After a few years of proud gaming revenue rises thanks to Xbox Series X and S sales, Microsoft’s gaming segment finally seems to be slowing down a bit. And while a dip is expected, the lack of major first-party game releases isn’t exactly helping things.
The company posted its Q2 earnings today, and for the first time in a while, Xbox posted a year-over-year drop. Gaming revenue was down 13% year-over-year, and hardware revenue specifically was down the same. Xbox content and services revenue overall was down 12%, with Microsoft attributing the dip to a few factors: decreased spending on first-party content, lower monetization in third-party content, and a strong prior year comparable.
What this essentially means is that Xbox didn’t have as strong a first-party line-up to spend on this past holiday, but also, 2021 was always going to be tough to beat. In software, Xbox had Halo Infinite, and in hardware, the Series X and S were sailing on high demand combined with increased supply as supply chain restrictions began to lighten up.
So while Xbox’s dip is a shift from recent patterns, it’s a predictable and relatively small one, putting Microsoft’s gaming division at roughly the same revenue levels it was seeing in 2020-2021. And Game Pass subscriptions, Xbox says, are continuing to grow.
What’s more troubling is what’s happened since then – just last week, Microsoft laid off 10,000 employees including a number of employees at The Coalition, 343 Industries, and Bethesda. While ostensibly billed as a cost-cutting measure in light of slowing consumer spending and an ongoing recession, we have yet to learn how those cuts will impact future game production within Xbox, and it remains unclear which teams and games were affected.
Microsoft’s Xbox and gaming segments are part of the More Personal Computing division, which saw $14.2 billion in revenue, down 19% due to declines in multiple segments including gaming. Overall, Microsoft brought in $52.7 billion in revenue – up 2% year-over-year.
We’ll be listening to Microsoft’s earnings call later today and will update this story with further insight.
Update 1/24/2023 3:12pm PT: On its earnings call, CEO Satya Nadella added that Xbox’s monthly active users surpassed 120 million during the quarter.
Microsoft expects another year-on-year drop next quarter due to a similar situation with a strong prior year comparable and fewer releases, with gaming revenue decline in high single digits and Xbox content and services decline in the low single digits. Xbox Game Pass subscriptions are expected to continue to rise.
Rebekah Valentine is a news reporter for IGN. You can find her on Twitter @duckvalentine.