Microsoft could have ended its gaming business in 2021, and maybe that’s what should have happened, according to a new report that explains how CEO Satya Nadella was faced with two choices at the time: 1) acquire major game studios to drive more subscriptions to Xbox Game Pass, or 2) “wind down its games business entirely,” the former of which Nadella ultimately went with but has, so far, resulted in investments that “appear unimpressive.”
“In the year to June, Microsoft’s gaming business revenue grew 5.8%, well below the 11% target set for the purpose of calculating part of Nadella’s compensation, according to securities filings,” The Information writes, pointing out that “gaming was the only section of [Nadella’s] pay evaluation to fall short of Microsoft’s goals” before delivering a chart that suggests the company may not crack its goal of 100 million Game Pass subscribers by 2030.
“Several leading game studios have resisted Microsoft’s pitch that they should put their titles on Game Pass in exchange for fees that Microsoft offers to pay to the gaming studios, according to people familiar with the discussions,” the publication added.
“I just think the majority of the game market doesn’t really want a game pass” said Gus Zinn, a portfolio manager, while Denny Fish, a portfolio manager, has called the Activision acquisition “disappointing.”
“It’s…a business that had some degree of consistency over, like, a three- to five-year period but was highly volatile from year to year, because you’re so dependent on the big releases like Call of Duty,” Fish said, although he noted that “Microsoft’s heavy spending on data centers for AI is a bigger drag on its stock price than the Activision deal.”