Microsoft published its FY20 Q2 earnings yesterday, and the company’s Xbox division unsurprisingly performed pretty badly. As we’re nearing the end of this console generation, overall gaming revenue was down 21% year-over-year, while Xbox Content and services revenue also was also down 11% YoY.
The company also explained that "Xbox content and services declined 11% against a high prior year comparable, primarily from a third-party title (Fortnite -ed.), partially offset by subscription growth.” Microsoft CEO Satya Nadella had more encouraging things to say about Xbox Live Gold, Xbox Game Pass, and Project xCloud during yesterday’s earning calls:
We continue to invest to reach gamers across every endpoint – mobile, PC, and console. xCloud is off to a strong start, transforming how games are distributed, played, and viewed, with hundreds of thousands of people participating in initial trials. We set a new record for Xbox Live monthly active users again this quarter, led by strength off-console. Xbox Game Pass subscribers more than doubled this quarter. And the Xbox Series X – announced last month – will be our most powerful console ever.
As you may know, Microsoft is no longer releasing the number of Xbox Live active users, and we also still don’t have any data about Xbox Game Pass subscribers. Doubling the number of subscribers doesn’t mean much if we’re starting from a low number, and the lack of transparency is quite curious when Sony recently revealed that it had crossed more than 700K subscribers for its PlayStation Now cloud gaming service.
Project xCloud, Microsoft’s answer to PlayStation Now already has “hundreds of thousands” of users according to Nadella, which is encouraging considering that the service remains in limited access in just four markets. Last week, the service became available in Canada after it initially launched in October in the US, UK, and South Korea. Among these three launch markets, Project xCloud has been seeing increased usage in South Korea, the company revealed last week.
We still don’t know what will be the business model for Project xCloud, but Microsoft announced at X019 back in November that it will be integrated with Xbox Game Pass. We also know that the cloud gaming service will be available on Windows 10 PCs this year, including new Always Connected PCs powered by ARM chips. Whether Microsoft includes it for free with Xbox Game Pass Ultimate, or creates another Xbox Game Pass tier that includes Project xCloud remains to be seen.
Speaking about expectations for the next quarter, CFO Amy Hood said that "we expect revenue to decline in the low double-digit range, driven by the continuation of the console trend as we near the launch of Xbox Series X, as well as lower transaction volume on a third party title." Fortunately, Xbox represents just a fraction of Microsoft's overall revenue, while Sony and obviously Nintendo are much more dependent on hardware, content, and services sales.