In context: As Microsoft aims to redefine the Xbox brand, more bad news arrives for the company's console hardware business. Although Microsoft's revenue expanded in other areas last quarter, its console sales experienced yet another precipitous decline – and subsequent price increases will likely cause further damage in future earnings reports.
Revenue from sales of Xbox consoles declined by nearly one-third during the three months ending September 30 compared to the same quarter last year. Amid rising prices and the presence of Microsoft games on other platforms, there is little reason to expect a reversal any time soon.
Xbox Series consoles have trended downward for several consecutive quarters, declining 22% year-over-year last quarter, 29% during this year's first two quarters, and 42% in late 2024. Setbacks have plagued the Xbox brand throughout this period.
Prospective customers likely see less reason to purchase an Xbox since Microsoft began releasing its in-house games on PC, PlayStation, and Nintendo. Halo, once considered Xbox's crown jewel, will make its PlayStation debut next year with a remake for the franchise's 25th anniversary. A sharp price hike in May will have discouraged shoppers further, and a subsequent October 3 hike is expected to worsen the blow.
Without exclusive titles, Xbox's primary selling point is Microsoft's Game Pass subscription service, which received its largest-ever price increase at the beginning of October. The PC and Ultimate tiers received 40% and 50% hikes, respectively, increasing the latter's annual price to $360. Following the announcement, the page for canceling Game Pass crashed.
A company-wide demand to achieve 30% profit margins was likely the primary catalyst for the Xbox division's decisions, which are highly unorthodox in the console business. However, Microsoft has repeatedly hinted that its next console will take a more radical approach.
Numerous leaks, along with comments from CEO Satya Nadella and Xbox head Sara Bond, suggest that the next-generation device will combine console and PC functionality. Like the recently released Asus ROG Xbox Ally, it will show users a controller-friendly Windows interface that accommodates games from the Xbox Store, Steam, the Epic Games Store, and other services. However, Microsoft also confirmed that it will natively support older Xbox console software.
The company buried the Xbox hardware sales figure deep within an earnings report that primarily showed positive results in other sectors, such as AI and cloud. Microsoft 365 commercial and consumer cloud revenue increased by 17% and 26%, respectively, while Azure jumped by 40%. Xbox content and services increased by 1%.