Microsoft’s head of gaming said Wednesday that video games can stand up to economic weakness, even as the software maker expects slower pickup in other parts of its business targeting consumers.
Rising prices and interest rates have inspired investors to hurry up and find pockets of financial markets that can hold up in a downturn. Gaming remains a high priority for Microsoft, with the company working to close its $68.7 billion acquisition of publisher Activision Blizzard.
Other parts of technology might be at risk in a recession. Alphabet and Meta Platforms still derive most of their revenue from advertising, with the former still relying on internet search and the latter on social media. Patrick Lo, CEO of networking hardware maker Netgear, which reported a 14% annualized revenue decline on Wednesday, said in a statement there was a “challenging macroeconomic environment for most consumers.”
Microsoft is more diversified than those companies, although earlier this week executives said its exposure to consumers would hurt sales in the current quarter of Windows operating-system licenses, Surface PCs and advertising on properties such as Bing and LinkedIn.
During the quarter, the company expects to sign up more subscribers to its Xbox Game Pass service, which provides unlimited access to hundreds of video games, Amy Hood, its finance chief, told analysts on a conference call on Tuesday. Gaming revenue should decline in the low to mid-teens percentage range because of strong growth in the year-ago quarter that saw introductions of first-party games, Hood said.
Phil Spencer, CEO of Microsoft Gaming, sounded optimistic about the prospects of the unit.
“It’s proven over years, at times of economic uncertainty for families, gaming is somewhat resilient to those issues,” he said at the Wall Street Journal’s WSJ Tech Live conference in Laguna Beach, California.
Not everyone shares Spencer’s view.
“The video game industry has never been ‘recession-proof,’ but that line gets brought out every time the r-word is mentioned,” Mat Piscatella, executive director and video game industry advisor at market researcher NPD Group, wrote in a July tweet.
Piers Harding-Rolls, research director at researcher Ampere Analysis, has made similar comments.
“After two years of huge expansion, the games market is poised to hand back a bit of that growth in 2022 as multiple factors combine to undermine performance,” he told CNBC in July.
But Spencer can point to Microsoft’s own experience with recessions as evidence for his claim.
In 2008, during the Global Financial Crisis, Microsoft cut prices of Xbox consoles in various markets as the public became interested in the Nintendo Wii. It turned out to be “numerically on the console side, our best holiday and our best calendar year in the history of Xbox,” said Robbie Bach, president of Microsoft’s entertainment and devices unit at the time.
In 2020, a brief recession coincided with the onset of coronavirus, but that led people to stay home and play more games, including on Xbox consoles and PCs. “People everywhere are turning to gaming to sustain human connection while practicing social distancing,” CEO Satya Nadella said in April 2020.
Today, Spencer said, Microsoft gives people choice in how much they’d like to spend if they want consoles. The company offers the $499 Xbox Series X and the less powerful $299 Xbox Series S. Microsoft subsidizes the cost to the tune of $100 to $200 per console, with the expectation that it will make the money back on sales of accessories and storefront purchases, he said. It’s up to gamers if they’d like to pay $10 or $15 per month for Game Pass subscriptions. They can also buy games outright, or play certain games for free.
Spencer said he doesn’t think Microsoft will be able to keep the prices of games constant forever. But they can provide impressive amounts of entertainment in comparison with other pursuits. “People can play video games for hundreds of hours,” he said.