Phil Spencer, head of Microsoft’s gaming division, recently said that video games can withstand the test of a weak economy, even if the software maker expects its other parts of the consumer business to pick up slower.
Microsoft offers the Xbox console at a variety of price points and offers a $10 or $15 monthly XGP subscription. During the global financial crisis, the company set an Xbox console record in 2008, according to Phil Spencer.
Rising prices and interest rates have fueled enthusiasm among investors eager to find pockets that can prop up financial markets in a recession. Gaming remains a top priority for Microsoft, which is working to close its $68.7 billion acquisition of publisher Activision Blizzard.
Other tech companies could be at risk in a recession. Google parent Alphabet and Meta Platforms still get most of their revenue from advertising, with the former still relying on the internet search and the latter on social media. “The macroeconomic environment has been challenging for most consumers,” Patrick Lo, CEO of networking hardware maker Netgear, which reported a 14% drop in annualized revenue on Wednesday, said in a statement.
Microsoft is more diverse than those companies, although executives said earlier this week that the consumer-facing segment will hurt sales of Windows operating system licenses, Surface PCs, and ads like Bing and LinkedIn this quarter.
During the quarter, the company expects more users to join its Xbox Game Pass service, which provides unlimited access to hundreds of video games, Amy Hood, Microsoft’s chief financial officer, told analysts on a conference call on Tuesday. Amy Hood said gaming revenue should fall in the low to the mid-percentage range due to strong year-over-year growth and the launch of first-party games.
Phil Spencer, CEO of Microsoft’s gaming division, is optimistic about the division’s prospects.
Phil Spencer told the Wall Street Journal’s WSJ Technology Live Conference in Laguna Beach, California, “Over the years, gaming has been somewhat adaptable to these issues at a time when the home economy is shaky.”
Not everyone agrees with Phil Spencer.
Mat Piscatella, executive director of market research firm NPD Group and video game industry consultant, wrote in a tweet in July: “The video game industry has never been ‘down’, but every time this event is mentioned, the phrase goes back and forth. was brought up to speak.”
Piers Harding-Rolls, research director at research firm Ampere Analysis, made similar comments.
“After two years of massive expansion, the gaming market is poised to moderate that growth a bit in 2022, as a combination of factors undermines performance,” he said in July.
But Phil Spencer can point to Microsoft’s own experience with recessions as evidence for his claims.
In 2008, amid the global financial crisis, Microsoft slashed prices on the Xbox console in various markets amid public interest in the Nintendo Wii. Robbie Bach, president of Microsoft’s entertainment and devices division at the time, said: “Numerically, we’ve had the best holiday and best calendar year in Xbox history in terms of consoles.”
In 2020, a brief economic downturn coincided with the onset of the coronavirus outbreak, but that led people to stay home and play more games, including on Xbox consoles and PCs. “People around the world are turning to games to maintain human connection while social distancing,” Microsoft CEO Satya Nadella said in April 2020.
Today Microsoft lets people choose how much they’re willing to spend if they want a console, says Phil Spencer. The company offers a $499 Xbox Series X and a less powerful $299 Xbox Series S, he said. Microsoft subsidizes the cost of each console by $100 (about 727 yuan) to $200 (about 1,454 yuan), and expects to make that money back by selling accessories and store purchases. It’s up to players if they’re willing to pay $10 or $15 a month to subscribe to XGP. Users can also buy games outright, or play some games for free.
Phil Spencer said he doesn’t think Microsoft can keep game prices the same forever. But they can offer an impressive amount of entertainment content compared to what other vendors are after. “People can play video games for hundreds of hours,” he said.
