#89: A little perspective

Microsoft's latest results provide some welcome context on that eye-watering Activision deal.

A large part of Hit Points’ mission is putting events in a broader context — not just talking about what’s happened, but why, and what it means, and all that. Hats off to Microsoft, then, for helping put last week’s industry-shaking etc and so on into the proper relief with its latest financial results. Sure, in the three months ending December 31, 2021, Microsoft itself went great guns, with revenues across the company up 20%. But when we dial into the specifics of the Xbox business, things are somewhat less rosy.

The figure that most jumps out at me is for hardware sales, which rose by 4% year on year. This seems… bad, I think? Certainly not good. Let’s cast our mind back to the previous year a moment. Series X and S launched on November 10, 2020, more than halfway through the fiscal quarter. They were severely supply constrained, and the delay to Halo Infinite robbed the new consoles of their most likely system seller. These were far from ideal conditions under which to launch a new console. Fast forward a year and the supply-chain bother, while nowhere near fixed, certainly seemed improved. Infinite and Forza Horizon 5 led the charge in terms of software. And, crucially, both consoles were on sale for the full quarter, rather than just under half of it. In that context, a rise in hardware sales of just 4% in 2021 seems pretty disappointing.

Sure, you can point out that Microsoft is building towards a future where the Xbox brand, and Game Pass in particular, transcends the concept of dedicated hardware. But we are nowhere near that point yet. And sure, PC Game Pass is an increasing point of focus — but given that revenue across Microsoft’s games business was up a mere 8%, it doesn’t seem to have been that much of a contributing factor.

Last week’s news was an unsettling reminder that Xbox has the backing of a $2 trillion company. But the figures released yesterday remind us that Microsoft isn’t just splurging an unfathomable amount of money on Activision Blizzard because it wants to, but because it needs to as well. As I’ve said many times, Phil Spencer deserves enormous credit for the work he has done to turn the Xbox division around. When he took over, the brand and its reputation were in tatters; Microsoft had recently launched an underpowered console with a sky-high price and a concept that seemed to treat games as an afterthought. Under Spencer, Xbox is truly transformed, and he has barely put a foot wrong. Still, his operation languishes behind its traditional competition. Sure, they are playing a long game here, Spencer and co. But with an extra $70bn on the line, you suspect the clock has started ticking a little faster.

The research firm Ampere Analysis reckons PS5 will outsell the Xbox Series line by two to one in 2022, and that Switch will outsell them both. While Microsoft rightly trumpeted Game Pass having reached 25 million subscribers when it announced the Activision deal last week, PS Plus has almost double that figure. While that is an apples/oranges situation to a degree — Plus is cheaper, and merely unlocks online play and monthly freebies — it shows the scale of the challenge Microsoft faces in clawing back the deficit, and helps explain its eagerness to flop out its chequebook.

It also shows that, contrary to a view I’ve seen aired a little too widely over the past week, subscriptions are not necessarily inevitable; just because Microsoft is building its gaming business around Game Pass does not mean Sony must either follow its lead, or else go the way of Sega. Whatever shape Sony’s Game Pass response, the curiously codenamed Spartacus, eventually takes, I expect it will be designed to complement the PlayStation user experience, rather than define it the way Game Pass does on Xbox. And the existence of low-cost subscriptions in other fields have hardly sounded the death knell for traditional business models. Netflix hasn’t exactly killed off HBO, after all. Horizon Forbidden West, God Of War Ragnarok and whatever else Sony has in the pipe for 2022 will, I am sure, prove that point quite handily with their sales figures.

None of this is to say, of course, that Sony can just sit back and ignore Microsoft’s manoeuvres. That would be daft. We know how the hardware business works by now: success breeds hubris, a rise is followed like clockwork by a fall, and the company that falls behind has to change its ways and work harder to catch back up. Clearly that work now has a higher cost associated with it than ever, a warning that Sony will ignore at its peril. We’ve seen some rather distasteful stuff from PlayStation in the last couple of years, the occasional whiff of the old arrogance coming back. If I was Jim Ryan I’d be worried about that, not about which beloved thirdparty publisher I could spend a few billion on in the hope of keeping up appearances.

The Activision Blizzard deal makes things difficult for Sony, sure. But it is far from a fatal blow; rather a ruffling of the feathers, a sense of the ground shifting somewhat — and hopefully a reminder that, in this business, no company is ever on top for long. With this amount of money flying around, only a fool would rest on their laurels.


  • I sense a shifting of the sands out there in the conversation around NFTs — and their associated buzzwords — in games. Until recently, the cryptobro set have been able to dismiss the cynics as not understanding the technology or what it offers, but the detractors are becoming steadily more informed and eloquent as time goes by. If you’ve got two hours to spare, I heartily recommend Dan Olson’s withering assessment on YouTube. Also of note is this rant from veteran developer Christopher Natsuume, a LinkedIn post (with fun grumpy comments from the fingers-in-ears crowd!) from Hinterland bossman Raphael Van Lierop, and Keza MacDonald’s searing deconstruction of the metaverse discourse, which contains so many good lines I’m honestly quite cross about it.
  • EA has revealed the existence of three new Star Wars games: a Jedi Fallen Order sequel, an FPS, and a strategy game. The first two are developed by Respawn Entertainment, the last by Bit Reactor, a new studio set up by Firaxis veterans, with Respawn’s oversight. Up the road, Blizzard has revealed it is working on a survival game. Both announcements seem as much about recruitment as marketing, perhaps reflecting the struggles big companies — especially ones whose names are in the gutter — are having attracting and holding on to developer talent.
  • Nvidia’s proposed $40bn acquisition of UK semiconductor firm Arm may be off, with Bloomberg saying Nvidia has told partners it does not expect the deal to go through. Regulators in the UK and US have been glancing disapprovingly towards the buyout, which was first announced in 2020.
  • Toshihiro Nagoshi has announced the formation of his new NetEase studio, as rumoured a while back. Flanked by various Sega alumni, he says the outfit will be built on “discussions that ignore seniority and hierarchy”, a noble goal rather undermined by it being called Nagoshi Studio.
  • Now that QA bods at Raven Software have announced the formation of a union, their strike action has come to a close. Weirdly, the support funding raised through crowdfunding — over $377,000 at the time of writing — is “being stored for future organising/strike efforts.” Seems a bit weird to me but, knowing Activision as we do, they’re bound to need it sooner or later.
  • Developers at Unity made a dogfighting training sim for the US Air Force, it says here. If this makes you feel a bit uneasy about the links between the game industry and the military, just wait until you hear about [REDACTED].
  • I just lost a very pleasant half an hour to Vampire Survivors, a sort of Roguelike autofire Geometry Wars with zombies and stuff that’s been floating around in my YouTube recommendations for a while. There’s a free demo on itch, playable in browser, and it’s a couple of quid in early access on Steam. Apologies in advance, it’s terrifically hard to walk away from.

That’s your lot. Apologies for my absence on Monday, caused by a cold I just can’t shake. I’d say I’m over the worst of it now but I’ve been feeling like that for a week now, so who knows. Have a grand couple of days, and I’ll see you on Friday, when we’ll hopefully talk about something that doesn’t involve huge sums of money, and can be illustrated by something other than a jpg from Succession. Fingers crossed.