Satya Nadella says Microsoft is ‘all in on gaming’ as it teases new hardware for subscription service

Xbox’s Phil Spencer discusses Microsoft’s gaming legacy with CEO Satya Nadella. (Microsoft screenshot)

Microsoft is doubling down on its Xbox Game Pass video game subscription service with plans to embed it directly into internet-connected TVs, requiring just a controller to play Xbox games. The tech giant is also working on a new standalone streaming device that plugs into a TV or monitor and lets people play Xbox games without a console.

The company revealed the news during a pre-recorded presentation titled “What’s Next,” hosted by Xbox head Phil Spencer with appearances by Microsoft CEO Satya Nadella and other top execs.

Microsoft is trying to make it easier for anyone, anywhere, to play games on Xbox. Between the Game Pass subscription service, using mobile devices as ersatz consoles with Project xCloud, the All Access program, and bringing the Xbox app to other platforms like iOS, the Xbox itself is increasingly more of a concept than a console.

“As a company Microsoft is all in on gaming,” Nadella said. “We believe we can play a leading role in democratizing gaming and defining that future of interactive entertainment.

He added: “There are really three key areas where we believe we have an incredible competitive advantage: First, our leadership in cloud computing. Second, the resources we have to build our subscription service, Xbox Game Pass. And third, our overall focus on empowering creators.”

If there’s a big takeaway from the What’s Next presentation, it’s some useful behind-the-scenes data about how Xbox’s Netflix-like Game Pass subscription service is doing for the company. At a glance, it’s a great deal for consumers, but it’s hard to see from the outside how the Game Pass, which offers a rotating selection of dozens of games for $9 to $15 per month, could possibly be profitable.

According to Microsoft, it’s because it drives up engagement. “And so over and over again, we see that games engagement actually goes up eight times when it goes into Game Pass, and subscribers of Game Pass actually play 30% more genres and 40% more games,” said head of Game Creator Ecosystem Sarah Bond.

Microsoft’s emphasis on user experience and access is one of its primary strengths in the ninth-generation “console war.” (Microsoft Image)

Members of the Game Pass service reportedly spend 50% more on Xbox games than non-members do. Electronic Arts, which has partnered with Microsoft by offering its EA Play subscription service as a built-in extra with Game Pass Ultimate, claims to have seen an over 200% spike in EA Play games’ hours played on Microsoft platforms.

“Rather than crowding out retail sales, we’re seeing that when many games go into Game Pass, there’s actually an uplift for the game, not just on our service, but also in digital retail, both in our store and in others like Steam or the Epic Games Store,” Spencer said. “Game Pass has become a true discovery engine.”

Spencer also reported that the [email protected] program, which allows creators to self-publish games on Xbox platforms, has led to the creation of 2,000 games that have generated $2 billion in revenue.

This furthers Microsoft’s unconventional business strategy from the last few years. Instead of the traditional method of selling consoles, which has been to attract consumers with big, splashy exclusives, Microsoft has been trying to make it easier and cheaper to get into Xbox, via subscription services, Project xCloud, and the All Access payment plan.

“Hardware only exists as a gateway to the games themselves,” said VP of Gaming Experiences Liz Hamren. “And today, a cornerstone of the Xbox experience is Game Pass. Now, players don’t have to spend $60 or more on individual games.”

Saying this out loud is a bigger deal than one might think. It’s coming at a time where various publishers are quietly attempting to normalize the idea of $70 as a baseline price for new video games.

The video game business is growing faster than any other form of entertainment in 2021. Thanks, pandemic lockdowns! (Microsoft Image)

Project xCloud in particular, described as the “natural next step for us” by head of cloud gaming Kareem Choudhry, is confirmed to be coming directly to the Xbox app on PCs later this year.

Hamren also noted that, contrary to many industry analysts’ predictions, “console remains our flagship experience.” Instead of shifting entirely to cloud-based solutions for future generations of gaming, Microsoft isn’t slowing down or abandoning hardware production.

“In fact, we’re accelerating it,” Hamren said. “We’re already hard at work on new hardware and platforms, some of which won’t come to light for years.”

There may still be a physical Xbox in the tenth console generation, whenever that ends up happening, but it’s looking increasingly less like you’ll actually need one to play Xbox games.

At the end of the day, it’s worth restating that Microsoft’s What’s Next presentation was effectively a show for E3, which means it was entirely intended to get people aboard the hype train. (To some extent, it feels like a briefing for shareholders that leaked somehow.) Take it all with the usual grain of salt.

It’s a useful barometer, however, for where Microsoft’s priorities lie, and what they’re working on now. The most interesting thing about the modern Xbox is its slow evolution away from its own hardware, as well as its broadened focus, and that evolution is planned to both continue and accelerate in the coming year.

Microsoft is likely to talk about the upcoming Xbox games lineup at Sunday’s Games Showcase, which is planned as a collaboration between Xbox and its recently acquired studio Bethesda; smart money is that we’ll hear more about games including Halo Infinite, Psychonauts 2, and possibly Bethesda’s Starfield, its first original RPG in 25 years.

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