The company is putting some of its top titles on the streaming service, but that’s cutting into sales of higher-margin games like Call of Duty, which came with Microsoft’s 2023 acquisition of Activision Blizzard Inc., said the people, who asked to not be identified discussing internal company matters.
Xbox gave up more than $300 million in sales of Call of Dutyon console and PCs last year, according to one of the former employees, who asked not to be identified discussing internal estimates.
“Game Pass hasn’t delivered the explosive growth Microsoft anticipated post-Activision, and they’ve realized their infrastructure costs don’t align with their pricing model,” said Joost Van Dreunen, founder of the video-game analytics firm Aldora.
The company has largely lost the race for dominance in game hardware to Sony Group Corp.’s PlayStation and Nintendo Co.’s Switch, which developed exclusive titles that proved to be extended hits with fans. Game Pass, which offers games for a monthly fee, is a potential growth vehicle for Xbox, one that offers steady, repeatable revenue.
Like other entertainment companies such as Netflix Inc. and Walt Disney Co., Xbox launched its streaming service at a relatively low price. It cost $10 a month for over 100 games when it debuted in 2017. Those were all older titles. A year later, Xbox announced it would offer subscribers its own new games, on the day of their release, for no extra fee.
Current and former employees said that move was controversial internally. Developing new video games can take years and cost hundreds of millions of dollars and the model had long been to sell them for $60 to $70 each, making more still on upgrades and in-game purchases. The Game Pass streaming model upended that by putting so many titles in an all-you can-eat subscription.
Over the past decade, Microsoft invested billions acquiring some of the most successful video game studios. The $69 billion deal to purchase Activision Blizzard was the largest video game acquisition in history. Microsoft told a UK regulator that acquiring new titles for Game Pass was one of the reasons for the purchase.
Putting Call of Duty on Game Pass was a great deal for subscribers, but not great for Xbox’s sales of the game, according to former employees with knowledge of the business. While the latest iteration of the shooting title, Call of Duty: Black Ops 6, was the top selling video game in the US last year, and the biggest ever for the franchise, that was largely due to Sony’s PlayStation, which accounted for 82% of sales, the trade publication IGN reported.
In September, former Xbox Game Studios vice president Shannon Loftis wrote on LinkedIn that while Game Pass “can claim a few victories with games that otherwise would have sunk beneath the waves (Human Fall Flat , e.g.), the majority of game adoption on [Game Pass] comes at the expense of retail revenue.” Loftis declined to comment further to Bloomberg.