The future of Microsoft’s gaming business remains uncertain due to the company’s bet on Game Pass and cloud.
According to a new report from The Information (some quotes from the article were also shared by X user NIB), Microsoft CEO Satya Nadella considered two options for the company’s Xbox and cloud business in 2021:
- Wind down the entire division;
- Acquire major studios to attract new subscribers to its Game Pass service.
As we all know, Microsoft focused on M&A activity, snapping up ZeniMax for $7 billion and Activision Blizzard for $75.4 billion.
It is worth noting that the company announced the acquisition of ZeniMax, which owns studios like Bethesda, id Software, and Arkane, in September 2020, but closed the deal in March 2021. So the reported options regarding the future of Xbox were likely discussed between those dates.
Microsoft hoped that such major brands would drive subscription growth. Before closing the Activision Blizzard deal in October 2023, the company expected to expand the number of Game Pass users to over 100 million by 2030. According to The Information, this means Microsoft “would have to triple its current subscriber base in five years — or grow at a rate of 40% annually, which would be faster than its rate of growth every year since 2020.”
Game Pass had 34 million subscribers, as of February 2024. Microsoft hasn’t updated the data since then, so it is unclear how the number has changed over the past year. Even with the addition of franchises like Call of Duty to the service, the 100 million target seems unrealistic.
According to Macquarie Science and Technology Fund portfolio manager Gus Zinn, “the majority of the game market doesn’t really want a Game Pass” like the one Microsoft is offering. Two people familiar with the matter also told The Information that several leading game studios have rejected Microsoft’s pitch that they should release their titles on Game Pass.
The company was also betting big on its cloud infrastructure, hoping that game developers would start renting its Azure services following the Activision Blizzard deal. However, even Activision itself still prefers Google Cloud and Amazon Web Services.