Games like Hi-Fi Rush can't fill the $70 billion hole

Layoffs and studio closures have shadowed the entire video game industry for more than a year. Further measures of this kind will follow. The youngest Microsoft studio closures however, stand out particularly. Because they support the assumption that a trend-setting bet didn't work out.

While it is unclear what profits Microsoft's gaming division really makes and what proportion Xbox Game Pass the statements of a former Xbox manager make people sit up and take notice.

Brad Hilderbrand, who until this month was senior public relations manager for 343 Industries, The Coalition, Compulsion Games and other studios, describes in one Linkedin post two problems.

Game Pass games miss sales targets

One of the problems mentioned by Hilderbrand is the Xbox Game Pass itself. All games included in the subscription “significantly” miss their sales targets. This is to some extent a calculated result. Because players who pay monthly for the subscription rarely choose the purchased version.

“This fact is taken into account by allocating a portion of the revenue each month to the games with the best results in Game Pass,” said Hilderbrand.

However, there are factors that counteract the success of these games. Most games “wouldn’t stay at the top of the hit list for more than a month or two,” while “Game Pass’s growth is stagnating.”

What does this mean for smaller, albeit successful, games that don’t fall into the “Call of Duty” category? According to Hilderbrand, you'll initially get a small boost in sales because it's “the hot Game Pass game for a month.” Afterwards, they fall off the cliff as “everyone moves on to the next game”

“Poor Redfall had it even worse as they started so badly that they never had a chance,” the ex-manager continued.

Until the billion-dollar expansion, it's just a rounding error

Hildebrand further reports that Xbox Game Pass was a working system for a while. There was growth that has now slowed considerably. On the other hand, there are certain costs that arise when developing games. And the amount of revenue allocated to the games no longer keeps up with the necessary budgets.

“But none of that would have mattered 3 or 4 years ago. Because back then, Xbox was essentially a rounding error on Microsoft's books. The department made some money, but more importantly, it didn't cost much. And other parts of the company were able to easily close the gap. Then Xbox went on a spending spree and spent a lot of money on Bethesda, but even more on Activision,” Hilderbrand said.

While the takeovers were celebrated by the Xbox community, “the eye of Sauron has turned”. Xbox is expected to recoup the $70 billion, or at least cut spending “to the bone” while they try.

Call of Duty presents Microsoft with a dilemma

Microsoft expects a return on investment, i.e. a certain return based on the capital invested. The Xbox Game Pass is apparently not able to do this. The “big bets on new subscriptions” that were expected with “Redfall” and “Starfield” did not work out. They “didn’t trigger nearly enough growth.” And there is not much on the horizon that can end the stagnation.

“The best tip is COD. “But do you really want to risk the guaranteed revenue that comes with the franchise by putting it on Game Pass on Day 1 and potentially losing massive revenue?” continued Hilderbrand. During the course of the day it became known that there were internal discussions about the inclusion of “Call of Duty” in the Xbox Game Pass.

The former Xbox manager doesn't know what the plans ultimately look like. But from his point of view there are two options:

• Microsoft brings “Call of Duty” to Game Pass and loses money.
• “Call of Duty” isn’t coming to Game Pass and subscribers are revolting because they think they “signed” for it.

The small studios have no relevance to the $70 billion hole

Hilderbrand has no doubts that “Call of Duty” and the “other mega studios with huge IPs” will continue to do well in the future.

He has a bleak prognosis for the other studios: “All the smaller studios that make really interesting games will disappear, simply because, no matter how good games like Hi-Fi Rush are, they will never make enough money to live to 70 “To make up for the billion dollar hole that Xbox now has to dig itself out of.”

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