In the past, Microsoft has openly discussed its game subscription service and how it helps promote games. Xbox Game Pass offers gamers a monthly fee for access to hundreds of titles. In addition, publishers often sign deals with Microsoft to release day-one games on the service too. However, as much as Microsoft claims that the service doesn’t affect actual sales of games, it does.
The company has now admitted that Xbox Game Pass damages game sales and causes a decline in base sales of a game both new and old. So much so that the company itself claims “Xbox Game Pass will lead to a cannibalization of Buy-to-Play sales.”
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What this means is that not only is Xbox Game Pass already affecting game sales from a first-party perspective, but it will also lead to a drastically different market where “Buy-to-Play” games are no longer considered by publishers. In turn, game developers and publishers will make a lot less money on their titles.
The information comes from an internal document released by the Competition and Markets Authority. The document has been made public due to the ongoing acquisition of Activision Blizzard. In the document, Microsoft confirms that free-to-play games added to Xbox Game Pass do not lead to the cannibalization of sales due to its free model. However, other titles have the opposite effect.
In the document, Microsoft confirmed that adding games to Xbox Game Pass would cannibalise Buy-to-Play sales. Specifically, the company was referring to Call of Duty. It claims that offering releases onto Xbox Game Pass severely affects sales for those titles. Microsoft confirmed that newer releases will be even more affected by this.
On the other hand, CoD’s addition on Game Pass may cannibalise some of the B2P sales of CoD. In its valuation model, Microsoft estimated this cannibalisation to be [redacted] and [redacted]. The fact that Microsoft is nonetheless adopting this strategy suggests that it expects it to be profitable in the long run. This would also apply to overall revenue from customers switching from PlayStation to Xbox.
This is very different to what Xbox head Phil Spencer said in the past. He has openly claimed that Xbox Game Pass has never affected the sale of games on the market. However, we have seen reports that Xbox game sales have dropped 80% since Game Pass was released
There are a few facts to mention in the document specifically. Microsoft not only acknowledges that Call of Duty sales will drastically drop as a result of an Xbox Game Pass launch but the document also confirms a large drop in sales due to other games launching on the service.
Gamers that subscribe to Game Pass “mix and match” across games irrespective of how they paid for them. Microsoft submitted figures on the gamers who spent at least [redacted] of their total game-time on Halo Infinite in the month following release. According to Microsoft, these figures show that while these gamers’ total game-time increases as a result of their engagement with the new Halo release, both B2P game-time on other games and Game Pass game-time fall. Microsoft submitted similar figures for CoD: Modern Warfare. According to Microsoft, these figures show that gamers who play that game increase their overall game-time, however their Game Pass and B2P game-time on other games declines
The document claims that gamers only end up buying specific titles when they either unsubscribe from the service or the said game leaves Xbox Game Pass. In addition, Microsoft admits that most Xbox users see Game Pass as the sole method of accessing video games and only consider purchasing the game if it doesn’t launch on the service.
Microsoft submitted that MGS services were a means of payment – not a market. It further submitted that the gaming content that is available on MGS services was also available to purchase on a standalone B2P basis and there is no additional or new content offered via MGS. Microsoft submitted that this evidence was consistent with gamers perceiving subscription and B2P purely as alternative payment methods to access the same content
Of course, there’s a lot to work through on this large report. While there is definitely a decline in sales and pre-orders for XGP games, Microsoft says there are positives to this too. Mainly the growth in the player base for new releases. It also allows smaller developers the opportunity to showcase projects on the service.
However, we also need to keep in mind that the CMA document lists three references to these so-called “cannibalised” sales. Of these, all three are internal documents which have been redacted from public release. Section 5.64 lists three references to internal Microsoft documents where the company “recognises that adding titles to Game Pass would lead to cannibalisation of B2P sales”. Apart from what I have already shifted through above, these additional references haven’t been made public yet. It would be interesting to see Microsoft’s internal view on this matter.
You can read the full document here.
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