Xbox CFO Tim Stuart yesterday spoke at the Jefferies Interactive Entertainment Virtual Conference, answering questions across a huge range of business aspects and clarifying much of Microsoft’s strategy post Xbox Series launch. The interview was transcripted by Seeking Alpha and we bring you the highlights here with some context.
Speaking on the supply of Xbox Series X and S, Stuart said that the company was on track, but supplies would be limited well into next year.
“I think we’ll continue to see supply shortages as we head into the post-holiday quarter, so Microsoft’s Q3, calendar Q1,” which is exactly what we expected. With the Xbox Series X having been announced so early we hoped that Microsoft would have been more on top of things, but the pandemic undoubtedly scuttled any such plans and boosted demand to boot.
“And then when we get to Q4, [with] all of our supply chain continuing to go full speed heading into kind of the pre-summer months… You’ll be outside of a holiday window. We’ll have supply cranking over the next, what, 4, 5, 6 months. And that’s when I expect to see really that demand profile start to be met, which will be really, really great.
He ads that once the supply is there, the unique combination of a high-end console and an affordable one in Series S will really perform. “I think we’re going to start to see some real velocity kick up, which I’m really excited to see.”
Consoles though, even two of them, will not be the biggest growth factor for gaming over the next handful of years, though, Stuart believes.
“If you think about console market being 200 million or 300 million players; the PC markets, 200 million or 300 million players; that mobile market is billions plus.” And it’s here that Stuart sees Microsoft really fulfilling the potential (and needs) of Game Pass.
“We’re 15 million Game Pass subscribers today, [our ability to scale] to 25 million, 50 million, 100 million is going to require that mobile audience to be achieved by us.” And in short that scaling will be achieved by penetration into mobile-driven markets, such as Africa, and the rollout of 5G in order to improve the experience for all. “Having that cloud streaming ability will be needed to go reach customers at that scale, for sure.”
But that’s not enough, the service must also grow to meet that demand in terms of content.
“And that’s where we’re going to have to have a content pipeline that supports that amount of users.”
To achieve that broad range of content Microsoft will look to both make deals with other content providers, as it did with EA, and create a platform that performs for everyone regardless of their approach.
“We need the Activisions, the Ubisofts, the EAs, the Take-Twos, the Epics, all the way down to indie creators to be successful on the platform. So we want Game Pass to be net additive to them.
“And if they choose not to be in Game Pass, we want to create a platform that finds the maximum number of users that can spend the maximum number of dollars for them. And we want Activision, EA, Take-Two, Ubisoft to be highly successful on the platform regardless of the direction they choose to go.”
In addition Microsoft will continue to acquire developers (and publishers possibly) with the right kinds of IP: “We will continue to be acquisitive. We’ll continue to look around the industry to find who has the great IP, who are great leaders, who has great product development, who can we rely on and say, we need a AAA game launching in FY ’24 Q1 for Game Pass. Let’s line that — let’s line the road map up to go land that.”
Further to that, Stuart spoke on Microsoft’s plans for Bethesda, though, as with other comments from Xbox, these remain somewhat vague.
“Microsoft is a platform… we highly encourage cross-platform play… if it’s good for the gaming ecosystem, it’s good for us, a classic rising tide lifts all boats.”
“We don’t have intentions of just pulling all of Bethesda content out of Sony or Nintendo or otherwise. But we want that content, in the long run, to be either first or better or best or pick your differentiated experience, on our platforms. We will want Bethesda content to show up the best on our platforms.”
“That’s not a point about being exclusive. That’s not a point about adjusting timing or content or road map. But if you think about something like Game Pass, if it shows up best in Game Pass, that’s what we want to see, and we want to drive our Game Pass subscriber base through that Bethesda pipeline.
“So again, I’m not announcing pulling content from platforms one way or the other. But I suspect you’ll continue to see us shift towards a first or better or best approach on our platforms.”
EA AND GAME PASS
Stuart was asked specifically about the make-up of the EA-Game Pass, deal, something that we’ve long pontificated about ourselves. And while there’s no definitive answer here, it certainly shows the range of possibilities that could go into such an arrangement.
So the deals will all be different across our partners. Because you could say – and this isn’t me talking about EA specifically – ‘come into Game Pass and you’ll get a different rev share’ or something on the digital transaction side. Or come into Game Pass, and we’ll have just a direct payment relationship’. Or ‘come into Game Pass, and you’ll have the ability to go acquire new customers that you haven’t seen before and drive post-sale monetization with those customers’.”
“So there’s going to be unique differences between the partner that we’re working with and what they want to see out of the relationship. But Game Pass does drive a brand-new revenue stream. Our job as a platform is to create a world where those revenue streams create revenue-sharing opportunities for our publishers, for our developers and for us.
“And so while I won’t highlight EA or somebody specifically, we do have a world where we create revenue streams. As they’re successful, we’re successful and vice versa, and we’ll continue to go build out higher revenue profiles that we can make sure we participate and share with our publishing partners.”
And finally, returning to console, Stuart talks on the success of All Access, Microsoft’s mobile-phone like subscription service with a console and Game Pass in a single package.
“And what I love about this is a couple of things. Number one is, it differentiates ourselves versus competition. So it’s not something that Playstation has in a very material way. Game Pass gives us the ability to provide a content bundle that can be paid off over time. And it’s not a financing deal. It’s more of a — thinking about it like a hardware subscription. So I love that perspective from a differentiation lens.
“I love the ability for a customer who may not have wanted to spend $500 or $300, or whatever the price point is, to come in and join Xbox for a low monthly rate. So I think we’re removing the barriers to entry. We’re taking some friction out of the ecosystem there.”