Microsoft confirms Game Pass can cannibalize regular game sales

It’s been over a year since Microsoft began its Activision acquisition (say that five times fast), and the final stages of the sale are causing both companies some headaches. As part of the deal’s regulatory approval in the UK — or lack thereof, we’ll see! — Microsoft had to submit to the Competition and Market Authority’s investigation. In Microsoft’s self-report, it admitted that putting a game on the Game Pass subscription service results in a measurable decline in that game’s retail sales.

That’s not exactly rocket science. But it is a big admission from Microsoft, which has spent the last few years restructuring both its Xbox and PC gaming strategy to emphasize monthly subscriptions to Game Pass over pure software and hardware sales. As GamesIndustryBiz notes, Xbox boss Phil Spencer claimed in 2018 that a game being on Game Pass would lead to more retail sales, not fewer.

The exact degree to which a Game Pass game might diminish regular sales was redacted from the public report. But whenever a new game debuts on the service like Hi-Fi Rush a couple of weeks ago, it definitely gets a boost of exposure thanks to the cheap point of entry for new and existing Game Pass subscribers. Whether that’s worth losing revenue from initial sales is probably an extremely complicated bit of corporate math. For example, Hi-Fi Rush is published by Bethesda, a Microsoft subsidiary—the company probably views signups for Game Pass itself as a win, no matter how much it might eat into the new game’s sales on Steam and other platforms.

Microsoft is trying to establish Game Pass as a new paradigm for gaming and it’s doing a pretty good job, creating a budget-friendly bulwark on PC and console to fight Sony’s dominance with the PS4 and PS5. Microsoft has purchased a huge amount of publishers and developers in the last decade to secure exclusive titles including Minecraft developer Mojang, Fallout: New Vegas developer Obsidian, and Elder Scrolls publisher Bethesda.

Buying Activision-Blizzard for $70 billion would be one of the biggest deals in gaming history, which is why it’s a sticking point for antitrust regulators in Europe and even the usually lenient United States. For example, one of the UK Competition and Market Authority’s recommendations for the deal to pass muster is for Microsoft to sell Activision’s mega-popular Call of Duty franchise to a competitor. Some of Microsoft’s rebuttals are getting weird, too. An executive claimed that HBO’s TV adaptation of The Last of Us was a reason that Sony would still be able to compete after the prospective merger.