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Microsoft Admits Xbox Game Pass “Cannibalises” Game Sales

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.

Marco is the owner and founder of GLITCHED. South Africa’s largest gaming and pop culture website. GLITCHED quickly established itself with tech and gaming enthusiasts with on-point opinions, quick coverage of breaking events and unbiased reviews across its website, social platforms, and YouTube channel.

18 Comments

  • Reaper cet 12 Feb 2023

    I’m sure the idea of game pass is that the $ amount you bring in from the subswould outweigh the $ amount lost from unit sales. “My game would have sold 100 million copies.. if it weren’t for gamepass”

    Yeah, no lol

    • Marco Cocomello 12 Feb 2023

      We must remember that Microsoft pays an “X” amount for each Game Pass game launch. After which, there are no royalties for the number of people that download it. So if a game deal for Game pass costs $10 million, that is the sales number that developer can expect. Unless for some reason people buy the game, which according to MS isn’t the case, that developer is rarely going to make more money on its game.

      • Sellyourownchildjournalists 12 Feb 2023

        Im sorry but I disagree, as an avid ‘gamer’ and subholder of game pass, I have bought many titles on steam after trying their launch states on gamepass. Three titles come to mind very quickly, Total War Warhammer, MechWarrior 5, and Sea of Thieves. While its great to try the launch version on gamepass and also experience a bunch of titles I would not have before, I purchase game on steam becuase of the inevitable dlc and additional content structures.

        Gamepass is great for new games, as a consumer, but they rarely if ever have sales on additional content or dlc, not to mention steams workshop for various titles is absolutely superb and no other publisher has been able to match it.

        For these reasons, and many more that aren’t listed here, I believe the subscription market vs the BTP market hardly affects each other.

    • Jason 13 Feb 2023

      I’d almost think that the author of this article works for Sony Playstation or something. Basically, the author says that if publishers and/or developers put their games on Microsoft’s Gamepass Service that they will lose sales. Coincidentally, this is also exactly what Sony has been saying for years now. Is that a coincidence? Did Sony pay Glitched to publish this article? I don’t know. I suppose that’s up to the average reader.

  • B 12 Feb 2023

    With a few exceptions, GamePass games are grab bag quality. There’s no way in heck I’d spend $170 a year on them. Even their Day One releases are uninspired. As for the exceptions, I’ve generally already purchased those by the time they make it to Xbox.

    I’m not knocking the service, just pointing out that they’re getting money from me that I’d otherwise not be spending because I don’t bother waiting for the good stuff to get to GP.

    • Marco Cocomello 12 Feb 2023

      I get you. I also feel that the quality control is a problem on the service. I mainly play PS5 so I would try out a game on game pass, if I really like it, I will then buy it on PS5. Game Pass acts as my demo platform.

  • Minty 12 Feb 2023

    I’m disabled and can’t afford too much in games the subscription helps ,though every now and then I go to my local game store I would buy a used game or trade one in ,I rarely ever buy a new game ,so it’s not just the xbox subscription it’s the used game market too and emulators that put a hurting on new games, I want elden ring but I’m waiting for it to be marked down a bit

    • Marco Cocomello 12 Feb 2023

      Definitely. Piracy also knocks sales too. I think this specific argument now is how general game sales are being affected by Game Pass and how this decline will affect the future of the industry.

  • Mike Brown 12 Feb 2023

    They are not losing money. The deal they make with Microsoft is very well compensated. If it wasn’t they wouldn’t do the deal. Microsoft pays for development or marketing or any other part in making the product. Plus bonus pays for how many times downloaded & hours played. Stop it

    • Donovan 13 Feb 2023

      I’d be very interested to know where that information comes from. Officially, even Microsoft has admitted that there is no bonus scheme for number of downloads or hours played.

  • Mr Halliburton 12 Feb 2023

    At the end of the day, MS must be doing something right with GP if Sony is trying to follow suit. The only difference is Sony can’t afford to shell out the money for Day One launches. MS won’t lose money, nor will they cause developers to lose also. No one knows the full ends and outs except MS and the developers, because if it were an issue, it would have blown up a year into its life cycle.

  • Harry Sahc 12 Feb 2023

    When games leave game pass (and they do frequently), if the games are actually good, people can buy them at a small discount. I’ve actually done this for games that I would likely not have even tried if it wasn’t demoed in game pass first. $180 a year pays for itself if you buy just 3 of the games at $60 in the same year. Plus you get so many more games and other discounts. Add ons and dlc are often not included in GP so developers have an opportunity to cash in there.

  • Anonymous 12 Feb 2023

    Its funny how you only use call of duty as the example a game that has only gotten worse and worse and constantley loseing fans every new rehashed title they come out with.

  • JK 12 Feb 2023

    Why are we still overusing the word “content?”

  • JK 12 Feb 2023

    Good for you, meanwhile I don’t ever buy things day one, so waiting is natural.

  • Danny Dibo 12 Feb 2023

    Imagine writing this entire article out of bias and then finding out that Call of Duty games actually aren’t on Game pass… Never have been. 🤦‍♂️

  • Dan H. 13 Feb 2023

    In my opinion game pass is awesome for the 90% of games that I would not normally go out and buy without trying first. I understand that Blockbuster games might be losing overall sales from game pass however these developers need to adapt and continue utilizing in-game purchases. Look at all these mediocre apps on your phone that are free to download but yet they make millions of dollars from in-game purchases. Adapt or die. Don’t cry about it. The music industry went through the same thing but they have adapted. Video game industry needs to do the same.

  • Dave 13 Feb 2023

    I’ve been praying on xbox since the OG system and have a 10+year account with countless hours in games. For me and many friends feel that it’s the lack of truly good games made with passion and creativity that are a finished product when released. It’s more and more common to buy a game that is unfinished that feels like it should be in beta. They will come out with 3 sometimes 4 editions of the game and the only difference is cosmetic to make the character different. The micro transactions are just getting out of hand and they just aren’t even worth what they want for a so called complete game. It’s rather wait for a failing game to get out on game pass and give it a chance then.

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