Xbox Making Billion-Dollar Game Pass Bet as Competition Heats Up

Xbox is seeing its massive investment in video game content pay off, as more of gaming comes to rely on subscription models.

In an interview with Windows Central at convention Comic-Con Experience (CCXP), Phil Spencer, CEO of Microsoft Gaming and head of Xbox, spoke to Game Pass’s decision to shell out more than $1 billion on content annually to keep consumers engaged.

“We have a service that is financially viable, meaning it makes money, in Game Pass. We’ve put a lot of money into the market, over a billion dollars a year supporting third-party games coming into Game Pass,” Spencer told the outlet. “What we see in Game Pass is a service that supports all kinds of games, from the biggest games to the unknown indie games.”

Indeed, the video game subscription program’s performance only continues to improve. Microsoft shared on its last earnings call that Game Pass growth contributed to a 13% year-over-year increase in Xbox content and services, and the content and services gains drove a $309 million increase in overall gaming revenue for the company.

Xbox is not the only major gaming company finding that maintaining users’ engagement requires regularly bringing in new content. Sony General Manager, Finance Department Sadahiko Hayakawa told analysts on the company’s most recent earnings call that maintaining PlayStation Plus’s subscriber base also demands constant novelty.

“Regarding PlayStation Plus, by continuing to offer attractive new features and content to our users, … we aim to increase engagement while further expanding the composition ratio of our top-tier services, extra and premium,” Hayakawa said.

Certainly, maintaining consumers’ loyalty requires constantly providing new value, given many subscribers’ tendency to cancel when their budgets come under pressure. In fact, the PYMNTS Intelligence study “The One-Stop Bill Pay Playbook: Drivers of Consumers’ Bill Payment Priorities,” created in collaboration with Mastercard, which draws on a survey more than 2,100 U.S. consumers, found that 50% would cancel their membership subscriptions if they were unable to pay all their bills. In contrast, only 19% said they would prioritize paying these bills in full over others.

Plus, the landscape for winning consumers’ media subscription loyalty is highly competitive. In fact, according to data cited in PYMNTS’ Subscription Commerce Tracker®, a collaboration with Vindicia, 55% of consumers think there are too many streaming options and 53% find it too expensive to pay for all the content.

Nintendo Switch Online and PlayStation Plus each have tens of millions of subscribers. Meta is stepping up its investments in gaming with its virtual reality offerings. Plus, more players are entering the space. Netflix is getting into the gaming category, as YouTube is also reported to be.

The opportunity is certainly there. A PYMNTS Intelligence study of more than 4,600 consumers in July found that consumers spend an average of 4.7 hours per day, or 27% of their time, on leisure activities on a given workday, and that figure jumps to 6.9 hours on weekends.

Moreover, much of that time is spent digitally connected. The PYMNTS Intelligence report “Benchmarking The World’s Digital Transformation,” which drew from surveys of more than 15,000 consumers across 11 countries, found that 61% are highly digitally engaged when it comes to activities related to having fun, and another 17% are moderately engaged.