Xbox Finance General Manager Tim Stuart attended a presentation at Jefferies Interactive Entertainment Virtual Conference and provided some really interesting insight about the launch of Xbox Series X and S and the Xbox business in general.
Stuart confirmed that this is “the biggest launch” Xbox has “ever done in terms of units, geographies, overall footprint, and activations,” mentioning that the consoles launched “with the right price point, the right power profile, and the right content offerings that differentiate” them.
He also added that the technology of the consoles, game pass, price differentiation (Xbox All Access and the two different consoles) are the “kind of the 1, 2, 3 punch of why these consoles are going to be very different than the past.”
Speaking of the supply, Stuart explained that he believes that there will be still supply shortages for Microsoft’s consoles in the quarter after the holidays (between January and March), while the following quarter (between April and June) is when he expects “to see little bit of the the supply profile meeting the demand profile.”
The supply chain will be “ranking over the next 4-6 months, and that’s when Stuart expects demand to start to be met. After that, he believes “we’re going to start to see some real velocity kick up.”
Speaking of the synergy between Xbox and Azure (with Project xCloud), which allows to reach “80% of the gamers in the world” including Africa and India, and stream to areas in which consoles or even PCs aren’t very popular, but mobile platforms are.
He also mentioned the advent of 5G. Combined with Azure it will “usher in new distribution models” and give Microsoft “that ability to drive a mobile-first customer.”
Achieving that mobile customer base is, according to Stuart, required to increase the Game Pass subscriber numbers from 15 million to 20, 50, or even 100 million. That’s why Microsoft also needs a content pipeline to that supports that amount of users.
Stuart believes that the ability for users who won’t buy consoles to play AAA games will create a lot of new gamers and users will play more, buy more, and play more on the go.
This will “unlock a lot for Microsoft and the Game Pass subscriber base.”
Speaking of Game Pass, we hear that getting people into a games subscription for $9.99 or $14.99 a month, they can be “monetized a lot higher.” The economics are a “lot better” with a long-term subscription as opposed to buying a game once a year.
Game Pass creates a consistent revenue stream for which Microsoft can create a content pipeline both through its own studios or through deals with partners.
Stuart also added that Microsoft needs “the Activisions, the Ubisofts, the EAs, the Take-Twos, the Epics, all the way down to indie creators” to be successful on the platform, so they want Game Pass to be a net positive for them as well. They want to create a platform that has the maximum possible number of users that can spend the maximum possible dollars for Microsoft’s partners. Microsoft wants them to be highly successful on its platform regardless of whether they go with Game Pass or normal game sales.
We also hear about the Bethesda acquisition and exclusivity for its games, on top of the fact that Microsoft intends to continue on its path of acquiring studios.
“Yes. I think the short answer is we’re still looking to be acquisitive. We’ll continue to look around the industry to find who has the great IP, who are great leaders, who has great product development, who can we rely on and say, we need a triple-A game launching in FY 24 Q1 for Game Pass. Let’s line that. Let’s line the roadmap to go land that and plan that perspective.
So we’ll continue to look. In the past, Bethesda was a little bit of a different lens to what we’ve done in the past, whether it’s Ninja Theory or Obsidian or inXile, some of the smaller studios that had great IP.
Bethesda gave us a great launch into a big group of content, a big catalog of content that we can use for Game Pass.
And we said this as part of the announcement. When we think about Bethesda, it’s going to be the continuing to sell their games on the platforms that they exist today, and we’ll determine what that looks over time and will change over time. I’m not making any announcements about exclusivity or something like that. But that model will change.
But really, it’s about taking that content and putting it into a service like Game Pass to drive that subscription as the North Star metric.
So I think the short answer to your question is we’ll continue to look at content, we will continue to look at bolstering our first-party studios. And as always, if the right value is there with the right content creators, with the right IP, we’ll continue to look at opportunities like that.”
Later in the presentation, Stuart was asked specifically if Microsoft plans to make certain Bethesda franchises (like Fallout or Doom) exclusive to Xbox or still support cross-platform play.
“Yes. The goal here is, I’ll say it from a cross-platform perspective. Microsoft is a platform. We’re one of the first to really support Minecraft and Fortnite across platforms. So we highly encourage cross-platform play, simply from this landscape of it. If it’s good for the gaming ecosystem, it’s good for us. Classic rising tide lifts all boats.
What we’ll do in the long run is we don’t have intentions of just pulling all of Bethesda content out of Sony or Nintendo or otherwise. But what we want is we want that content, in the long run, to be either first, or better, or best, or pick your differentiated experience, on our platforms. We will want Bethesda content to show up the best on our platforms.
That’s not a point about being exclusive. That’s not a point about adjusting timing or content or road map, but if you think about something like Game Pass, if it shows up best in Game Pass, that’s what we want to see, and we want to drive our Game Pass subscriber base through that Bethesda pipeline.
So, again, I’m not announcing pulling content from platforms one way or the other, but I suspect you’ll continue to see a shift towards a first or better or best approach on our platforms.”
Speaking of the price hikes from games we’re seeing from some publishers, Stuart explained that Microsoft is not making specific announcements on first-party pricing yet.
Microsoft will expect publishers to make the right decision for their content. If they can drive a higher price point, he believes it’s warranted as prices haven’t increased for a couple of generations.
As creation costs go up, publishers want to make sure they’re “driving the right gross margin profiles and earning profiles” to build new and amazing games, and they want to make sure they have a good top line to support that.
Asked about whether the gaming market will turn into 100% streaming in the future, Stuart mentioned that he believes that if there is an opportunity to create more consoles that are the best ways to play games on 65” OLED screens at 120 FPS, and if that is still the right and best way to play for high-value gamers or users who want to play with the top fidelity, Microsoft will continue to look into that.
That being said, he thinks that over the next decade, gaming is going to shift more toward a cloud streaming world. Mentioning 5G again, he expects it to enable geographic expansion and lower latency.
“I think the 5G ecosystem, presuming success, which I do, is going to usher in a world where the console market will not be as needed to play the games you want to play.”
Asked about Xbox All Access, Stuart explained it’s a differentiating factor as “it’s not something that PlayStation has in a very material way.” He doesn’t see it as a financing deal but as a sort of hardware subscription.
Removing the price entry barrier “takes some friction out of the ecosystem.” On top of that, it improves distribution by partnering with world-class distributors used to selling hardware and services bundles (usually with mobile phones).
This enables “a much broader footprint from a distribution landscape with these audiences” and Stuart believes that there is “some uptake there.”
“I think in the long run this Xbox All Access hardware plus services bundle is going to be a great opportunity for us to go reach new customers and continue to differentiate versus the competition in this space.”
Asked about the strategic partnership with Sony, Stuart explained that being a platform provider is in Microsoft’s DNA, and the company is happy to provide services to anybody who doesn’t have a cloud infrastructure, be it Sony, Nintendo, EA, or anyone else.
Asked about the relationship between Game Pass and free to play games, Stuart explained that it’s up to Microsoft as a platform holder to create reasons for free-to-play players (many of which actually spend more than those buying games normally) to be interested in game pass, like offering in-game currency, unique skins, or a differentiated experience.
He added that he believes that game pass and free-to-play games will coexist and this will add value across the platform.
The ultimate goal for Xbox, Stuart explained, is growth and going from “a console ecosystem to expanding into that billions of gamers around the world ecosystem,” yet, consoles are still important.
“Of course, we’re going to play to win in console. Of course, we’re going to drive that place. Of course, we’re going to make it the best place to place to play for consumers and the best place to monetize for our publishers and partners.
But our job as Xbox and gaming at Microsoft is to look for those growth opportunities. How do you go sell Game Pass to 100 million players? How do you sell it into India and Africa? How do you sell it to mobile-first consumers? That’s really how my job changes.
Are we getting a content pipeline that can support that? Are we getting an Azure footprint that can support that? Are we getting a go-to-market model, a strategy, and price points that can support that?
So I think from us, that’s what you should expect is, as we grow to that non-console audience, how do you go chase those hundreds of millions of new gamers that we haven’t seen in the past.
And that’s what gets me most excited. That’s what gets me out of bed each morning. That’s what I love coming in to work to do is growing the business and finding those consumers that we’ve never seen before, and how do we partner with players in the industry to go do that.
That’s Microsoft’s core DNA. That’s how we win as a platform. And I think that’s really the sort of North Star that we’re chasing.”
Recently, we also heard from Microsoft’s executives about their predictions for the launch of the new consoles on top of Phil Spencer’s own take.
Of course, you should also read our own review of the Series X and hear whether it’s worth a place in your entertainment cabinet.
