Two years in, Microsoft’s Xbox Series X/S is already losing steam. The tech giant reported on Tuesday that revenue from console hardware sales was down 30 percent from the same time in 2022 after big games like Starfield got delayed. Game Pass didn’t seem to be making up the difference.
You might think that meant Microsoft had a bad third quarter, but total revenue and net income were up year-over-year by seven and nine percent, respectively. Office software and Azure cloud computing services made plenty of money. It was the hardware side of the business that suffered. Revenue from devices like the Surface tablets Tom Brady kept trashing last year was down 30 percent, and Xbox consoles were down by the same amount.
That nosedive in “next-gen” hardware sales came despite big holiday discounts like the temporary $50 price cut to the Series S. It was no doubt driven in large part by the fact that Microsoft’s lineup of first-party exclusives has been anemic. Bethesda’s Starfield, originally set to launch in November of last year, is now coming in September. Redfall, the upcoming vampire shooter from Arkane, didn’t make it out in time for last quarter either.
Xbox content and services revenue, meanwhile, was only up three percent. That includes Game Pass, the Netflix-like subscription service Microsoft says is profitable but which seems to have plateaued in terms of gaining new subscribers. That’s probably again because of the lack of big new releases coming to the service. While there are great games added to the library every month, the blockbusters Microsoft is supposed to be supplying still aren’t materializing.
There are more than a few shades of the start of the Xbox One console cycle here, the stormy period that originally led Microsoft to stop reporting the actual sales figures for its consoles altogether. If anything, competition is even more fierce this time around, between the runaway success of the Nintendo Switch and the PS5 selling faster than the PS4 despite supply shortages brought on by a historic pandemic.
But Microsoft might have bigger plans in store than selling the most boxes. The company has teased opening up its own app store for mobile devices, and is currently trying to wrap up the $69 billion acquisition of Activision Blizzard, which would immediately give it a huge influx of popular blockbusters for Game Pass. UK regulators are expected to announce their final decision on the deal on April 26.