Why the Xbox One Is Still Struggling

Source: Microsoft

Microsoft has announced its latest quarterly earnings, and although the company is doing well overall, the results for its Xbox division aren’t great. Not only did the Xbox One lose out to its rival, the PlayStation 4, during the quarter, but overall sales and revenues are down from the same quarter last year. That happened despite a $50 price cut. Why? I think it’s the games — or the lack thereof.

Before we get into the reasons behind Microsoft’s console sales struggles, let’s look at the numbers.

When reporting results, Microsoft has the annoying habit of roping Xbox 360 and Xbox One shipments into a single number. It also doesn’t give any hint at the number of consoles sold through to customers; instead, Microsoft announces how many units it has shipped to stores, a portion of which are still sitting on store shelves. Both of these factors make it difficult to compare Xbox One sales with PlayStation 4 sales, because Sony tends to announce how many PS4s it’s sold to customers.

Now that that’s out of the way, back to Microsoft’s numbers. During the latest quarter, which ended on March 31, Microsoft shipped 1.6 million Xbox consoles to stores. That’s down from 2 million during the same period last year.

A similar drop in overall sales occurred last quarter, too. During the holiday quarter of 2013, Microsoft shipped 7.4 million combined Xbox consoles, while during the 2014 holiday quarter, it shipped 6.6 million. That’s two quarters in a row of declining sales.

With sluggish sales comes sluggish revenues. Revenues for the company’s Computer and Gaming Hardware division, which includes Xbox, fell $72 million year over year, or 4%. It gets worse if you just look at Xbox, whose platform revenues sank $306 million, or 24%. Microsoft noted that some of that is due to the Xbox One’s $50 price drop, although much of it comes from a 20% decline in console volume.

Source: Square Enix

We don’t have a one-to-one point of comparison for PlayStation 4’s quarterly sales yet, but based on Sony’s announcements so far this year, we know that customers bought 1.7 million PS4s between January 4 and March 1. That means Microsoft lagged significantly behind during the first three months of the year. Not only does Microsoft’s 1.6 million figure apply to both Xbox 360 and Xbox One consoles, but again, it’s how many consoles the company shipped to stores — not how many it sold through to customers.

The big question is: Why are Xbox sales slowing down? It’s a tough one to answer, especially since Microsoft ties together Xbox 360 and Xbox One sales.

If we look at the consoles separately, it’s easy to see why the Xbox 360 is a less appealing to customers in 2015 than it was in 2014. Last year, the majority of the biggest games were also available on the 360. You didn’t need a new system to play games like Call of Duty: Advanced Warfare and Dragon Age: Inquisition. In 2015, that’s no longer the case. Upcoming games like The Witcher 3: Wild Hunt and Batman: Arkham Knight will only be available on new systems.

But while Xbox 360 sales decline, shouldn’t Xbox One sales kick in to make up the difference?

Ideally, yes. But to spur console sales, Microsoft has put out exclusive games that people can only play on Xbox One. On that front, Microsoft has failed so far in 2015, while Sony has excelled. Between January 1 and March 31, the PS4 got two high-profile exclusives, The Order: 1886 and Bloodborne. During that same time, the Xbox One had nothing on that scale, meaning potential console buyers had no compelling reason to choose the Xbox One over the PS4.

Source: Microsoft

Looking ahead at the exclusive PS4 and Xbox One games planned for the current quarter, there’s not much to see on either side of the fence. Several cross-platform AAA titles are landing this quarter — Mortal Kombat X, Wolfenstein: The Old Blood, The Witcher 3: Wild Hunt, and Batman: Arkham Knight — but those aren’t likely to sway customers to one console or the other. And history has shown that under those conditions, the PS4 tends to win the console race month after month.

The one bright spot in Microsoft’s future is the 2015 holiday quarter. Assuming no delays occur in the meantime, Microsoft will have Halo 5: Guardians and Rise of the Tomb Raider ready to go as people begin their holiday shopping. Both of those are tentpole games that are big enough to influence which console people buy.

Meanwhile, Sony’s biggest upcoming game, Uncharted 4, was pushed back to 2016. Sony is likely to have a surprise or two up its sleeve to release for the holiday, but it probably won’t be as big as Tomb Raider, let alone Halo.

Of course, that also means the PS4 will get a sales boost when Uncharted 4 launches in 2016. If Microsoft doesn’t have any exclusives to counter it, the Xbox One could find itself back in the spot it’s in now. That’s exactly where Microsoft doesn’t want it to be.

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