Microsoft fails to hit Xbox Game Pass subscriber target for second year running

First reported by Axios, and according to a new financial filing, Microsoft has failed to reach its annual, internal growth target for the popular subscription service, Xbox Game Pass. It’s also said that this is the only metric tied to CEO Satya Nadella’s pay, which is interesting, to say the least.

This is the second year running in which Microsoft has fallen short of its target. The company initially planned for a 72.8% growth rate for the fiscal year ending June 30, 2022. However, Microsoft was only able to achieve a 28% growth rate instead.

Microsoft did exceed the planned growth rate in 2020, but 2021 and 2022 have been less than successful when it comes to hitting its target for the service. We’re also now well aware that “Xbox gaming generated an eye-watering total revenue of $16.28 billion for Microsoft” during the calendar year of 2021, with Xbox Game Pass being responsible for 18% of this.

So, it doesn’t exactly appear that Microsoft are doing badly. Although, there may be trouble in paradise if the growth rate continues to drop; for example, the growth rate for the service in 2021 was 37%, which is 9% more than this fiscal year.

What’s more fascinating is what Phil Spencer, Microsoft’s gaming head, had to say about Xbox Game Pass during the Wall Street Journal conference yesterday. The service, according to Spencer, is “profitable”. He also noted that Game Pass growth on PC is great, but has slowed down significantly on consoles.

Axios also noted that perhaps the diminishing growth rate is due to a lack of major releases. Microsoft hasn’t dished out any large, exclusive games for its platform in a good while. We can expect Starfield to arrive next year, but there’s no telling when new instalments from the Fallout or Elder Scrolls universes will arrive.

On top of all this, there are still ongoing concerns from the UK Competition and Markets Authority regarding Microsoft’s Activision deal, and Game Pass is one of them. For example, if Call of Duty were to become available on Game Pass following the deal, there are worries that this would lessen competition significantly.

Of course, Microsoft insists that this won’t massively impact its rivals, and that Sony can compete by simply providing better exclusives.

As for what Microsoft's CEO, Satya Nidella, had to say regarding the first quarter earnings for fiscal year 2023, he shared the following during Microsoft's conference call on the matter: "In Gaming, revenue grew slightly and was up 4 percent in constant currency, ahead of expectations driven by better-than-expected console sales. Xbox hardware revenue grew 13 percent and 19 percent in constant currency. Xbox content and services revenue declined 3 percent and increased 1 percent in constant currency, driven by declines in first-party content as well as in third-party content, where we had lower engagement hours and higher monetization, partially offset by growth in Xbox Game Pass subscriptions."

"PC Game Pass subscriptions increased 159 percent year over year. And with Cloud Gaming, we’re transforming how games are distributed, played, and viewed. More than 20 million people have used the service to stream games to date. And we’re adding support for new devices, like handhelds from Logitech and Razer, as well as Meta Quest. "

"And, as we look towards the holidays, we offer the best value in gaming, with Game Pass, and Xbox Series S. Nearly half of the Series S buyers are new to our ecosystem."