Xbox Game Pass was supposed to be the Netflix of gaming — what happened?

Hello, and welcome to a special episode of Decoder! This is David Pierce, editor-at-large at The Verge. Nilay is off this week for a much-deserved break from what I can only describe as a pretty bleak news cycle. So I’m filling in for him, and the Decoder team thought this would be a good opportunity to switch gears a little bit from the political apocalypse beat and talk about something completely different.

So today we’re diving into the video game industry and discussing a particular set of thorny problems facing Microsoft and its Xbox division. Microsoft is celebrating its 50th anniversary this year, and for nearly half of that history, Xbox has been a central pillar of the company’s consumer hardware and software businesses. The first Xbox launched in 2001, and it has sat alongside Sony’s PlayStation and Nintendo as the Big Three of console gaming for the last quarter century.

But things in Xbox land have not been that great lately. In fact, Xbox has been struggling for quite some time now. And a lot of the issues it’s facing can be traced back to core problems at the heart of software distribution: as video games get more expensive to make, and the demands for their scope, size, and quality become greater, how do you produce certifiable hits that get people to buy your hardware? How do you finance those hits, and when they launch, how do you get them into the hands of more consumers — consumers who may not want to buy an Xbox anymore and balk at the idea of shelling out $70 for a new game?

Nintendo and Sony seem to have this pretty much figured out, and both companies have been reaping the benefits of dominating the console-gaming market, albeit in different ways, since at least 2017. That’s when the first Switch launched and when it became clear Sony’s PS4 had cemented the PlayStation as the clear winner of the 2010s. But 2017 is also when Microsoft launched Xbox Game Pass, a subscription service designed to be a bit like Netflix for gaming.

Microsoft Gaming CEO Phil Spencer developed a master plan to shift the Xbox business model. After the better part of 20 years having proprietary hardware at the center of its strategy, Microsoft pivoted. The idea was it would lean on its expertise in cloud computing and its considerable war chest of software profits from Windows to try something new. It would mix subscription gaming, cloud streaming, and a willingness to put its software on competing platforms to try and break free from a losing race against its rivals.

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Eight years later, and well… it hasn’t quite worked out like we might have thought. Xbox is still in a distant third place in the console race, with some estimates putting Xbox hardware sales at less than half the number of PS5’s Sony has sold. That’s despite some record-breaking game studio acquisitions that have cost Microsoft almost $100 billion dollars.

Meanwhile, Nintendo is off in a league of its own. It has sold more than 150 million Switch units since that console launched, and the eventual Switch 2, coming later this year, is also expected to be a smash hit.

So, sure, GamePass is reasonably successful for what it is — but it definitely hasn’t changed the world like Netflix did to Hollywood. People are still mostly buying new games, sometimes even still on a disc from Best Buy or Walmart. Streaming a game to your phone or TV over the cloud remains pretty niche.

So, what exactly happened here? Why did Microsoft’s master plan not pan out? And can it still succeed if the right combination of factors comes together over the next several years? To break all this down, I invited Ash Parrish, The Verge’s video game reporter, on the show to talk all about the struggles of Xbox and Game Pass, as well as where she sees the future of the game industry headed next.

If you’d like to learn more about the topics we discussed in this episode, check out the links below:

• Xbox continues its push beyond consoles with new ad campaign | The Verge
• Why the video game industry is such a mess | The Verge
• The next Xbox is going to be very different | The Verge
• 2025 looks like a great year for Xbox | The Verge
• Microsoft prepares to take Xbox everywhere | The Verge
• Microsoft and Google are fighting over the future of Xbox | The Verge
• Microsoft was the No.1 games publisher in the world last December | VGC
• Xbox games in Game Pass ‘can lose 80% of premium sales’ | VGC
• Phil Spencer: No ‘red lines’ over Xbox games coming to Switch, PlayStation | Eurogamer
• Microsoft’s Xbox turmoil isn’t slowing down | The Verge
• Microsoft says Game Pass is profitable as subscription growth slows | The Verge