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A missed target reveals Game Pass' growing pains | Opinion

The subscription service may be beloved for its back catalogue - but even more so than Xbox itself, it desperately needs high-profile new software to drive growth

Game Pass is Microsoft's game changer -- or at least, that's the plan. It entered this generation with a grand ambition not just to challenge Sony's dominance of the high-end console space, but to reshape the space itself, unpicking some of the very notions of what a console generation is, and what constitutes a gaming platform.

Its weapons in this fight aren't hardware -- the company probably knew quite a long way out that the Xbox Series X and PS5 were going to be pretty evenly matched on that front, at least as far as the average consumer is concerned -- but services. This is a playbook it used to great effect the last time it pushed Sony onto the back foot, with the Xbox 360's online services running rings around the PlayStation's too-little, too-late efforts; this time around, it's Game Pass that's Microsoft's ace in the hole, the service that's meant to both make an end run around the competition's offering and lock consumers into a wholly new vision of gaming platforms and services that's intrinsically untethered from any individual piece of hardware.

The centrality of Game Pass -- tacitly acknowledged in the company's decision to use its subscriber growth as one of the metrics upon which executive compensation packages are calculated -- means it's inevitable that its growth figures will be followed closely by anyone with a stake in the industry's fortunes. The company doesn't give updates on subscriber numbers often -- the last we got was in January, when they reported roughly 18 million subscribers for the service -- but it did start reporting that topline growth number in its 2020 financials, when it healthily overshot its 71% growth target to report almost 86% growth over the course of the year.

Game Pass growth is a slightly sore point at present; it has significantly missed its 47% growth target, reporting only a 37% rise in subscription numbers over the year

This year, however, those fortunes are reversed, with a financial filing ahead of its shareholder meeting revealing that Game Pass growth is a slightly sore point at present; it has significantly missed its 47% growth target, reporting only a 37% rise in subscription numbers over the year.

There are two ways to look at the undershoot. One is that the predicted 47% figure was already conservative, given that it achieved 86% growth in the previous year, so the numbers Microsoft failed to hit were already reflective of significantly dialled-down expectations; not great.

The other way to look at it, however, is that this was naturally going to be a year in which numbers dipped after the artificially high growth caused by pandemic lockdowns, so Microsoft arguably just underestimated the steepness of the curves this unprecedented event would cause. It's consistent in this at least: it underestimated the upside last year, and the downside this year. This more optimistic approach calls for averaging out the performance of the past couple of years, and would lead to an expectation that growth will revert to a comfortable mean in the coming year.

The thing is, I'm not entirely convinced that a supposed dip in demand after the pandemic really does explain everything about this plummet from 86% to 37% growth -- not least since plenty of other game companies seem to be experiencing an ongoing boom rather than a post-pandemic slide in their revenues. Rather, I think what we're seeing here is actually a pretty good reminder that Game Pass, for all that it's a brilliant service beloved by many of its millions of subscribers (myself included), is actually a hell of a tough thing to undertake, and it's inevitable that it's going to run into some growing pains along the way -- perhaps to an extent that Microsoft itself hadn't quite recognised at the outset.

I'll preface all of this by saying that 37% growth for a service with numbers that hit 18 million subscribers fairly early on in this reporting period is by no means a bad figure -- but the temptation to roll your eyes and say "oh, poor Microsoft, only another six million-odd people paying them ten to fifteen bucks a month, however will they cope" ought to be tempered by the recognition of what a drop in the ocean that kind of figure is for a trillion-dollar business like Microsoft.

Wonderful as it is to play classic Bethesda games on a modern system, it's not exactly the sort of unique selling point that will drive growth for Xbox Game Pass

Wonderful as it is to play classic Bethesda games on a modern system, it's not exactly the sort of unique selling point that will drive growth for Xbox Game Pass

Giant companies like Microsoft, Apple and Google routinely call time on business divisions that would be the crown jewel of a smaller company, but that just aren't worth their time and focus -- which creates an internal environment in which any division that's not hitting its growth goals needs to find a way back to that growth path very quickly. A growth undershoot at this point is not the figure Microsoft needs to be hitting in order to realise its goals for Game Pass as the beating heart of its decentralised gaming platform strategy -- all of which makes it important to ask what other reasons may lie behind that missed target, and how they might be remedied.

Ongoing hardware shortages, of course, haven't helped -- but not to put too fine a point on it, it's been a somewhat dull year on the Game Pass front. That the library has grown is undeniable, of course, but it's largely been in the form of back catalogue titles, with arguably the most interesting development being the addition of various Bethesda games to the service over the course of the year.

For all the value it offers in terms of back catalogue, Game Pass faces exactly the same fundamental challenge as any game console in history when it comes to actually getting people to subscribe in the first place

Indeed, the same financial report which revealed the growth undershoot also included a single bullet point about Game Pass' highlights in the past year -- namely the launch of 20 of Zenimax' back catalogue titles on the service, which for all that many of these games are beloved, is a pretty weak thing to pull out as your full-year highlight for your great shining hope for the future of gaming. A few Xbox exclusives have launched day-and-date on Game Pass, but it would be hard to point to one that seems likely to have pushed a lot of consumers over the edge into punching in their credit card details and becoming Game Pass subscribers.

That's really what this comes down to; for all the value it offers in terms of back catalogue, Game Pass faces exactly the same fundamental challenge as any game console in history when it comes to actually getting people to subscribe in the first place. The back catalogue value offering is a retention mechanism -- it's a reason for people to stay in the system once they've taken the first step -- but to get those customers in requires big, high-profile titles that people really want to play and for which Game Pass offers the best way (for reasons of cost or functionality) of doing so.

This is where the service falters right now, precisely because Microsoft's own first-party title line-up is still faltering -- the company's studio and publisher acquisitions still haven't borne fruit, and though the promise of what's to come is enticing for many consumers, first-party software on Xbox remains an unsteady colt and not the racehorse we're all hoping it'll become. Hope for a future line-up is reason enough for many consumers to buy a console, but it's not a reason to put down money on a Game Pass subscription right now, when they can just wait and start forking over that cash later on once the games actually appear.

This is the context in which we should read Phil Spencer's comments about Microsoft being prepared to acquire more game studios: Spencer understands well that Game Pass is going to have a monstrous appetite for headline, exclusive games if it's to keep up its growth metrics. Microsoft's goal with any future acquisition will arguably be less about taking software away from rivals like Sony (that's just a side-effect, in most cases), and more about feeding that ravenous appetite for content without which the service upon which it's pinned its hopes in this sector will see its growth stutter and stumble.

For all its enormous advantages both for Microsoft and for consumers (and for publishers and developers, maybe, at least in terms of its prospects as a long-tail revenue generator), Game Pass is likely going to be even tougher to support with content than a traditional console is. Consumers buy a console up-front to play certain games, and if there's a gap in the release schedule when nothing interests them, well, so be it -- the console stays under their TV until the next big release. With a subscription service, however, long gaps between games consumers are excited about can not only result in drying up the spigot of new customers, but actually cause growth to backtrack by making existing customers feel antsy about the money they're paying each month. Back catalogue, groundbreakingly brilliant as Game Pass' may be, will only go so far in terms of locking in that customer retention.

Don't underestimate the struggle Game Pass faces in this regard: Microsoft's first-party game operation is gathering pace, but right here, today, it still isn't capable of holding a candle to rivals Sony and Nintendo, which is going to be a major problem given that with Game Pass and its ambitious growth plans, it has created a challenge for itself that exceeds anything those companies need to accomplish with their first-party publishing efforts.

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Latest comments (11)

Michele Catano Studying Master in Business Administration, University of Chicago Booth School of BusinessA month ago
@Derek Ward: your point is interesting, but then I don't understand why Microsoft didn't explain the gap giving Halo's delay as the main reason.
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Christopher Dring Publisher, GamesIndustry.bizA month ago
@Derek Ward: If it is because of the Halo delay, then that backs up the articleís point entirely
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Nicola Congia Sole Trader A month ago
If Microsoft wants to match Sony single player games, perhaps they should hire film makers, music producers, writers, photography experts, artists in general, to improve the overall quality of their flagship titles. Think of it as an Aesthetics Inquisition, if your game is not cool enough, your files get deleted.

Chapter Nintendo. Not enough kids/family cool stuff on Game Pass, at least definitely not Nintendo level stuff. Now, historically the only opponent who for some time managed to beat Nintendo at their own game has been Sega. So, buy Sega. Chase that magic again and capture kids and family hearts with cool platforms, kart games, party games and so on. Which brings me to another problem.

As a communication strategy, Xbox peace & love attitude may be good for older, platform agnostic gamers, not for kids that will only get one platform and that love to think they got the best out of the lot. Perhaps when they will have a better first party line up, three or four years from now, they will have that bullish attitude that always works as a magnet, but for now they clearly are behaving as if they know they have the less interesting original content.
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Show all comments (11)
Derek Ward Human Re, cori informatiqueA month ago
@Nicola Congia: You and pretty much everyone else(especially on this site)are used to videogame companies operating on way and as soon as a company deviates from that, the industry tries to read into it. They said their plan and that's that. There is nothing else to read into.

Edited 1 times. Last edit by Derek Ward on 26th October 2021 6:23pm

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Nicola Congia Sole Trader A month ago
@Derek Ward
Since the possible shift towards a subscription based model has the potential to completely disrupt a lot of existing businesses, the industry MUST read into this obviously.

This article is relevant, well written, and just like pretty much everything you can read here, interesting. I dont reply often because Iíd rather read what people who have deeper knowledge have to say, but sometimes I enjoy reading into things, and writing about things, and thereís absolutely nothing you can do about it.

Edited 1 times. Last edit by Nicola Congia on 26th October 2021 11:48am

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Daniel Indie Game Dev A month ago
@Nicola Congia:
I strongly disagree with your suggestions in your first comment. Xbox knows it has an issue with 1st party content and has been working on bulking these content pipelines by acquiring studios. This is existing, proven, industry talent that it needs. Hiring filmmakers, photographers, writers? This would be a recipe for disaster. Games are not like other (static) mediums at all. Especially not games that need to sustain the game pass; they need industry experts who have experience in running live games that are heavily optimised for retention. That expertise is absolutely lacking from traditional mediums.
Buying SEGA would be a disaster. This isn't 1995. SEGA hasn't been known for creating high quality experiences or hits for at least 20 years. Frankly there's no way to revive SEGA's glory days. It's current biggest successes (Yakuza, Total War, Football Manager) either aren't suited to Game Pass' long term retention strategy, or wouldn't work on consoles (which goes against the GamePass principle of being playable on any hardware).
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Nicola Congia Sole Trader 30 days ago
@Daniel:

Isnít the whole point of a subscription service being able to play a lot of different games instead of being stuck with the same one for hundreds of hours? Perhaps subscribers are on average mostly interested in single player story driven games?

Iím not saying writers and film makers should develop games of course, but my guess is that the quality of many PlayStation franchises has to do with Sony being in the music and movie businesses as well so yes, being judged by people with proven experience in other mediums might help Microsoft.

As for SEGA well, Sonic would look great in the Game Pass logoÖ I think the service, and Xbox, needs something for the kids as well and their acquisition might be the quickest way to achieve that goalÖ 2D&3D platforms, kart games, tennis games, great arcade, not to mention some visionary and daring games that donít have a chance as boxed products or as live service games but might just perfectly fit in a subscription service. But what data do you have to say Yakuza games arenít suited to Game Pass strategy?
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Daniel Indie Game Dev 26 days ago
@Nicola Congia:
"Isnít the whole point of a subscription service being able to play a lot of different games instead of being stuck with the same one for hundreds of hours?"
No, the reason for having a large varied library is to appeal to a broader audience. Sure, a 2ndary benefit is the possibility for those users to try out more games and stick with those too. But games aren't Netflix. Most Game Pass subscribers won't sample many games from the library. So the goal of each individual game in the library is to be as sticky as possible, because a player is more likely to lapse from their subscription (rather than try a new game) if they get bored.

"Perhaps subscribers are on average mostly interested in single player story driven games?"
- This hasn't been true for a decade and a half now. Just check Steamcharts for the consistently most played games on PC. Console is similar. Players spend most of their time in one or two games, and those games are most often multiplayer, 'live' games. This doesn't mean there is no place left for single player games, not at all; single player experiences are still some of the best, most acclaimed, and most widely played games out there. But, in general, story driven single player games aren't anywhere near as sticky as live games are. DOOM 2016/Eternal are good examples: great mechanics, great single-player experience, definitely worth playing, but most people aren't going to replay it. It's a sub 30hr experience for most players, and that's not going to keep people subscribed month after month. They can make good 'headline' titles to draw in new subscribers though.

A subscription service needs to expand the lifetime of its content as far as possible, it's just better economics. If you spend $200million on a 30hr experience that's obviously not likely to be as profitable for your subscription service compared to one that has the potential for hundreds or thousands of hours. Alternatively the subscription service can stuff its library with throwaway experiences that are fast and cheap to develop, but nobody wants to pay for that kind of low quality. Apple Arcade discovered this quite late, and still hasn't adapted properly. Sea of Thieves is a good GamePass example of a game that has successfully adapted itself into a live game with events and regular content updates, extending its life and value for the GamePass. This is the logical bread-and-butter needed to sustain a subscription service.

Sorry but SEGA isn't really a child-focused publisher anymore. Sonic is a great mascot but Sonic games have not been popular amongst kids for decades now. SEGA also doesn't really make live games outside of mobile. SEGA also comes with so much baggage like hotel businesses, pachinko/slots machines and 'resorts' that Microsoft/Xbox really doesn't (and shouldn't) have any interest in. SEGA just isn't a good candidate for Xbox to acquire.
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Alfonso Sexto Pereyra Quality Assurance Manager, DACS Laboratories GmbH26 days ago
The article is trash like most of your articles. You pro-Sony guys can never call anything down the middle. 360 forced you to do so, but after that, you guys just say anything at this point.
Then is as easy as not coming here again if this is what you think about this website. Also to keep the tone civil, professional and to not use that kind of youtube comenter language. You are speaking for your company here (if It's a real one, since you seem to have 4 CEOs according to your registry here)
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Nicola Congia Sole Trader 25 days ago
@Daniel:
You keep looking at things from the perspective of a dev but ultimately itís the customer who shapes the service. Also, without data weíre clearly just speculating here, itís not that one of us has the ultimate truth.

But. There was this leaked internal document where Sony talked about its customers spending more time with single player games. Console and PC are different markets. Chances are the average Game Pass LOYAL subscribers have nothing to do with the average Steam players.

If this specific subscription model isnít sustainable itís simply going to die. Online games wonít save it.

Yes, many players just play a few games - on console GTA V and FIFA for example, but you know what? They BUY the games, and I think itís safe to say they wouldíd rather buy them even if they were always available on Game Pass from day one.

Online games are clearly a huge part of todayís market but strategies are separate from subscription services ŗ la Game Pass. We have a clue here directly from Microsoft: Halo Infinite. The campaign will be on Game Pass, but multiplayer will be FREE. If you aim to be the next Fortnite or Warzone you DONíT want a subscription barrier. And the gamers who just want to play these kind of experiences will never subscribe to anything because they can get a lot of games for free. Do you think putting Fortnite on Game Pass would boost the service numbers?

Game Pass, and PS Now, which has great value as well in my opinion, are just like Netflix. We play and then move on, if somethingís sticky we just run away. Iím sure many on these services are just like me. I stopped playing Doom Eternal, one of the finest FPS of these last few years, not because I was tired of the game, but because there are other titles on Game Pass that deserve my attention. I wouldnít want it any other way.
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Daniel Indie Game Dev 25 days ago
@Nicola Congia:
I will point out I'm the only one out of the two of us who has referenced any publicly available data (Steamcharts) to support my points. You kind of have to look at this from a dev perspective if you want to understand the topic, because in order to be a successful developer that requires you to also understand the audience as well as the business. By definition if I look at this topic as a player then I'm considering it only from the perspective of one individual (me) and that's not going to be generalisable at all. It's also just a general industry understanding that a Subscription business requires a drastically different approach to content creation, as is also the case with F2P. This isn't speculation, it's fact. Same deal with a single player experiences vs MMOs, and Elder Scrolls Online is a good example here; there are a multitude of reasons why ESO wasn't just Skyrim Online.
Console and PC are different sure, but they're relatively very similar and there's more than enough overlap for them to be compared here. GamePass is also cross platform (console and PC), and Xbox's entire future strategy is 'hardware agnostic', so Xbox clearly strongly believes in that overlap too. So you can't really dismiss the SteamCharts PC numbers w.r.t GamePass.
If this specific subscription model isnít sustainable itís simply going to die. Online games wonít save it.
The subscription model is made sustainable by the content. That's a very important point and that's what I'm trying to communicate to you. You can't stuff any content into a subscription and expect it to work out net profitable.
Game Pass, and PS Now, which has great value as well in my opinion, are just like Netflix.
I found this so painful to read because it's so wrong. Games are not like Netflix and never will be. Games Subscriptions are not like Netflix and never will be. Netflix 's model is to license huge Hollywood movies for a time to draw in subscribers, but then keep those subscribers by hooking them onto a 1st party content treadmill that Netflix can develop super cheap and fast. A games subscription could never do that because no 'gamer' wants to keep paying to play short 5 minute experiences that they throw away every few days, that's what mobile is for, and that's why Apple Arcade is awful and why the top search query for Apple Arcade is 'cancel apple arcade'.
I stopped playing Doom Eternal, one of the finest FPS of these last few years, not because I was tired of the game, but because there are other titles on Game Pass that deserve my attention.
Which is absolutely equivalent to you saying your relative interest in Doom Eternal waned in comparison to what was on offer elsewhere, verifying my point. This is why you need sticky games in a subscription for people to latch onto when they're done playing the headline games like Doom Eternal. Otherwise if GamePass can't keep churning out AAA games every few weeks for you to continually switch to then your subscription will probably churn when you find something else to play outside of GamePass. Obviously that model is not sustainable.
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