Microsoft recently confirmed Game Pass still has only 34 million subscribers and that includes the Core tier, which was previously Xbox Live Gold.
The next test will be the massively anticipated addition of Activision Blizzard games to the subscription service. It will begin on March 28 with Diablo IV. Between that one, Call of Duty, and possibly World of Warcraft, chances are the number of active subscribers could go up a lot. Still, 250 million seems like a pipe dream at the moment. In this Pachter Factor episode, the analyst suggested that Microsoft should send a dongle and a controller to all Game Pass subscribers as an enticement to play via cloud; the problem with that is cloud gaming growth is also relatively slow at the moment.
About the author: With over two decades of experience in gaming journalism, Alessio Palumbo has led the gaming vertical at Wccftech since August 2015. He started working at a young age for Italian websites like Everyeye.it, Gamestar.it, Nextgame.it, and Multiplayer.it before kickstarting the indie English-language publication Worlds Factory as its founder and Editor in Chief. In the last decade, he has coordinated the overall output of Wccftech's gaming section, managed PR relations, assigned reviews, produced daily news coverage, edited gaming content as needed, and delivered game reviews. Arguably, his trademark content is the long series of exclusive developer interviews that have been cited by Wikipedia and by the biggest news media and gaming publications. His passion for technology also makes him knowledgeable when it comes to gaming hardware and tech. His favorite genres include RPGs, MMORPGs, and action/adventure games.
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