Xbox revenue is down, but Game Pass is helping mitigate the damage

Subscriptions are helping offset year-over-year dips

There’s a new generation of consoles coming this holiday, and that has spelled trouble for Microsoft’s gaming segment in the short-term. Anytime new hardware is on the horizon, consumers are understandably hesitant to buy current consoles. After all, they won’t be the latest and greatest in less than a year’s time.

Microsoft has posted its second quarter earnings for its 2020 fiscal year, and Xbox has taken something of a predictable tumble. Gaming-related revenue is down 21 percent year-over-year, decreasing by $905 million. The main culprit is revenue from new Xbox One sales, which is down 43 percent. Microsoft attributes the decline to both fewer units moved and lowered prices during holiday sales.

However, software has also taken a hit. Content revenue decreased 11 percent year-over-year, down by $295 million. Microsoft notes that Q2 2019 had a particularly strong showing from third-party publishers, which is partially responsible for the dip this year. It’d be worse, but Xbox’s service have helped mitigate the damage. Microsoft says the declines in content revenue are “offset in part by growth in subscriptions.” The aggressive approach to Xbox Game Pass subscriptions is working, although Microsoft didn’t say how many subscribers there are.

Xbox’s revenue drop isn’t particularly surprising. These are the inevitable valleys associated with hardware that’s at the end of its life cycle. However, it must be nice to know that Microsoft can lean on subscription services like Game Pass and Xbox Live Gold as a source of stability when other areas are trending downward.

Form 10-Q [Microsoft]