Call of Duty’s performance is exactly what Microsoft needed from the landmark franchise, and points the way to the future of its games business
Image credit: Microsoft/Activision
By pretty much any estimation, the launch of Call of Duty: Black Ops 6 has been a huge success for Microsoft. Precise figures are understandably somewhat elusive at this stage, but CEO Satya Nadella was able to be unreservedly effusive in his remarks about the launch on the company’s earnings call this week.
We know, at least, that it broke the series’ records for day one players and drove Game Pass subscribers to a new record high, while also seeing a 60% boost in unit sales on Steam and PlayStation over last year’s instalment, Modern Warfare 3.
Getting this launch right was crucial for Microsoft – but largely for internal reasons, rather than because of any kind of relevance to whatever console war narrative people have spun around it.
The single biggest challenge that Microsoft’s games division faces now and in the foreseeable future is not competition with rivals like Sony; it is the need to actively and continually justify the enormous purchase of Activision Blizzard by showing Microsoft’s most expensive purchase actually delivering value to the company’s growth and its bottom line.
Call of Duty is Activision Blizzard’s most valuable franchise; it was incredibly important to demonstrate how that IP was going to fit into the Xbox strategy, which is increasingly centred around the Game Pass offering, while also ensuring that it delivered the expected lift to the division’s revenues.
Thus far, that seems to have worked out exceptionally well. It helps, of course, that Black Ops 6 has been extremely well-received, and thus enjoys solid comparisons against last year’s rather less well-liked Modern Warfare 3.
Starting out the Microsoft/Game Pass era for the franchise on such a high note is a real gift to the company, and really helps to drive home the key point that it needs to make – that Call of Duty is a big and successful enough franchise to be able to drive Game Pass growth without cannibalising sales and profits on other platforms like Steam and PlayStation.
The actual impact of this launch on Microsoft’s figures won’t be apparent until we see Q2 financials from the company, and even then it’s possible that we won’t get a direct report of how Game Pass has grown during this period.
Microsoft CFO Amy Hood also cautioned that the launch of games like this will be somewhat complex in terms of how they’re reported in the company’s figures, with revenues being recognised over time rather than all at once – which rather felt like a warning against trying to make comparisons against historic performance of the franchise, given the newfound diversity to how the game is distributed and paid for.
Those Steam and PlayStation numbers, at least, should ensure that there’s a very healthy contribution to the Q2 revenues from Black Ops 6, even if the calculation of its revenue impact on Microsoft’s own platforms and services is a little harder to calculate.
There are still questions about this strategy, of course – one successful launch doesn’t answer every possible criticism.
Starting out the Microsoft/Game Pass era for the franchise on such a high note is a real gift to the company
The extent to which Black Ops 6 has driven Game Pass uptake is just one question – that one of the most popular franchises in gaming history has pushed Game Pass to a new subscriber record is unsurprising even if it’s no doubt very welcome news for the division, so the real interest here lies in more exact numbers: how many subscriptions it has created, and the factor nobody can yet predict, how long those subscriptions will last.
Black Ops 6 is an acquisition play for Game Pass, pushing lots of new users into the service; ensuring that they stay engaged and keep happily paying their monthly subscription is a task in the much more tricky and complex realm of retention.
The question of how much Game Pass day-one launches harm unit sales, however, seems to be more or less moot for now. In a sense, that’s not entirely good news for Microsoft; it’s less relevant than many had expected precisely because PlayStation and Steam remain the dominant platforms, and while it’s possible to envisage some potential Steam sales disappearing in favour of Game Pass subscriptions on PC, no such substitution is possible on PlayStation.
Xbox hardware sales continue to slide – they were down 29% in Q1 compared to the year before, and Microsoft expects the decline to continue into the upcoming quarter – which creates hard limits on the impact of Game Pass on unit sales on console, at least.
Even if those hardware numbers provoke some anguish among devotees to whom the Xbox’ position vis-à-vis the PlayStation has taken on an outsized importance, though, the shape they suggest for the games business Microsoft is now building seems reasonably solid, albeit rather unusual.
Activision Blizzard added around 61% to Xbox content and services revenue in the past quarter, a gigantic leap that reflects the extent to which this acquisition has reshaped Microsoft’s game business as a whole. Quite a lot of that revenue originates on non-Microsoft platforms and storefronts, most notably Steam and PlayStation, though iOS and Android are also in the mix of course.
So, with the company’s largest IPs, a business model seems to be emerging where revenues are a combination of Game Pass subscription revenue on the relatively minor Xbox platform and from some fraction of the PC market, and direct unit sales revenue on other platforms, including PlayStation and the rest of the PC market which makes its purchases via Steam.
Maintaining a healthy balance across this diversified revenue structure will be an ongoing challenge
Compared to the traditional model of releasing first-party games on first-party hardware, that looks a little like a chaotic mixture, but it could equally be described as diversified. Some games will no doubt do better for Game Pass, others will perform better in unit sales elsewhere, but crucially, each game will have an opportunity to find its audience through whichever of those avenues works for it.
Maintaining a healthy balance across this diversified revenue structure will be an ongoing challenge, especially since shifts in that balance will inevitably open up questions about the ongoing relevance of certain parts of the business, including the Xbox hardware business itself.
The successful launch of Black Ops 6, at least, shows that Microsoft’s games business has passed a crucial hurdle on this pathway – and as long as the lines on the graph generally keep going up, the division should be able to continue to satisfy the most critical and important audience it has right now: Microsoft’s own boardroom.
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