Microsoft confirms Game Pass impacts sales, acknowledges 'cannibalization'

Microsoft has acknowledged that the Xbox Game Pass service may "cannibalize" traditional game sales. Despite falling short of its subscriber target for two consecutive years, the service has still gained widespread popularity and success among Microsoft fans. Xbox Game Pass offers gamers the flexibility to play on their console, PC, or mobile device, with saved progress stored on the Xbox Cloud and available on any platform.

Microsoft's announcement of its intention to purchase Activision Blizzard for $68 billion in January 2022 sparked both controversy and concern. Gamers worried about the accessibility of their preferred franchises while government organizations, such as the UK's Competition and Markets Authority (CMA), evaluated the potential anti-competitive impact. The CMA has shown reluctance towards allowing the acquisition to proceed.

The UK's Competition and Markets Authority (CMA) is investigating Microsoft's proposed acquisition of Activision Blizzard, which was announced in January 2022 for $68 billion. In its recent report released on February 8, the CMA revealed information from Microsoft's internal documents indicating that the company acknowledges the potential negative impact of its Xbox Game Pass subscription service on traditional game sales (referred to as Buy-to-Play or B2P sales).

According to the CMA's latest report, Microsoft's acknowledgement that Xbox Game Pass could potentially reduce Buy-to-Play (B2P) game sales is a significant concern. The CMA is worried that the growth of Microsoft's subscription-based services such as Xbox Game Pass and Xbox Live Gold could negatively impact Activision's traditional game sales, which are a major source of income for the publisher. Despite considering offering its games on Game Pass, Activision has decided against it as it believes it would greatly harm B2P sales.

In the same CMA report, it was noted that while the Xbox Game Pass and other subscription-based services offered by Microsoft could negatively affect the sales of traditional, one-time purchase games, they are still expected to remain a relatively small portion of the gaming market. This viewpoint is also shared by the CEO of Take-Two, Strauss Zelnick, who has stated that subscription services have not had a significant impact on their main business. The statements made by the CMA in this report were primarily regarding the potential addition of Activision games like Call of Duty to Xbox Game Pass.

Despite obstacles from government regulators, many analysts believe that the Activision Blizzard acquisition will still go through. However, if the deal does not happen, the CMA stated in its report on February 8 that Microsoft has a robust gaming environment, including consoles, subscriptions, and 24 game studios.