Xbox In Big Trouble After Latest Reports?

After significant drops in gaming revenue, Microsoft is laying off 10,000 employees.

By Jason Collins | Updated

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Microsoft has released its latest earnings report prior to its announcement that it would lay off 10,000 employees, reporting a noticeable drop in income, as well as a 13 percent drop in gaming hardware revenue and 12 percent in gaming content and service sales. The company stated that the decline reflects the year-over-year comparison with a pretty strong prior year, as well as declines in first-party content—this also has to do with the current condition of Halo— and lower monetization resulting from various legislations barring loot boxes and similar practices.

According to a report by The Hollywood Reporter, a 13 percent decline for Microsoft’s gaming division would signal trouble for Xbox if the decrease wasn’t offset by a massively growing number of Xbox Game Pass subscribers—a gaming service that offers users access to over 400 gaming titles for Xbox Consoles, Microsoft Windows PCs, and recently, television set cloud gaming. There’s also console price retention, which significantly affected the revenues, which are likely to normalize once the console price goes up, and the company finally releases the delayed Starfield game.

There’s a lot to unpack here as to why Xbox actually isn’t in big trouble financially. The company compared its year-over-year revenue, and fiscal 2021 was still affected by the pandemic, which propelled the gaming industry during lockdowns. Things have slowed down in calendar 2022, with lockdowns being lifted, allowing people to do other stuff besides staying home and playing games. This naturally saw a revenue decline all across the entire gaming industry, as people no longer had so much need for entertainment.

Then, there are lower revenues in Xbox console sales, which are linked to the aforementioned price retention, in which Microsoft basically said that they’d increase the price of their gaming hardware once the holidays are over. Not to mention all the discounts associated with holiday sales. So, the drop in revenue is somewhat reasonable and entirely expected. With that said, the company managed to offset some of its financial loss thanks to additional 20 million Xbox Game Pass subscribers, which the company gained since their last monthly active users report.  

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And while it’s not likely for Microsoft’s gaming division to land into big trouble in the foreseeable future, Microsoft as a whole has its financial issues, most of which are presumably tied to its historical acquisition of Activision Blizzard. The company is hitting roadblocks left and right as its competitors voice their concerns about Microsoft gaining a monopoly over the gaming market—which actually isn’t the first time; in the 1990s, the US government sued Microsoft for trying to monopolize the personal computer market.

Sony is actually one of the loudest competitors voicing concerns regarding Microsoft’s acquisition of the controversial Activision Blizzard, despite the fact that Microsoft assured Sony that they’d continue delivering Activision Blizzard’s gaming content to Sony’s gaming hardware for the following decade. Why wouldn’t they want to earn money from selling games to their competitors? Well, therein might be the problem since Microsoft could basically dictate the pricing of said releases, charging them extra for third-party platforms, and pushing people into buying more Xbox consoles.