Game Pass may be making a profit but the Xbox hardware isn’t, as boss Phil Spencer reveals Microsoft loses a minimum of £87 with every sale.
One of the reasons many are upset at Microsoft’s proposed acquisition of Activision Blizzard is the suggestion that the company is just buying its way to success, accepting huge loses that no other publisher could afford, in an attempt to outspend the competition.
Even a company as rich as Microsoft doesn’t have infinite funds though (or rather they have risk averse shareholders) and they’ve already warned that hardware, software, and subscriptions will see price hikes starting next year.
Sony has already raised the price of the PlayStation 5, but Xbox boss Phil Spencer has revealed the full extent of the problem at their end: they’re losing $100 to $200 with every console they sell.
Traditionally, it’s perfectly normal for consoles to be sold at a loss, with the only exception, as usual, being Nintendo. However, Sony claims that the PlayStation 5, which has received a number of minor hardware revisions, is already profitable.
The idea is that as long as the console is only selling at a small loss it doesn’t really matter because the real money is made from the games, so it’s much more important to ensure people are tempted to buy those.
Usually, consoles do become profitable over time, after the manufacturing process is streamlined and smaller, more efficient hardware is produced, but clearly $200 is not a small loss.
The $200 figure was quoted for the Xbox Series S, which sells for an extraordinarily cheap $299 (£249 in the UK). The $499 (£449 in the UK) Xbox Series X isn’t quite as extreme but still costs Microsoft money with each one sold.
Speaking with CNBC, or indeed anyone else, Spencer has given no indication of how much the price rises would be, but the PlayStation 5 one was only £30 and it’s hard to imagine Microsoft going much higher than that – so they’d still be well in the red.
Their game prices will presumably increase to the now standard £70 but it’s hard to know what will happen with Game Pass, as it doesn’t have any real equivalents in the rest of the games industry.
It may be profitable, but Game Pass’ growth has missed Microsoft’s targets for two years in a row and in a different interview, with the Same Brain YouTube channel, Spencer admitted that it’s been ‘too long’ since the last big first party game.
It’s big new games that will drive Game Pass subscription, and console sales, but Microsoft currently has nothing of significance scheduled with an actual release date, even if it’s known to have dozens of prominent titles in development.
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