Microsoft’s games chief said Wednesday that video games can weather economic weakness, even as the software maker expects slower pickup in other parts of its business that target consumers.
Rising prices and interest rates have inspired investors to rush to find pockets of financial markets that can hold up in a downturn. Games remain a high priority for Microsoft, with the company closing in on its $68.7 billion acquisition of publisher Activision Blizzard.
Other parts of technology may be at risk in a recession. Alphabet and Meta platforms still get most of their revenue from advertising, with the former still relying on internet search and the latter on social media. Patrick Lo, CEO of the networking hardware maker Netgearwhich reported a 14% annual 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 executives said earlier this week that its consumer exposure would hurt current-quarter sales of Windows operating system licenses, Surface PCs and ads on properties like Bing and LinkedIn.
During the quarter, the company expects to sign up more subscribers to its Xbox Game Pass service, which offers unlimited access to hundreds of video games, its chief financial officer Amy Hood told analysts on a conference call on Tuesday. Game revenue should fall in the low to mid-teens percentage range because of strong growth in the year-ago quarter that saw the launch of first-party games, Hood said.
Microsoft Gaming CEO Phil Spencer sounded optimistic about the unit’s prospects.
“It’s been proven over the years, in times of economic uncertainty for families, games are 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 is brought up every time the r-word is mentioned,” Mat Piscatella, executive director and video game industry adviser at market researcher NPD Group, wrote in July. tweet.
Piers Harding-Rolls, research director at researcher Ampere Analysis, made similar comments.
“After two years of huge expansion, the gaming market is poised to give back some of that growth in 2022 as several factors conspire 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 lowered prices of Xbox consoles in several markets as public interest 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, then president of Microsoft’s entertainment and devices unit.
In 2020, a brief recession coincided with the onset of coronavirus, but this led to people staying at home and playing more games, including on Xbox consoles and computers. “People everywhere are turning to games to maintain human connection while practicing social distancing,” CEO Satya Nadella said in April 2020.
Today, Spencer said, Microsoft gives people the choice in how much they want to spend when they want consoles. The company offers the $499 Xbox Series X and the less powerful $299 Xbox Series S. Microsoft subsidizes the cost by $100 to $200 per console, expecting to make that money back on sales of accessories and storefront purchases, he said. It’s up to players whether they want to pay $10 or $15 a month for Game Pass subscriptions. They can also buy games, or play certain games for free.
Spencer said he doesn’t think Microsoft will be able to keep game prices constant forever. But they can provide impressive amounts of entertainment compared to other pursuits. “People can play video games for hundreds of hours,” he said.
LOOK: Hill: Weakness from Microsoft and Alphabet has us reassessing expectations for earnings estimates in general