Microsoft’s chip shortage advantage is closing the gap between Xbox and PlayStation
Image: Microsoft

Microsoft’s chip shortage advantage is closing the gap between Xbox and PlayStation

Protocol Entertainment

Hello, and welcome to Protocol Entertainment, your guide to the business of the gaming and media industries. This Friday, we’re examining Microsoft’s very good week in Xbox news and what it says about its long-standing console rivalry, as well as what to read, watch and play this weekend.

Xbox’s steady comeback

It’s been a good week for Xbox. On Monday, research firm The NPD Group announced that Microsoft’s console recorded its best March sales figures in 11 years. Then, during Microsoft’s earnings announcement on Tuesday, the company said Xbox had “taken share” against PlayStation for the past two quarters in a row.

So what’s going on here, especially in the context of the seemingly never-ending PS5 shortage? Well, it’s a chip shortage story as well as one about Microsoft's multiyear strategy to better compete with Sony using the appeal of its Game Pass subscription and the cheaper Xbox Series S.

The new Xbox consoles are doing much better. Microsoft has yet to release concrete console sales figures, and it hasn’t done so since it fell far behind Sony shortly after the launch of the Xbox One back in 2013. But the company is slowly beginning to release more data and talk more openly about the turnaround in its console hardware business.

  • We know the Xbox Series S and Series X consoles are selling faster than any previous generation of Xbox, according to Microsoft Gaming chief Phil Spencer.
  • Some estimates have Microsoft’s sell-in figure at between 10 million and 12 million units, compared to Sony’s most recent 17 million-unit milestone in February.
  • Microsoft saw Xbox hardware revenue up 14% this past quarter compared with this time a year ago, and overall gaming revenue jumped 6% to $3.74 billion.

Microsoft has figured out a unique formula. While the sale of Xbox devices is roughly at the same pace of the Xbox One’s launch nearly a decade ago, Microsoft is less reliant today than it was back then on amassing a large console-only customer base.

  • More important to Microsoft moving forward is growing Xbox Game Pass, which saw a 45% increase in subscribers over the last 12 months.
  • Because of Microsoft’s commitments to cross-save and cross-buy, players can take their libraries from Xbox to PC and even to mobile devices with cloud gaming. Microsoft doesn’t need to outsell PlayStation if it can start to unlock new audiences on mobile devices and attract players with its cross-platform and quality-of-life features.
  • “While console users represent the core of Microsoft's service, for example, its future growth will increasingly rely on converting non-console users through its streaming functionality,” wrote Ampere Analysis researcher Piers Harding-Rolls in a recent report on subscription gaming.

Sony’s supply constraints have given Microsoft an advantage. We can’t say for sure why Sony is having a harder time supplying PS5 consoles, but we do know that demand is far greater for the PS5, while at the same time Microsoft’s cheaper Series S has been much easier to find throughout last year and into 2022. The Series X shortage is no longer as severe as it was, too.

  • Anecdotally, I’ve heard from many readers that they’ve chosen to buy a new Xbox because of general fatigue from trying to buy the PS5, the more readily available Series S and the attractiveness of Game Pass.
  • Having two options at meaningfully different price points is likely helping split demand for Xbox devices, whereas the PS5’s two options are either a base model without a Blu-ray drive or a slightly pricier version that accepts discs. Meanwhile, Sony lowered its PS5 sales estimates for fiscal 2022 and said it would keep making PS4s through the end of the year.
  • Because Xbox devices are easier to find, street prices for scalped units have dropped dramatically, whereas PS5 aftermarket prices remain almost double MSRP.
  • The longer this continues, the longer Microsoft may be able to gain market share against PlayStation, which still captures close to half of all console consumer spending thanks to the more than 112 million PS4 units sold.

The console market is more dynamic than it’s been in years. Nintendo continues to see strong sales even six years into the Switch’s life cycle, and regularly sells more units than the competition. Meanwhile, Sony is still capturing a majority of spending thanks to the massive install base of the PS4 and the fact that the most popular free-to-play console games, like Fortnite and Call of Duty: Warzone, are played on PlayStation.

But Xbox has a unique advantage thanks to its investments in subscription and cloud gaming and Microsoft’s more device-agnostic approach to distribution. It’s also able to meet Xbox demand, while Sony continues to falter.

By the time you can easily find the PS5 on store shelves at Best Buy or Walmart, Microsoft may also be in official possession of Activision Blizzard’s formidable software library, further sweetening the deal for Game Pass subscribers and closing the once seemingly insurmountable gap between Xbox and PlayStation.

— Nick Statt


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TGIF: How to spend your weekend

“Undone” — Amazon Prime Video. The first thing you’ll notice when you watch “Undone” is the rotoscope animation. It’s the same technique used for Richard Linklater’s “A Scanner Darkly,” and it basically means that the filmmakers captured actual footage and then used that as the source for their animations. In “Undone,” this helps to tell a story of a girl torn between two worlds: the here-and-now and the world in her head, in which her long-dead father convinces her that time travel is real. It’s captivating, to the point that the viewer doesn’t know anymore what’s real and what may actually be the product of mental illness. Season One was a masterpiece, and I can’t wait to watch Season Two, which premieres on Amazon Prime today.

“Erax” — Netflix. If you’re looking for some more kids-friendly alternate realities, don’t miss “Erax,” a charming if slightly scary short film on Netflix that puts a new twist on the old question: What if fairytales were real? “Erax” was produced as part of Netflix’s Emerging Filmmaker Initiative and was made by up-and-coming Chicago visual artist Hebru Brantley.

Spilling Silicon Valley’s secrets, one tweet at a time — MIT Technology Review. If you’ve ever read a story about Twitter working on some secret plan, or Instagram getting ready to test a new feature, chances are that those scoops were unearthed by notorious reverse engineer Jane Manchun Wong. Based in Hong Kong, Wong has become famous for her ability to find clues on what some of the world’s biggest companies are going to do next. This profile tells us what makes her tick and reveals that Facebook’s CTO is among her fans.

Krispee Street — iOS and Android. Aren’t you curious what Netflix’s foray into gaming is all about? Here’s your chance to find out and have some fun while you’re at it. Krispee Street is a Netflix-exclusive mobile puzzle game based on the Krispee web comic. It’s like “Where’s Waldo?” except you are tasked with finding Murakami-like flower people and big furry monsters with feelings. It’s fun, cute and surprisingly difficult! The game is available to Netflix subscribers via Google and Apple’s app stores.

— Janko Roettgers


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Thoughts, questions, tips? Send them to Enjoy your day, see you next Tuesday.

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