Does Xbox Game Pass really cannibalize a publisher’s sales?

Statements that Microsoft has made to U.K. regulators — in an attempt to save its proposed $68.7 billion acquisition of Activision Blizzard — contradict what the company has said for years about Xbox Game Pass. Namely, that a game’s appearance on the subscription service does result in lower sales.

The comment comes secondhand, in a report filed last week with the United Kingdom’s Competition and Markets Authority (and first reported by GamesIndustry.biz). “Microsoft also submitted that its internal analysis shows a [redacted]% decline in base game sales 12 months following their addition on Game Pass,” the CMA said in its report.

Since at least 2018, and through Xbox officials all the way up to the division’s chief, Phil Spencer, the company has touted Game Pass as a sales benefit to third parties who put their games in its library.

In the quote most often cited, Spencer said in a 2018 interview with LevelUp that the increased player base that Xbox Game Pass drew to Forza Horizon 4 on its launch day “is actually leading to more sales of the game.” He added that State of Decay 2, another Game Pass launch title, was “selling really well in the month that it launched in Game Pass,” according to retail sales data from NPD Group.

But Microsoft apparently told the U.K. CMA that Activision itself was reluctant to put its games on Xbox Game Pass or any subscription service, believing that doing so would “severely cannibalize [buy-to-play] sales, particularly in the case of newer releases.”

Image: Playground Games/Xbox Game Studios

The self-interest in the contradictory positions is obvious: On one hand, Microsoft wants third-party developers and publishers to view participation in Game Pass as a big benefit for their games. On the other, the company is arguing to a regulatory agency that bringing Activision’s games to Game Pass as a first-party publisher won’t crush the marketplace or blot out competition.

Polygon reached out to an Xbox representative with several questions to square Microsoft’s public posture with its CMA testimony. A spokesperson replied with a statement that has appeared in other reports since GamesIndustry.biz’s story.

“Each game is unique, so we work closely with creators to build a custom program to reflect what they need, ensure they are compensated financially for their participation in the service, and allow room for creativity and innovation,” the spokesperson said. “As a result, the number of developers interested in working with Game Pass continues to grow.”

That could mean that two things are true at the same time: Titles on Game Pass may see a decline in sales, and being in the library may still be a great deal for publishers and developers, in terms of supplementary compensation, exposure, access to a large player base (for multiplayer titles), and back-catalog sales. And it’s probable that Call of Duty is so large that Activision saw no real benefit in any of those.

Microsoft has spoken of these additive, not-necessarily-sales benefits before. In 2018, Matt Percy, then the director of business development for Game Pass, asserted to Polygon that Game Pass drove players — and therefore buyers — deeper into the franchises of games that appeared in the catalog. As proof, Microsoft solicited a comment from Pete Hines, whose Bethesda Softworks was not owned by the company at that point. In 2019, Percy also told the Sydney Morning Herald that “on average, we see a 25% increase in franchise preorders and a 10% increase in franchise sales coming from games that go into Game Pass.”

As for Microsoft’s own games, in 2019, Gears 5 was at the time the largest launch title in Game Pass history, and Microsoft was clearly pleased with the audience growth and the attention that the game’s launch extended through the shooter franchise. “Over its lifetime now, 40% of Gears of War 4 players tried the game for the first time through Xbox Game Pass,” Ben Decker, then Percy’s predecessor, told Polygon. “We saw that engagement, we saw that discovery build over time via the Gears catalog, and then we really saw it come to fruition with the launch of Gears 5.”

We asked Microsoft if its statement to the CMA concerned all games listed on Game Pass, or if it was about a smaller segment, like the company’s own first-party games, or games that launched day-and-date on the service. We didn’t get an answer there. But if Microsoft was talking about all the games available to Game Pass subscribers, many of them show up in the library months, if not years, after they originally launched — when sustaining their unit sales is less of a concern to their respective publishers.

But Game Pass’ benefits and drawbacks to publishers may not be the primary concern for U.K. regulators. In January 2018, with Xbox Game Pass then six months old, several retailers told GamesIndustry.biz that Game Pass had made their Xbox business “worthless overnight.”

“We might as well go where we’re supported, which is Sony,” one store owner said at the time.