Something big is happening in gaming. It isn’t the release of a new franchise or another controversy to hit the industry, it’s that the unthinkable seems to be happening: gamers are turning against consoles.
Specifically, Xbox. On July 30, the company posted its earnings – and they made for worrying reading. The numbers revealed sales of hardware (that is, consoles and kit) were down 42 per cent, an even steeper drop than the 31 per cent decline reported in the previous quarter.
This isn’t a new trend: Xbox’s sales have been decreasing steadily for the past year now. To spell it out, Microsoft just isn’t shifting consoles anymore, but why – and what does their sudden interest in opening up their formerly exclusive games to all platforms mean for gamers?
Consoles are on the decrease
It’s not just Xbox that’s suffering: the whole industry is having a tough time. Marketing platform Circana’s recent report into the industry showed that Xbox, Sony and Nintendo all saw “double-digit percentage declines” in Xbox, PlayStation and Switch console sales as of May 2024.
PlayStation’s sales figures, which came out earlier this week, also pointed towards its weakest quarter yet, with PS5 sales down almost a million units to 2.4 million, a 27 per cent decrease from last year. And looking at the downloads for June 2024 on the PlayStation Plus – Witcher III, Grand Theft Auto V, Modern Warfare III – most have opted for versions that are compatible with older hardware. It suggests people aren’t upgrading to the PS5, instead preferring to stick with their older consoles.
Why are people turning away from their consoles? It’s a chunky piece of kit, for one: with the Xbox Series X clocking in at 4.5kg, it can’t be easily transported anywhere. It’s expensive: the Series X will set you back £479. The PlayStation 5 is only slightly cheaper at £349. And in a cost of living crisis, that’s a lot of money, especially in an age when you can just download Candy Crush or Assassin’s Creed to your phone instead.
“The direction of travel for console sales is grim,” says Gareth Sutcliffe, of Enders Analysis. “Microsoft have had a terrible year; Sony have followed them having a terrible quarter. And in some respects, it's not a surprise because what we're seeing is that the model they’re offering is really coming under stress.
“It is expensive. It is a fixed model in that you have a box that sits in one place for all the time, and has to be connected to a TV or a large monitor… and there's a range of devices out now that allow [consumers] to play games that are starting to become of comparable quality to console.” Namely, PCs and gaming on mobile phones, both of which are continuing to see massive growth.
Clearly, there are issues for all the console producers, especially with the Xbox. Despite acquiring monster gaming organisation Activision Blizzard, the past five years haven’t gone well for the company.
Like many other studios, it has had massive layoffs. GamePass hasn’t grown with the speed it hoped – in February, it had 34 million subscribers, a far cry from its target of 100 million by 2030. And developing consoles is also expensive. And unlike PlayStation, whose sales been buoyed by a raft of critically acclaimed hit games such as God of War: Ragnarok, Horizon Zero Dawn and Spider-Man, Xbox hasn’t had a hit game in years.
“I think that the floor has fallen out of Xbox for good,” says Sutcliffe. “[And] there will be questions about what does an Xbox hardware model look like moving forward.
“They have tried everything, they’ve had discounts, their prices are great. They’ve got more than one model. And they are still not selling… do they really want to invest tens of millions, hundreds of millions of dollars in another cycle of consoles?”
Online is the future
What’s the alternative to developing another console? Going online. Because although console sales are declining, the industry itself is booming. Despite falling sales, Microsoft’s gaming revenue was up 44 per cent this year, mostly due to their acquisition of Activision Blizzard.
Activision’s online gaming studio King, which is responsible for Candy Crush, raked in $739 million over one quarter alone in 2023 – and apparently, getting hold of their library of online games was a massive factor in the Activision Blizzard takeover. And that’s without mentioning Call of Duty Online, which brought in even more revenue than Candy Crush via a stream of continuous in game micro-purchases.
Clearly, online and mobile is where the money is, and Microsoft is paying attention. And that means Xbox’s hints that they’re planning on porting their games to other consoles points to a broader trend: one where they potentially ditch consoles altogether and go totally digital, using online data storage service the Cloud to store and run their games.
“What Microsoft wants to do is move everything into the Cloud, and get out of hardware completely,” Sutcliffe says. “If they could get out of hardware tomorrow, if they could do it an elegant way, Microsoft probably would. They are a software-based business, or a Cloud-based business. Hardware is simply not in their DNA. They only do it because they have to.”
Moving to the Cloud
This switch to Cloud-based gaming is becoming clearer with every new announcement from Microsoft. The Xbox Series S launched without a disc drive, completing the switch from physical to digital content, while legal documents released for the Activision Blizzard merger indicated that Xbox is planning on phasing this out permanently from any future console launches.
They company has invested heavily in Xbox Cloud Streaming, which lets users play hundreds of console games on devices without having to download them - while a streaming-only console box, codenamed Keystone, tried and failed to get off the ground in 2021.
Given that Game Pass and Cloud Streaming is making its way onto ever-more TVs and software, including the Meta Quest 3 headset and Amazon’s Fire Sticks, the future certainly looks increasingly digital.
It also looks mobile. There’s also an Xbox mobile game store in development for EU release, and Phil Spencer, the CEO of Microsoft Gaming, has talked about his interest in a “handheld Xbox”: whether that means an app, a Nintendo Switch-style piece of gear or a version of Windows remains to be seen. With billions of mobile gamers around the world, it’s a highly lucrative market, if Microsoft can manage to crack it.
It seems like the console wars are over. It will certainly be interesting to see where the gaming giants go from here: though Xbox is headed out of the door slightly faster than its competitors, the race to define the era that comes next is only beginning.
