The latest Xbox console release helped Microsoft hit a new mark for gaming revenue, topping $5 billion during the December quarter, up 51% year-over-year.
Microsoft’s gaming arm boosted its fiscal second quarter results reported Tuesday, which beat analyst expectations as overall revenue climbed 17% to more than $43 billion, and profits rose 33% to $15.5 billion.
The November debut of the Xbox Series X and S, Microsoft’s entry into the ninth-generation console wars, spurred a full 86% increase in hardware revenue for the quarter, despite retail supplies for the new Xbox being sharply limited.
Microsoft previously said the Series X and S was the company’s largest console launch yet, easily topping the 2013 launch of the Xbox One.
Xbox content and services revenue increased to $3.5 billion, up 40%, driven by growth in third-party titles, Xbox Game Pass subscriptions, and first-party titles.
Microsoft announced in November, after the Series X and S launch, that 70% of its new consoles had ended up tied to a Game Pass subscription.
The Game Pass, which reached 15 million subscribers in September, seems to be driving most of Microsoft’s strategy in the gaming space at the moment. The Netflix-style subscription plan lets players download and play the retail versions of a rotating assortment of video game. Its biggest new releases, like this week’s console-exclusive horror game The Medium and the forthcoming Halo Infinite, are slated to appear on Game Pass in their entirety for no additional cost on the same date they become available in stores.
The Game Pass is enough of a deal for consumers that analysts have often wondered how Microsoft could be making any money from it at all. Some anecdotal reports from third-party developers have indicated that the Game Pass actually spurs individual titles’ sales, on a sort of “try before you buy” program, which seems to be borne out by the numbers reported Tuesday.
The Xbox hardware, meanwhile, appears to have had a strong initial showing, and the demand for new units is still high enough that any retailers with stock usually end up selling out instantly.
Major retailers have struggled for inventory since the console’s release, a drought that appears to be driven by knock-on effects from the COVID-19 pandemic. Many hardware manufacturers depend on production chains that have been disrupted by past and current lockdown measures. However, Microsoft’s Phil Spencer disclosed earlier this month via the Major Nelson podcast that Microsoft has accelerated its manufacturing to try and meet demand.
We’re still in a bizarre window where a given store having Xbox Series X|S consoles for sale at all is headline news on many gaming sites, although it’s anyone’s guess how much of the current frenzy is still driven by bot-powered eBay resellers. (In some parts of the world, such as the UK, the scalper issue has gotten to a point where local government has begun to step in.) The result for Microsoft is a sort of extended honeymoon period, where many of its prospective Series X|S owners can’t yet reliably acquire the hardware, and the point where that market becomes more stable is where things will really start to get interesting in the ninth generation.