While Xbox continues to grow its software and content business thanks to the Activision Blizzard acquisition, the hardware side isn’t doing quite as well. That’s according to Microsoft’s fourth-quarter financial report released Tuesday, which revealed that Xbox’s hardware revenue dropped by 42% compared to this time last year. It didn’t reveal exact numbers, but hardware was down 13% in its fourth-quarter 2023 financials compared to the previous year.
Hardware’s downward trend isn’t as big a deal when the company has been all in on expanding its other services, like Xbox Game Pass and Cloud Gaming. Microsoft CEO Satya Nadella highlighted in the earnings call that Xbox’s expansion to other platforms like Amazon TV is a part of the strategy to “expand from there so that we have content for everywhere people play games, starting with the PC.” In general, revenue from content and services increased by 61%, boosted by the Activision Blizzard acquisition.
Xbox also profited from the Fallout show on Amazon Prime, which it said was the “second-most-watched title” on the service ever. This led to an increase in people playing the Fallout franchise on Game Pass. Nadella said that there are now 500 million active monthly users across the company’s platform and services.
Nadella added that the company expects overall Xbox revenue to continue its upward trajectory thanks to Activision Blizzard’s portfolio, which can help Xbox break into mobile and continue expanding on PC. However, hardware will continue to drop.
Console sales are generally down across the board. According to Circana analyst Mat Piscatella, hardware and accessory spending fell 6% in May 2024 year over year, although overall spending in 2024 was slightly up. He added that Switch sales in May 2023 were boosted by The Legend of Zelda: Tears of the Kingdom, so that skews the numbers slightly.
We’re also in the middle of the life cycle for the Xbox Series X and S. The consoles came out at the tail end of 2020, and previously, Xbox has released a mid-gen refresh. Last generation, that was the Xbox One S and Xbox One X; the former was a smaller version of the Xbox One, while the latter was an upgrade in terms of performance.
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