Just yesterday, it was reported that Microsoft ranked as the top games publisher in the world last month. And yet, their second quarter, fiscal year 2025 financial report doesn’t exactly paint a rosy picture of the gaming division. Sure, CEO Satya Nadella boasted about a few records for Xbox Cloud Gaming, Game Pass, and successful games like Call of Duty: Black Ops 6 and Indiana Jones and the Great Circle:
We are focused on improving the profitability of the business in order to position it for long-term growth, driven by higher-margin content and platform services. And we are delivering on this plan.
Black Ops 6 was the top-selling game on Xbox and PlayStation this quarter – and saw more players in its launch quarter than any other paid release in franchise history. And we saw rave reviews of Indiana Jones and the Great Circle, which has already been played by more than 4 million people.
We also continue to see strong momentum for Xbox Cloud Gaming, with a record 140 million hours streamed this quarter. All-up, Game Pass set a new quarterly record for revenue and grew its PC subscriber base by over 30%, as we focus on driving fully-paid subscribers across endpoints.
When you look closer at the numbers, though, overall Xbox content and services revenue increased only 2%, albeit Microsoft said that’s above expectations thanks to higher-than-estimated performance from Activision Blizzard, chiefly Call of Duty: Black Ops 6. The growth was this small because gaming revenue specifically was down 7%, dragged by the collapse of Xbox hardware revenue (-29%). Microsoft Chief Financial Officer Amy Hood admitted in the earnings call:
In Gaming, revenue decreased 7% (8% in constant currency) as content and services growth continued to be offset by hardware declines.
There is seemingly no end in sight for these Xbox hardware declines, which have been constant for several quarters now. Partly, it might even be due to Microsoft’s own multiplatform strategy. Some gamers undoubtedly see no reason to purchase an Xbox when they can get their games not only on PC but also on PlayStation or Nintendo platforms. Microsoft certainly believes the switch toward multiplatform, confirmed yet again by gaming CEO Phil Spencer just a few days ago, will be worth it in the end; for now, however, the struggles continue. Could this lead to the abandonment of Xbox hardware as a whole? At the time being, Microsoft still believes it can turn this around by making its hardware more alluring on its own rather than relying on exclusive games. In a recent interview with Destin Legarie, Phil Spencer stated:
I want us to innovate and make hardware the differentiator. We’ve got into this space where the differentiation on the hardware has gone down, and it’s really been ‘locked games’ that have become the identity of the hardware. I love when I see handhelds, when I see unique things that hardware manufacturers do. I want our hardware to compete on power and on innovation. So let’s have our platform continue to innovate with services and the hardware work that we’re doing — whether it’s controller, power, or mobility.
Microsoft Boasts Xbox Records, But Hardware Sales Collapse Drags Gaming Revenue Down
