It’s here. My first big recap article of this latest earnings season!
In case it wasn’t clear from my recent calendar post, late July signals the start of that season. Let’s kick it off with Microsoft’s fourth quarter fiscal 2022 results, which means I’ll cover both quarterly and annual figures. The more, the better!
This latest 3-month period featured somewhat mixed results that capped off a historic year for the company’s gaming division, where it achieved the best ever fiscal revenue for Xbox as a brand.
As anticipated, gaming revenue declined in the quarter ending June 2022, dipping 7% to roughly $3.45 billion. Like many results lately in the industry, it sounds a lot worse than it was. This number is the second best Q4 in Xbox history, trailing behind only last year’s massive $3.71 billion spike.
It’s one of those “good enough” scenarios, falling perfectly in-line with the company’s, and my, expectations of a mid-to-high single digit decline. Either a big beat or epic miss would have been much more newsworthy.
What’s important is the impact on fiscal year revenue from Xbox, which moved past $16 billion for the first time ever. That’s yet another all-time year for gaming at Microsoft. It’s the sixth straight fiscal year where Xbox has achieved record sales.
Underlying this growth was upward movement in Content and Services, which houses software sales along with the likes of Xbox Game Pass and cloud offerings. A constant here has been claims from management that Xbox Game Pass subscriptions have been steadily increasing, although the team still hasn’t shared an updated sub figure since the 25 million I wrote about back in January.
On the other hand, Xbox hardware sales have stagnated over the latest 12 months which resulted in a double-digit decline during the year. Which is curious, considering comments from Chief Executive Officer (CEO) Satya Nadella indicate the family of devices is selling better than ever.
“We’ve sold more consoles life-to-date than any previous generation of Xbox and have been the market leader in North America for three quarters in a row among next gen consoles,” Nadella said in his prepared remarks on the earnings conference call.
The declining revenue along with high unit sales indicate a major talking point to me: There’s a high proportion of unit sales coming from the lower-priced Xbox Series S. Which fits with mounting evidence and anecdotes that these are much easier to find and plays from a manufacturing cost standpoint because they are less expensive to make. Plainly, Microsoft and its suppliers can’t produce enough high-end Xbox Series X boxes to grow hardware revenue. I expect high input costs to continue, thus this trend will keep up into the new fiscal year.
Now I’ll dig into the underlying numbers and highlight key trends from this report.
Peeking first at the above slides from Microsoft, they show that 7% decline in quarterly gaming revenue which gets us to that $3.45 billion figure. Not bad considering Xbox achieved a best-ever Q4 result this time last year!
The main reasons for lower sales proved to be people spending less time and money on the platform over those 3 months, which impacted purchasing of both first-party and third-party software. The main bright spot was growth in Xbox Game Pass subscriptions. I’ll go more into these segments in a bit.
Expanding to a longer time frame is my chart, which shows 12-month trailing sales figures for the Xbox business unit. This shows a couple major points.
First, if we focus strictly on each fourth quarter, it displays that record high fiscal year from Xbox: $16.22 billion between July 2021 to June 2022 compared to the prior record holder of fiscal 2021 at $15.37 billion.
Subsequently, the full chart illustrates last quarter was the first decline for trailing annual gaming sales since back in Q2 of fiscal 2020. That initial rise back then corresponds to quarters leading into the start of quarantines during the pandemic, and the figure has since leveled off right around $16 billion lately. Still, it’s only a 2% decline from last quarter’s all-time best. Which is something I’ve expected given the strong prior years and macroeconomic forces at play, including inflation.
Note: These dollar totals are based on growth rates over the prior year. Microsoft has yet to publish its 10K filing, I’m confident the math will be very close.
Where does this put Xbox sales right now in comparison to major peers in the games industry?
Since Microsoft is the first to report, I’ll use the latest annual figures for the likes of Tencent, Sony and Nintendo. Tencent is the clear leader of the pack, aggregating to annual sales of $33 billion. Sony is up next, reaching $24.4 billion. That number will refresh later this week when the company reports on Friday. That leads into Microsoft’s $16.22 billion, which will increase when the Activision Blizzard deal closes to somewhere between $23 to $24 billion depending on redundancies and cost-savings. Lastly, Nintendo is close to Microsoft’s current figure, hitting $15 billion in yearly sales.
The main caveat I’ll note when comparing across the industry is how revenue is one of many metrics used to gauge financial strength. I’d prefer profitability when available, however Microsoft does not report this granularity for Xbox alone.
That doesn’t mean we can’t glean anything on Xbox’s profit contribution from this recent report. The broader segment of More Personal Computing (MPC) experienced an operating income decline of 5% as expenses rose 8%. Microsoft called out Windows, Search and news advertising as main drivers of this weakening profit dynamic, which indicates that gaming’s contribution likely remained consistent. Which I’d say is good news, especially for the cost of making consoles.
For the quarter ending June 2022, both of Xbox’s main segments of Xbox Content & Services and Xbox Hardware suffered declines. Although the latter was more precipitous, neither was very concerning to me because of where we are in the broader cycle plus supply conditions being nowhere near normal.
Starting with Content & Services, this segment contributed 6% lower sales than a year ago. Which, like total Xbox revenue, was in-line with the company’s guidance and my own expectations. This equates to $2.77 billion in Q4, implying it contributed around 80% of the total. Another way to consider this is 4 out of every 5 dollars spent on Xbox was on software, downloadable content, subscriptions and non-hardware purchasing.
In fact, the latest annual contribution from Content & Services is a big positive for the Xbox brand. It’s now above $12.5 billion, or 77% of the total, a dollar figure which is actually up 3% compared to the prior year. That means despite weakness in the fourth quarter, Content & Services had its best fiscal year in reported history.
The main factor, of course, is Xbox Game Pass momentum and its proven impact on spending habits for ongoing subscribers. While executives refuse to share anything beyond the 25 million figure, I estimate it’s closer to 30 million by now. I’d wager it hasn’t breached that milestone. Because otherwise Microsoft would have said so!
There’s also the element of offerings like Xbox Cloud Gaming plus recent partnerships with companies like Epic Games and Samsung. Microsoft is benefiting from rounding out its ecosystem play and expanding how and where people play, which has a tangible effect on revenue growth even as individual title sales may slow.
“We’ve partnered with Epic Games to make Fortnite available for free via browser,” noted Nadella in an example of this strategy. “Over 4 million people have streamed the game to date, including over 1 million who were new to our ecosystem.”
Hardware is proving to be the more challenging business line for Xbox, declining 11% in the quarter to under $680 million. That’s the second lowest output in the past seven quarters, no doubt impacted by higher margins and continuously low availability of the premium Xbox Series X version.
Along the lines of its counterpart, the annual numbers are more reassuring. Microsoft generated $3.7 billion from Xbox console sales in fiscal 2022, which is up from $3.2 billion previously. That’s a gain of nearly 16%. This is mainly due to excellent performance during the initial stages of this fiscal year, meaning hardware has trailed off recently.
That’s not to say demand isn’t there. It’s mainly that Xbox is selling its lower-priced SKU, which doesn’t boost the top-line as much. Last quarter, I posited that lifetime unit sales of Xbox Series X|S could be between 14 million and 14.5 million. After this latest period, I’m estimating it at 16 million to 16.5 million.
It’s unfortunate we don’t know for sure, especially since Sony and Nintendo are more transparent.
The last numbers I’ll cover before wrapping up are for Microsoft as a whole. The firm generated $51.9 billion in revenue, up 12%. Operating profit reached $20.5 billion, or an increase of 8%. Quarterly sales from Microsoft Cloud moved past $25 billion for the first time ever, jumping 28% year-on-year.
Focusing on the More Personal Computing (MPC) business unit, it was responsible for $14.4 billion in sales. This means Xbox, at $3.45 billion, made up almost a quarter of the segment’s total.
These results are quite staggering as the company benefited greatly from hybrid working models and enterprise cloud usage. Still, quarterly revenue and earnings both missed analyst consensus estimates.
During the full fiscal year, Microsoft posted $198 billion in revenue and $83 billion in operating profit. It’s hard to even understand these numbers!
Now to look ahead, let’s focus on gaming within the broader company.
According to Chief Financial Officer (CFO) Amy Hood, here’s the rundown of guidance for the first quarter of fiscal year 2023, which runs from this July to September. Note this does not include any impact from the Activision Blizzard deal, which it still expects to close by June 2023.
Gaming revenue is forecasted to decline in the “low to mid single digits” driven by a drop in first party software. Content & Services has that same exact guidance. Though the management team does anticipate Xbox Game Pass subscriptions will grow again and thinks Hardware will rise as well, albeit didn’t provide any more specifics.
Let’s assume “low to mid single digits” means a dip of 3%, that should be a good barometer. This implies total quarterly revenue from Xbox of around $3.48 billion, or the second best Q1 on record. Then, for both Content & Services to decline and Hardware to increase, the former must decline 4% or more. Which would follow that Hardware can increase a percent or two and the math still works out.
Personally, I do expect a slight decline in total Xbox sales during the current quarter. There’s a handful of major 3rd party titles, including a new Madden game in August, and Xbox Game Pass will certainly have a few great additions. It’s just last year’s high was powerful, it remains a tough comparison. I’m not so sure about Hardware gains, that’s where I’m skeptical. I’m expecting flat to slightly negative contribution there unless something changes with the split of Xbox Series S to Xbox Series X.
On a bit longer of a timeline, where’s the growth other than the traditional means? There’s the clear upside of bringing Xbox Cloud Gaming to other television brands outside of Samsung. Then the substantiated plus rumors of the team developing a dongle-like device like a Google Chromecast or Amazon Fire TV Stick. And, of course, people calling for Xbox to make a handheld now that both Nintendo and Valve have active portable gaming devices.
“As announced last year, we’ve been working on a game-streaming device, codename Keystone, that could be connected to any TV or monitor without the need for a console,” a Microsoft spokesperson said to Windows Central, who first reported on the cloud stick’s development.
“We are constantly evaluating our efforts, reviewing our learnings, and ensuring we are bringing value to our customers. We have made the decision to pivot away from the current iteration of the Keystone device. We will take our learnings and refocus our efforts on a new approach that will allow us to deliver Xbox Cloud Gaming to more players around the world in the future.”
So, I’m a believer in the expansion of cloud and whatever this Project Keystone turns out to be. I don’t expect the dongle to hit market this fiscal year, so that will impact future time frames. And I really don’t think an Xbox handheld fits with its direction, for a multitude of reasons that I’ll probably write about at some point! What I do expect is for Xbox Game Studios to ramp up its output in 2023, featuring titles like Starfield and Redfall plus some surprises too.
That concludes Xbox’s results this quarter. I’ll be back soon with articles on other major gaming companies, and updates on social media throughout the coming weeks. Thanks for reading and be safe all!
Note: Comparisons are year-over-year unless otherwise noted.
Sources: Company Investor Relations Websites, Windows Central.
The ongoing Activision Blizzard deal isn’t the only thing making major headlines for Xbox lately.
Microsoft was the first of the “big three” console makers to report this earnings season, which I outline in my latest calendar post, this time sharing its fiscal year 2022 third quarter results covering the period between January and March.
During this time, gaming achieved its best non-holiday sales total ever. While certain parts of the industry cool off, Xbox is at least keeping the fire alive.
Driven by new generation hardware gaining market share plus growth in Xbox content and services, Microsoft generated $3.74 billion in quarterly revenue from gaming, up 6% since last year. That means Microsoft’s Xbox division secured its best revenue ever for a quarter that wasn’t October to December. The prior non-holiday record holder was $3.71 billion back in April to June 2021, a few months after the November 2020 launch of Xbox Series X|S.
This strength bolstered trailing annual sales to reach $16.5 billion for the first time since reporting began. That’s after a record holiday pushed it past $16 billion just last quarter as I wrote about then.
It’s even more impressive considering last year’s stricter pandemic restrictions leading to a strong comparable. According to its report, Xbox Content & Services moved up 4% while Xbox Hardware boosted 14%. Gaming as a whole rose due to growth in Xbox Game Pass subscriptions, first party software (like Halo Infinite and Forza Horizon 5) and Xbox console hardware revenue growth. Third party content was really the sole area of weakness, exhibiting declines year-on-year. What this says is the ongoing Xbox ecosystem play is paying off, supplemented by better inventories at retail.
CEO Satya Nadella even provided a more macro view for hardware right now. “With our Xbox Series S and X consoles, we have taken share globally for two quarters in a row,” Nadella said on the company’s conference call. “We are the market leader this quarter among next gen consoles in the U.S., Canada, U.K., and Western Europe.”
Based on supply driving the cycle due to a global semiconductor shortage, this sort of strength in hardware and market share implies Microsoft was able to secure more components than Sony producing its PlayStation 5. Note that Nintendo Switch was not a part of this statistic, since Nadella’s comments specifically cite the newest console generation.
While the numbers point mostly positive, I have to bring up the usual caveat that Microsoft unfortunately doesn’t share individual profit metrics for its Xbox division. That means purchasing those inputs to produce more retail units could very well have undercut profitability due to higher margins. I’ll shed more light on profit dynamics below the fold.
It’s now time to chart a course towards a more detailed analysis.
As the slides show, Microsoft’s gaming revenue increased 6% to that $3.74 billion during the quarter which was in-line with the company’s forecast. This quarterly result implies nearly $16.5 billion in trailing annual sales, an all-time high, shown via my chart in the above gallery. If combined with Activision Blizzard’s $8.3 billion annual sales and reduced by say $1 billion in double-counting and synergies, it would be between $23 billion to $24 billion.
To provide context, how does this latest top-line result compare to peers? I usually cite Tencent, Sony and Nintendo for these sections, all of which are reporting later in May so I’ll use the latest annualized figures for now. Tencent’s 2021 revenue exceeded $27 billion, maintaining its spot as largest gaming company in the world. Sony’s at $24 billion, suggesting its standing is probably just above Microsoft plus Activision Blizzard’s operations. Finally, Nintendo generated $15 billion.
The largest sub-segment for Microsoft’s gaming business was Xbox Content & Services, which improved a modest 4% to $3 billion in fiscal Q3. That means sales from Xbox Game Pass, software, cloud and any sort of add-on content via its digital storefront account for over 80% of quarterly gaming sales. This was just the second time ever it’s crossed the $3 billion threshold.
While Xbox Content & Services slightly missed the internal growth estimate of “mid to high single digits,” it’s still a success to grow versus a great result last year. I see it as a sign the Xbox brand strategy is stimulating a paying audience.
Disappointingly, Microsoft didn’t share an update on the exact number of Xbox Game Pass subscribers. The latest figure is 25 million from back in January. I’d imagine this was due to seasonality, where it picked up after the holiday and has grown only incrementally since then. Especially given a lack of major exclusives or even third party partnerships launching into the service other than Ubisoft’s Rainbow Six Extraction.
Instead, Microsoft highlighted new information specifically on cloud gaming usage. Nadella said 10 million people have streamed games remotely since the feature kicked off in beta during November 2019 then was formally introduced to Xbox Game Pass Ultimate subs in September 2020. While cloud is still niche in the scheme of things, hitting this sort of milestone shows there’s at least some level of growing interest.
“Our Game Pass library now includes hundreds of titles across PC and console, including more games from third party publishers than ever before.” Nadella noted. “Billions of hours have been played by subscribers over the past 12 months, up 45 percent.”
Lastly, he said Azure gaming revenue increased 66% during the current fiscal year to date. These sorts of statistics on service, cloud, streaming and the like fit with the company’s gaming mantra of allowing people to play on various devices. It eases the burden on hardware shipments, which I’ll cover next.
The second sub-segment within gaming is Xbox Hardware, which exhibited the better growth during January to March. Sales here moved up 14% to $728 million. That’s the second best non-holiday result since the company began reporting splits. Microsoft didn’t previously share internal guidance for hardware, yet CFO Amy Hood said on the call that it exceeded expectations.
Company slides highlight continued demand for Xbox Series X|S underlying this change, however clearly it’s capped by supply conditions. Based on evidence from both regional tracking firms and retail channel checks, Xbox Series S in particular is showing better availability at least.
Of course, the question on everyone’s mind is: how many units of Xbox Series X|S has Microsoft shipped now during its fifth full quarter on market? Last quarter, I mentioned the estimate from Daniel Ahmad, Senior Analyst at Niko Partners, being above 12 million. While revenue growth doesn’t directly translate to unit sales trajectory, I’d guesstimate the family at upwards of 14 to 14.5 million globally. As a reference, last count for Sony’s PlayStation 5 was 17.3 million.
We’d know for sure if Microsoft was more transparent. (Wishful thinking!)
Fitting with the theme of market share gains and increased inventories was The NPD Group’s recent monthly report on U.S. games industry spending. As I covered in my article, Xbox Series X|S was the leading console for both March and the first quarter domestically by dollar sales. It’s certainly attracting buyers, when there’s stock on hand.
“Coming to the end of a good week,” wrote CEO of Gaming Phil Spencer on Twitter. “Microsoft earnings were a nice moment for Xbox, it’s always great to hear Amy [Hood] and Satya talk about the progress.”
Now, here’s yet another important caveat related to profitability. We don’t know if Microsoft is making a profit on either model right now. In fact, last year during the Epic v. Apple trial, Head of Xbox Development Lori Wright specifically said the firm sells hardware at a loss. Which is consistent with historical data and anecdotes across the industry, as consoles are known as a loss leader and a means to have people spend on software, and now subscriptions or other content.
Comparatively, Sony said it’s now turning a profit on each PlayStation 5 standard edition it ships. Without a better indication of cost impact, it’s difficult to make a direct comparison.
Stepping back to briefly touch on Microsoft’s general results, the company generated over $49 billion in quarterly sales which is 18% higher than last year. Operating income exceeded $20 billion, up 19%. Both top-line and earnings-per-share came in above analyst estimates.
Intelligent Cloud as a segment showed the most growth, jumping 24% in Q3. Microsoft Cloud revenue improved 32% to over $23 billion. Office Commercial products and cloud moved up 12%, while LinkedIn sales rose 34%.
Gaming is part of the More Personal Computing business for Microsoft, which rose 11% to $14.5 billion. This means Xbox comprised 26% of quarterly segment sales, down from 31% during the holiday quarter between October and December 2021.
In terms of a glimpse into profitability for this segment, gross margin percentage declined “slightly” last period. That’s because of a 17% increase in operating expenses, attributed to gaming, search, news advertising and Windows marketing costs.
Essentially, gaming is less profitable than other areas when investing heavily in console manufacturing and external deals. This also reflects the broader trend of inflation, impacting input pricing. The more it takes to make a product, the lower its margins. Right now, the implication is there’s higher cost in both producing consoles and making the types of deals required for Xbox Game Pass. Without exact data on how much profit is made per retail unit sold or for gaming as a whole, I have to make these kinds of inferences.
Considering gaming sales rose 50% this time last year, beating total growth estimates in the latest quarter was a great showing on the revenue side. That $3 billion figure for Xbox Content & Services in particular supports the brand’s reinvigorated move towards keeping players in a more accessible ecosystem as opposed to a singular piece of hardware. There are still indications that profitability is being hit by input availability and cost, so that’s worth keeping in mind especially moving into the second full calendar year of Xbox Series X|S.
Looking ahead, next time Microsoft will report fourth quarter and annual results for fiscal 2022.
When it comes to gaming, CFO Amy Hood laid out somewhat bearish internal guidance for April to June as the company anticipates lower sales, echoing a trend seen industry wide as a reversion towards more normalized spending habits.
“We expect revenue to decline in the mid-to-high single digits driven by lower engagement hours year-over-year as well as constrained console supply,” Hood said. “We expect Xbox Content & Services revenue to decline mid-single digits though engagement hours are expected to remain higher than pre-pandemic levels.”
Note: She didn’t provide formal guidance on hardware results.
Digging into that first estimate, let’s assume an 8% decline. This would lead to fourth quarter gaming revenue of $3.4 billion versus the prior amount of $3.7 billion. When aggregating for the full year, it would still be an increase from $15.4 billion to $16.2 billion. That implies we’ll see a fiscal year sales record for Xbox despite anticipated weakness in the final quarter.
Then, if Xbox Content & Services dips say 5%, it would generated $2.8 billion in the fourth quarter which would be the lowest result since the pandemic began.
We’ll have to see how it plays out for Xbox over a three month span where it’s going to reveal a lot more about future titles than actually launch many on the first party side. On June 12th, Xbox & Bethesda will host its annual summer showcase where I expect to see more about Starfield, Redfall, Senua’s Saga: Hellblade II, Avowed and hopefully the Indiana Jones project.
Thanks everyone for stopping by and making it this far. Be safe and well!
Comparisons are year-over-year unless otherwise noted.
Sources: Company Investor Relations Sites, The NPD Group, Xbox Wire, Yahoo Canada (Image Credit).
As I reported back in October, Microsoft’s Gaming division at the time saw its healthiest first fiscal quarter ever.
Now, it’s going one step further. On the strength of its first party lineup and growing subscription base, Xbox has just achieved its best holiday on record and blasted past a new milestone for annual sales, establishing a record 12-month figure.
Mere days after announcing the biggest acquisition in industry history in its purchase of Activision Blizzard, Microsoft is showing off why it’s pumping dollars so much into the space. Because it’s seeing great returns. During its 2nd quarter of 2022 financial report, Microsoft said Gaming revenue reached $5.44 billion during the holiday quarter.
That’s the single best October to December ever reported, 8% higher than last year which was the previous record holder of $5 billion. The main contributor to this record output was Xbox Content & Services, especially strong during the holiday season bolstered by flagship titles in the Halo and Forza series.
This performance also means annual Xbox sales for the Washington-based tech giant pushed passed the $16 billion milestone for the first time.
Combining the last four quarters of sales for Xbox reaches upwards of $16.28 billion. That’s 18% higher than December 2020 and 3% more than even last quarter, both of which included the launch of Xbox Series X|S. The fact that the rolling annual figure was this high shows payoffs in first party game development and key investments in partnerships for Xbox Game Pass’s extensive library.
According to Chief Executive Officer (CEO) Satya Nadella on the company’s conference call, the Xbox division saw both record engagement and revenue during the quarter. While he didn’t share specifics on the actual level of engagement or revenue, he did cite certain juicy tidbits I’ll dig into later.
Unfortunately, there was no appearance from newly-minted CEO of Microsoft Gaming Phil Spencer on the call or questions from analysts on anything related to the acquisition of Activision Blizzard. In fact, the only mention of the deal was reiterating what we already knew about its cost and closing during the fiscal year ending June 2023.
No worries. It’s time to move into the underlying numbers and corresponding reaction!
The above slides provided by Microsoft give a rundown of growth rates for Gaming and its sub-segments of Xbox Content and Services plus Xbox Hardware during the quarter ending December 2021. Namely, that 8% growth for Gaming leading to $5.44 billion in quarterly revenue which was in-line with the company’s expectations of high single digits.
Underlying this all-time number was double-digit growth in Xbox Content & Services, the sub-segment that includes software and subscription sales, which rose 10% in the quarter to around $3.86 billion or 71% of the total. Yet another record! Boosted by first-party launches like Halo Infinite and Forza Horizon 5 plus Xbox Game Pass expansion, this figure was especially impressive given its consistency around this time in late 2020.
On the conference call, Chief Financial Officer (CFO) Amy Hood mentioned there was “significant” growth for Xbox Game Pass subscriptions and first party software sales in the holiday quarter.
Why? According to Nadella, Halo Infinite has now attracted 20 million players since its staggered launch beginning back in November. It’s the largest start ever in the series that dates back to the original Xbox. Another thing that, hm, drove sales is how Forza Horizon 5 is now up to 18 million players after hitting the 10 million threshold within a week of launch in early November. These games also attracted subscription growth, the other key revenue contributor, as Xbox Game Pass now has 25 million members up from the last official figure of 18 million (with the latest rumor being around 22 million).
To me, this dispels a false notion that Xbox Game Pass isn’t properly monetizing its user base. Even those buyers that get in at a discount are sticking around, which generates ongoing revenue once the rate resets. The numbers back this up. I’d love to know more on the profit side, of course, but I work with what’s available.
Intriguingly, the 10% Content & Services growth was technically below Microsoft’s guidance of “mid-teens.” That’s because of weakness on the third party side. This signals under-performance of AAA multi-platform releases like Call of Duty: Vanguard and Battlefield 2042. Perhaps even Madden NFL 22 and other annualized sports titles. So while Call of Duty and Battlefield both were among the best-selling premium titles in the U.S. during 2021 as I wrote about here, this missed estimate implies a lower contribution to the bottom line of platform holders.
Taking a look at the above chart I’ve compiled, this is 12-month revenue going back over time for the gaming business. It helps to provide context in a couple of areas, and smooths out short-term fluctuations. The main thing it shows is the overall level of Xbox revenue over time. That’s the record $16.28 billion as of this latest period, compared to $15.86 billion last quarter then going back from there. Clearly the trend-line is on that upward trajectory since bottoming out in Q3 of FY 2020.
There’s also the split between Xbox Content and Services and Xbox Hardware categories. The green portion is for Xbox Content and Services, which most recently contributed $12.58 billion to the annual amount. The red portion is Xbox Hardware which is all physical gaming consoles under the brand. $3.7 billion this time. Both of those are also all-time highs.
Next up is Xbox Hardware. This sub-segment contributed the remaining portion of the record holiday quarter, growing 4% to almost $1.59 billion in revenue on the back of steady demand. It’s actually one of the few things in this report that wasn’t a record. That happened back in fiscal 2018’s second quarter, when hardware accounted for $1.78 billion. This year’s was still second best, so I’d say it’s doing alright.
To put it another way, the second holiday quarter for Xbox Series X|S generated almost $70 million more in dollar sales than its launch quarter did.
On the call, Hood shared how Microsoft is seeing continued buyer interest for both console models. Additionally she saw “better than expected” supply, which is a good sign considering the doom and gloom of the modern semiconductor situation.
This commentary and performance is mostly consistent with Spencer’s recent comments around Xbox Series X|S being the fastest-selling ever for the brand. Xbox Hardware is performing well during this early part of the generational cycle even in the fact of shortages, with Xbox Series S as the highlight because of higher availability. While we don’t have exact figures from Microsoft on hardware shipments globally, we do have an estimate from my friend Daniel Ahmad, Senior Analyst at Niko Partners, that it’s above the 12 million of Xbox One’s first year.
Here’s a telling experiment: What would Microsoft’s gaming revenue look like if Activision Blizzard earnings were considered? The latter hasn’t reported its last quarter yet, so I’ll use historical figures for a baseline in this thought experiment.
The most recent October to December revenue for Activision Blizzard was $2.41 billion. That means the holiday quarter for the combined entity would have been over $7.58 billion! For the full 12-month period, Activision Blizzard’s latest is $9 billion.
Which means, in aggregate, Xbox and Activision Blizzard annual revenue right now would be $25.33 billion. How does that compare to its major competitors? Well, it’s pretty impressive and much closer to the top-end than ever before, naturally.
I usually pull in figures for Sony and Nintendo as the three main console manufacturers. There’s also Tencent, the largest gaming company in the world, which is an absolute behemoth notably in mobile and the Asia Pacific region. So let’s see them all!
This is using annual and the caveat is Microsoft is the only one that’s reported this season so far. It’s still helpful to illustrate. Tencent’s latest strictly from its games business was $27.3 billion. Sony’s Game & Network Services segment hit $25.5 billion while Nintendo’s total sums to $14.7 billion, both using the exchange rates at their last reports. Which means Microsoft alone sits closer to Nintendo, while combined with Activision Blizzard it nearly surpasses Sony’s total and might even some day approach the untouchable realm of Tencent.
And that’s part of why Microsoft is willing to pay almost $70 billion for it.
As is tradition, I’ll quickly run down Microsoft’s overall results for the three months ending December before closing up.
Total revenue for the company rose 20% to $51.7 billion. It’s the first time quarterly sales topped $50 billion, pushed by an all-time high $18.3 billion revenue from its Intelligent Cloud segment. Operating profit moved up 24% to $22.2 billion.
Its results beat analyst consensus on both top-line revenue and earnings-per-share. Microsoft Cloud product revenue was a major highlight, increasing 32% to over $22 billion for only the second time ever.
We can learn a bit on gaming profitability from the More Personal Computing business unit margin movement and operating dynamics. This experienced 15% revenue growth to $17.5 billion. At $5.44 billion, gaming makes up around 31% of More Personal Computing. Operating income rose 22% to $6.36 billion, while expenses rose at a lower 17% rate partially as a result of gaming. It’s not perfect, but this can indicate sales contribution is outpacing costs.
It’s hard to overstate just how much the record revenue stats keep piling up for the Xbox business, reflective of Microsoft’s general strategy of user engagement and ecosystem establishment. This time it was first party software moving the needle, with major internal studios like 343 Industries and Playground Games leading the charge by pushing quality within key brands. The result is Xbox Game Pass literally paying off, thus generating opportunities for more future investment both organic and external.
Moving into the new calendar year, Xbox’s early 2022 exclusive slate is light during a quiet quarter for first parties. CrossfireX is a third party console exclusive from Smilegate and Remedy Entertainment launching in February, plus there’s indie partnerships hitting the platform throughout the coming months.
It is, however, quite the busy period for third party games with select titles like Rainbow Six Extraction available simultaneously on Xbox Game Pass. Dying Light 2, Elden Ring and Destiny 2’s The Witch Queen expansion all debut in February. There’s always the long tails from late year launches of Call of Duty, Madden, NBA 2K, Battlefield then other major ongoing games with seasonal updates like Fortnite and Apex Legends.
On the hardware side, Xbox Series X|S availability will continue to set the narrative. I don’t expect the higher end Xbox Series X to pick up stock any time soon, though I’m turning optimistic on Xbox Series S inventories based on recent trends and anecdotal evidence. Microsoft executives themselves said that hardware will continue to be impacted by supply limitations and didn’t provide guidance on growth expectations.
For the quarter ending March 2022, Microsoft expects gaming sales growth in “mid single digits” range. Assuming it’s exactly 5%, that’s $3.7 billion. For Xbox Content & Services, strong engagement and continued momentum will lead to increases in the “mid to high single digits.” Putting it around 7% then, this would generate $3.1 billion.
Guess what? Both would be fiscal third quarter records. The latter would even be the first time it’s passed $3 billion in a Q3.
“The other area obviously we’re seeing strength is in gaming,” Nadella highlighted during the analyst question portion of Microsoft’s earnings call. “We see the intensity of usage and the business model diversity around games, that increasingly the economics of gaming franchises is also radically becoming much more software-like.”
That certainly is the case, considering the multi-faceted approach where now, because of ongoing financial support in both areas, main contributors are actual first party software and Xbox Game Pass as a catalog of titles plus cloud experience.
Thus ends this quarter’s deep dive into Microsoft’s financials. I look forward to recapping other companies very soon! Be safe all, and stay healthy.
Note: Comparisons are year-over-year unless otherwise noted.
Back in July, I wrote about how Microsoft’s Xbox division set both a new annual and fourth quarter sales record. Well folks, it’s back at it like a bad habit, this time recording its best ever first quarter revenue performance among other highs.
As the Xbox Series X|S generation approaches its first year anniversary (geez already) and Xbox Game Pass attracts players ahead of major title launches like Forza Horizon 5 and Halo Infinite, Microsoft’s gaming top-line is as strong as its ever been.
The Washington-based consumer tech conglomerate recently announced earnings results for its first fiscal quarter of the 2022 financial year, which runs from July to September. Within, the company shared how gaming revenue grew 16% since this time last year. That equates to nearly $3.6 billion in sales, a record Q1 high.
With this latest trajectory, Xbox as a whole has now achieved double-digit sales growth in each of the past six quarters.
While executives shared little to no specifics on Xbox Game Pass subscriptions or hardware units for consoles, they did provide certain color around gaming in this quarter on a conference call with analysts.
According to Chief Executive Officer (CEO) Satya Nadella and Chief Financial Officer (CFO) Amy Hood, the company is continuing to attract new gamers and retain those it established during the pandemic. This was a “record first quarter for monetization and engagement” per Nadella, while Hood said the firm “shipped more Xbox Series X|S consoles than expected, even as demand exceeds supply.”
One thing that management didn’t specify is Xbox Series X|S comparison to prior generations, which it did last quarter when they announced it was the fastest-selling in history. Does that mean it’s no longer the case, or did they just not specify it? Hardware sales for Xbox rose 166% since this time last year, implying its best first quarter by revenue based on estimates backing into it historically. We don’t actually know other than how well it’s translating to dollar sales.
Let’s look further at what numbers the company did report, namely how they translate to certain trends.
Taking a look at the earnings slides provided by Microsoft, gaming revenue grew that 16% compared to last year’s first quarter. Or $3.593 billion in dollar sales, to be exact. Compare that to the prior record holder: last year’s $3.1 billion in Q1. This was of course before the Xbox Series X|S launch in November 2020 and the ZeniMax deal closure in March 2021, so growth is certainly anticipated. Microsoft guided a “low double digit” increase, thus the result came in above forecast.
In terms of categories within gaming, Xbox Content & Services i.e. software and subscription rose slightly at 2%. A modest gain. Based on friend of the site’s Welfare’s historical math at the Install Base forum corroborated by yours truly, that translates to $2.88 billion. A low yet steady growth rate here makes sense and was in-line with Microsoft’s forecast. Last year was a few months into stay-at-home restrictions. This time, declines in third-party weren’t enough to offset increases in Xbox Game Pass subs plus first-party software.
Xbox Hardware continues to be a substantial growth driver naturally, rising 166% on high demand for the supply-constrained Xbox Series X|S family of devices and a low comparison last year. Backing into dollar sales, it’s roughly $710 million which is the best Q1 for console revenue since 2016.
What I like to do after learning quarterly figures is expand to annual, it helps identify more macro trends. That’s where my chart comes into play, mapping out total revenue and showing splits between the two sub-segments. Microsoft’s gaming revenue over the last 12 months is approaching $16 billion for the first time in history. The latest result is $15.86 billion, 77% via Xbox Content & Services. This is happening due to the combination of studio investment, rising first party game output plus the ecosystem play of subscriptions and cloud offerings.
Unfortunately as I’ve mentioned in the past, Microsoft doesn’t drill down into exact profit metrics within gaming. That doesn’t mean I can’t infer, of course!
The More Personal Computing overview slide describes operating income growth of 7% for this category that contains the Xbox business, which is lagging the 12% revenue growth. That’s driven by a shift towards gaming, notably notoriously lower margin consoles. Expenses rose 15%. This mix shift and margin decline signifies costs associated with financing the gaming business, a research and development focus plus marketing of products like new Xboxes, Game Pass and software in the back half of this year.
At this juncture, I’m disappointed in Microsoft’s decision to hold back any sort of details on its flagship exclusive. Which isn’t a single game. It’s Xbox Game Pass.
There was speculation recently after Take-Two Interactive boss Strauss Zelnick threw out a figure of 30 million subscriptions during a panel with Xbox lead Phil Spencer, who reiterated 18 million as the latest figure. Which everyone knows is outdated from way back at the beginning of this calendar year. There were rumblings it hit 22 million a few months back, albeit unconfirmed.
A potential reason for Xbox playing coy is a recent finding by Axios showing that for the year ending June 30th, Xbox Game Pass subscriptions rose 37%. Below the company’s internal estimate of 48%. While it makes sense this is less than the 86% for the year ending mid-2020, I’m curious if Microsoft is hesitant because of these speculative figures. Nearly 40% growth is actually a really impressive figure. Combine that with Nadella’s comments about best ever engagement, why not give an update? It’s just unclear where it stands now on number of subscriptions. Or really any other specific engagement indicators other than Nadella’s vague comments.
Flipping over to hardware, the big question remains: How many units of Xbox Series X|S consoles are in the market right now?
Last quarter, I shared how a reliable industry estimate for Xbox Series X|S was roughly 6.5 million units. Given the notable hardware growth alongside supply considerations, does that mean it’s now more than 8 million? I believe so, though really wish Microsoft was as transparent as its peers in this department. Good news is companies are selling-thru to customers (or scalpers, I know) whatever they can produce, which is the important barometer.
Speaking of competitors, it’s a bit tricky to run comparisons until both Sony and Nintendo report their September-ending quarters scheduled for tomorrow, October 28th then November 4th respectively. (You should know that from my latest earnings calendar!) Using June figures, Nintendo’s trailing annual gaming sales totaled $15.56 billion while Sony’s reached $24.35 billion. Microsoft and Nintendo are virtually neck-and-neck, though it’s not a perfect comparison until next week. While this provides perspective, the real trend is how records are being met or set constantly in this environment. It’s indicative of player retention and ongoing supply for manufacturing components.
One additional tidbit as part of Microsoft’s 10Q regulatory filing is a further breakdown of the ZeniMax/Bethesda acquisition. The total cost ended up being $8.1 billion for the deal that closed back in March, above the previous estimate of $7.5 billion. I’m not sure if the company has shared this before, it’s the first time I caught the exact figure. Earnings from ZeniMax have been included in More Personal Computing since closing. Xbox is investing in development of key future Bethesda titles like Starfield, Indiana Jones and even The Elder Scrolls VI, so I expect increased expense trends to continue.
Before wrapping up, I wanted to quickly review Microsoft’s overall company results.
It generated a whopping $45.3 billion in revenue during Q1, implying growth of 22%. $13.3 billion of this from More Personal Computing. Trickling down to gaming, this means the Xbox division contributed around 8% of total company sales.
On the profit side, Microsoft saw $20.2 billion in operating income. That’s 27% higher than this time last year, and the first time it’s surpassed $20 billion during any quarter. These are record times, driven by its cloud business and enterprise offerings. It’s also the reason why the firm can invest in certain areas, including Xbox.
The upcoming quarter will be an eventful one for Microsoft and its gaming business alongside the industry as a whole. It’s the coveted holiday quarter in various parts of the globe, which is an intense time for releases and hardware promotions. The company expects Xbox to have yet another record-setting performance.
“In gaming, on a high prior year comparable that included the launch of our new consoles and strength across Xbox content and services, we expect revenue growth in the high single-digits,” said CFO Hood during the forecast portion of the conference call.
Assuming the mid-range of that estimate, around 7% to 8%, that’s upwards of $5.4 billion during the holiday quarter. That would comfortably achieve a record second fiscal quarter, beating out last year’s $5.02 billion.
So, can Xbox top that? Yes. It will. Personally, I’m forecasting 10% or even higher for the broader gaming sub-category.
Within, Microsoft said Xbox Content & Services should grow in the “mid teens.” If we put that at exactly 15%, it’s $4 billion. That would be over $500 million more than last year’s total, and yet another historical high for a Q4. I can certainly see that happening, with software and services driven by key title launches like the aforementioned first-party releases then multi-platform favorites like sports titles, Call of Duty: Vanguard and Battlefield 2042.
Xbox Hardware will be the more intriguing result to me as it’s a full year into the new generational cycle. Microsoft doesn’t issue formal estimates for hardware, though it’s easy enough to back into it making these prior assumptions. Based on its other guidance, hardware sales could reach $1.3 billion. That would be slightly down since the launch quarter of Xbox Series X|S, when it was over $1.5 billion. This is totally dictated by supply since major discounting won’t happen yet. Which is why the effort towards Xbox Game Pass and cloud are so integral to the firm’s broader strategy.
Well, that’s a pretty big quarter for Microsoft overall and within Xbox. Record results, generic comments and plenty of forecasts to chew on for the future. What did you think? Are you also disappointed by a lack of transparency? Do you predict it will hit upcoming targets?
Check back soon for other write-ups and I look forward to chatting on social media soon. Thanks for reading!
Comparisons are year-over-year unless otherwise noted.
Sources: Axios, Welfare via Install Base Forum, Microsoft, Xbox Twitter (Image Credit), Yahoo Finance.
Well if it’s 2021, then probably caught in a time loop.
Expanding on a mechanic seemingly at peak popularity, Deathloop is the latest time-bending title to be set in a never-ending cycle that resets upon ending. And it’s a seriously good one, even if its punchy gameplay, clever level design and crafty progression aspects mask its fatal flaws such as lack of variety, uneven ability usefulness plus an unsatisfying story arc. Moments of excellence only highlight its potential for greatness, as it doesn’t quite reach the lofty heights it so stylishly attempts to grasp.
I adore so much about Arkane Lyon’s creation, which doesn’t fit neatly into current genre conventions. It’s a first-person action game with shooting, exploration, puzzle, stealth and run-based elements that presents as a sandbox immersive sim then really ends up being more linear and restrictive than it initially promises. Its timeline is out of order, a nifty way for the team to tell a narrative primarily by slowly dispensing information then allowing the player to manipulate outcomes within this overall framework.
The tricky part with a game as ambitious as Deathloop is certain parts feel lesser when compared to superior ones, like a full course meal where the main dish is exquisite yet the appetizer and dessert are unfulfilling.
That mysterious, quick-witted woman is Julianna Blake who acts as the main antagonist. While mercilessly heckling Colt via the radio, her goal is maintaining the loop’s integrity. Which means hunting Colt as he tries to kill seven other fellow Visionaries. She can invade mid-run, controlled by either AI or a person online. This sort of multiplayer is a novel concept where it’s much more fun to be Julianna of course, busting up a run as opposed to losing. Visionaries themselves have key roles in the history and management of Blackreef, and the loop ends only if they are taken out in a single day.
This place is meant to be a utopia for most inhabitants dubbed “Eternalists” as they are experiencing a form of amortality, effectively being unable to die. To Colt, it’s a suffocating trap from which he must be freed. He and Julianna retain knowledge across loops, an important distinction compared to most everyone else who are experiencing the “First Day” indefinitely.
During a tutorial that’s a contender for longest ever because it takes a couple hours to get one’s bearings, the game spills its general structure and gameplay tips. There are four different areas across Blackreef: Fristad Rock, Karl’s Bay, Updaam and The Complex. Each can be accessed via a menu at four times of day: Morning, Noon, Afternoon or Night. Time doesn’t move forward while at these locations, only in the menu between them. And order doesn’t matter, Colt can wait until a later time of day if needed. It’s a smart way to allow players to take time devouring each map, learning the intricacies without the pressure of a ticking clock. Once nighttime is over, or Colt perishes, the loop resets back to dawn.
Which means there are 16 different combinations, all of which take place on the same base area yet showcase a variety of scenarios. Places look fresh in the early sunrise while everyone is waking up, possibilities supposedly endless to all. By sundown, the worst are battered or blown up. The best are ready for a snazzy masquerade ball or big environmental puzzle. It’s through these mechanisms that Colt influences the world to precisely line up his kills. The player’s main goal is to figure out how to either manipulate characters or leverage their movements across areas to achieve an “ultimate” run where every single one doesn’t survive.
Objectives in Deathloop are organized using a system of leads: One is a set of Visionary storylines, mapping out where each individual starts and the most relevant information learned to bring about their demise. What’s curious about these is they don’t actually end the first time Colt kills a given Visionary. He has to do it the correct way for the lead to “complete”, which means it’s then ready to be a part of his master plan.
For instance, the first big lead during the tutorial phase is Doctor Wenjie Evans at The Complex. She’s actually the one responsible for the loop, her hope was to have an eternity to learn about it and while studying she realizes she comes to the same conclusions each day. Thus realizing she forgets each night. Her major contributions are related to upgrades I’ll discuss later. Her main ability is duplication, pulling in copies of herself from other timelines. While one way to kill her is taking out each of her copies, that might not be the optimal outcome.
The other objective type is a set of Arsenal Leads. These aid in learning how to acquire Slabs, unique powers from most Visionaries, plus select elite level weapons. Slab acquisition happens naturally while targeting the Visionary Leads, then high-level weapons act as a sort of side quest within the guidelines of each run. This is essential in my opinion, especially given the game’s limited arsenal.
There are also menu options for Discoveries and Documents. The former shows action items that build up over time as the player explores. The latter is anything related to character journals or audio logs. Some are essential to move the narrative forward, others reward with bits of lore and help round out what the heck is going on while some explain minor systems. All of this is a lot to take in and was overwhelming for a while.
From this menu navigation to moving around the world and engaging in combat, Arkane has made a core experience where almost everything has such a great feel. Controls are snappy and always responsive. There’s this tangible feedback, partially due to technology in the DualSense controller, that bolsters immersion even in the most basic of interactions.
Gameplay for the most part is predictable for a first-person game, especially in the Arkane lineage of Dishonored and Prey. There’s walking, traversal, climbing, shooting and grenade tossing. Stealth is viable and I’d argue essential in the first half of the game’s 20 to 30 hours. A “focus” button can mark and examine a certain number of enemies, which is helpful when gauging the layout of a new area. Then there’s hacking of sensors and turrets via the Hackamajig, an on-the-nose gadget which somehow also acts as a radio.
Weapons fall into traditional archetypes: pistols, shotguns, submachine guns and rifles. There really aren’t that many different options. Long range is particularly lacking. And early on, rarity is low. Colt finds a base level gun early to practice target shooting. Every other piece of gear is picked up from defeated enemies. Visionaries and Arsenal Leads having the highest quality. Crappy weapons can even jam, “because they are old” the game argues, which is quite literally the opposite of fun. I wish it was never greenlit. It’s the type of system clearly added to encourage stealth in the early parts, even though the player’s low health and minimal ability suite already does that. Luckily, the best weapons won’t jam which leads me to wonder why have it in the first place.
Each Visionary has a role to play, a distinct personality, individual relationships and most even have fancy powers to steal. These are called Slabs. They offer up core abilities, which will be familiar to fans of Arkane’s earlier works. The first of which is Reprise, a slab intrinsic to Cole’s loadout which can revive him twice. There are five others: The teleporting Shift from Charlie Montague. Aether from Egor Serling offers invisibility. Nexus links foes together so hurting one does the same to everyone else, held by Harriet Morse. Fia Zborowska has Havoc, basically an enrage cheat code. Then there’s Aleksis Dorsey’s Karnesis, a form of telekinesis that can throw enemies around. Julianna can actually use any of these abilities, so she’s another source. Using these takes a regenerating resource called Power.
A nice system around these slabs is upgrading them. The first time a Visionary is killed, Colt earns the base slab. Each time after that, he can collect an upgrade linked to their particular ability. It’s an incentive to finish out portions of a run or to take down Julianna when she invades. For example there are slam and area-of-effect options for Karnesis, while Shift can reach further or hover in mid-air. Very much welcome, especially the latter for rapid traversal.
Enhancing Colt and his gear are items called Trinkets, customization options that have a notable impact. These are pieces “imbued with Blackreef’s temporal anomaly” and can either be made in certain locations or picked up from enemy drops. Character trinkets are general buffs like boosted health, more power, faster movement and the like. Weapon trinkets can improve accuracy, damage, rate of fire or reload speed. Combining these helps beef up Colt to take on a more run-and-gun approach, or spec towards stealth with more silent alternatives.
So, how does the player retain things other than knowledge across runs? A mechanic called Infusion, originally discovered by the aforementioned Dr. Wenjie. Using Residuum, a resource collected from items throughout the world or by killing bosses, the player can carry over weapons, slabs and trinkets from one run to the next. Anything in one’s current inventory can also be sacrificed for a select amount of Residuum, which means duplicates or unused items can be useful. Especially because Residuum itself can’t be carried over at the end of a night and is lost upon death, so it’s essential to hang onto it and allocate towards becoming more powerful.
Regrettably the rules of Infusion are confusing. Presentation in the menu is messy. It takes a while to understand what carries over and why, resulting in missed infusions or precious lost items. The best approach is to infuse anything and everything because there’s a risk of dying and losing everything that isn’t locked in. There’s filtering options which can help a bit, it’s still not the most intuitive upgrading path.
The ultimate problem here, and it’s one of my major gripes with Deathloop, is the limitation of its loadout system. Having three weapon slots is perfectly fine. That works. It’s the slab and character trinket options that hurt. Colt can only have two slabs equipped at once. Shift alone is almost an essential power, therefore always taking up a slot and making it so that there’s one spot for four other slabs. If Colt can have all these slabs at once, why can’t he use them? I mean Blackreef is this special temporal location where time is clearly special. Isn’t there a lore workaround that would allow him to alternate between more than two slabs?
Similarly character trinkets are limited to four. Double jump is classified as a trinket rather than an inherent skill. So it’s really three slots as far as I’m concerned. Double-jump is a ridiculous video game thing that most characters have by default. Colt should too. I assume Arkane wanted to streamline these systems so as to not confuse players, since their prior games had a ton of different skills. So then let us pay Residuum to unlock additional slots as we get to know the game. It could focus attention during the early portion then add to character growth later on, and by the end both Colt and the player would understand how to leverage them together.
The tricky part with a game as ambitious and feature-packed as Deathloop is certain parts feel lesser when compared to superior ones, like a full course meal where the main dish is exquisite yet the appetizer and dessert are unfulfilling.
Setting up these loadout setups and character systems is well and good. I’m surprised to report that the best moments happen when it all goes to crap. Which is often in Deathloop. At least for me. It’s the exact opposite of something like Dishonored in that regard, where I never had any success with combat. Shooting hits hard here, and it’s the most enjoyable and effective strategy other than the first few times through each level. Assuming the player has powered up. Downside is stealth is much more of a slog than arousing the sort of tense dread that’s key for such sequences. I just didn’t feel as compelled to take my time when the alternative felt that much better.
Tying into the location mechanic mentioned earlier, a most genius move from the development team is its take on progression. The player chooses where and when to start a given go, whether it’s for key information gathering, targeting a Visionary’s unique power or focusing on an individual weapon lead. It’s the type of rewarding feedback loop that makes a player feel smart and more enabled, both from a knowledge standpoint plus actual in-game capabilities. Colt as a character is growing as he’s remembering why the heck he’s on Blackreef.
There’s also progression baked into levels. Certain collectibles talk about the player’s prior actions. Enemy placement also changes based on time of day. Some denizens are drunk and easy to kill. Others have geared up so they are much stronger. Visionaries can move around and be manipulated. The most glaring instance here is a big party thrown by Visionary Aleksis Dorsey taking place at his mansion in Updaam. It’s really the biggest singular event during the loop. Depending on what Colt does during earlier phases of the day, major characters will attend the event which makes it easier to take them out in succession.
Contributing to a sense of place and aesthetic, Blackreef has its own distinct look plus history to discover. Aesthetic does a ton of heavy lifting in Deathloop. Style is uber slick, a 60’s jazz-spy vibe complete with war-torn trappings, scientific experiments, pop art decor, a soundtrack full of piano chords with blaring horns and even animated sequences straight out of a noir cartoon thriller. This is totally enhanced by ongoing banter between Colt, his inner voice and Julianna’s constant poking fun.
The famed Arkane level design and environmental expertise is solid in this sort of setting. Cold War era industrial buildings allow for labyrinthian corridors and subterranean passageways. The Complex is Blackreef’s research center, where Dr. Wenjie and Egor Serling conduct unconventional tests in sterile laboratories plus outdoor satellite arrays. Fristad Rock houses an intricate upscale dance club and mysterious underground bunker. All locations have various locked doors and un-powered levers, clearly indicating the need for further information. What’s cool is most access codes are randomized, meaning they change for different players and even across loops. It’s a crafty way to change things up.
Updaam houses a handful of its most stellar areas, mainly because that’s where gamemaker and Visionary Charlie Montague operates plus Aleksis hosts the aforementioned mansion party. Montague has built these live-action games scattered throughout different maps which he calls “Charlie Challenges.” The Moxie is a set of laser and pressure plate challenge rooms. Condition Detachment is the name of his space invader type of game, which houses his personal lair and one of the main areas where he’s vulnerable. There’s also Charlie’s robot called 2-Bit, made from half of his brain and one of the few sentient beings that remembers things across loops. It’s crucial to explore these areas.
This is all to say one of the things Deathloop does best is make Blackreef as memorable for its character as its practicality, namely in offering alternate route options for Colt. It’s a bizarre place where intriguing scientific questions are asked and not many answers are needed by most.
The run-based nature here and neat side activities lends itself well to quick sessions as much as marathons. Someone can play strictly for the purpose of gathering information. Others are used to take out Visionaries. Even get in on some invading. Within the industrial shore town of Karl’s Bay, there’s an unconventional way to make trinkets. An amatuer science team sets up a failed experiment to harness Blackreef’s temporal power. There’s a machine that exposes the area to “visitors” from other timelines, which Colt has to kill quickly in order to collect enough Residuum. There’s plenty of individual tasks to complete, even if some aren’t necessarily as rewarding.
Speaking of rewarding optional content, I have to give a special shout out to Heritage Gun. It’s a top-level Arsenal lead reward from arguably the best side event in the game which spans an entire map. While technically a shotgun, it has a slug round mode with incredible range. Fans of The Chaperone in Destiny will agree.
I mentioned the feedback and general feel before. A major component is sound design in Deathloop. It’s straight up mean. Pure. Colt’s boots crunch across the hard cement. Julianna’s radio chatter emanates from the DualSense controller speaker. Announcements from Visionaries blare through the streets. And the kill sound when using a weapon is up there with the best shooters of all time, crunchy and violent. It’s especially satisfying when using a rifle.
Tying in with the audio design is how voice acting, dialogue and writing is top-notch. Especially the two main characters. It’s amazing to see black leading characters and actors in a triple-A game of this caliber, both of which are exceptional performances. Jason E. Kelley plays Colt and Ozioma Akagha features as Julianna, each getting the best out of the other. It helps that their writing is savvy, and I looked forward to hearing their quick antagonizing at the start of each sequence.
Unfortunately, the distinction within Deathloop for its most fatal of flaws is rigidity of effective play styles and lack of variety hidden beneath the veil. Weapon archetypes are restricted to just the handful I mentioned before. And there’s at most a couple within a given type. Especially long-range. Other than a sniper hidden behind an Arsenal Lead, there’s a single rifle to find. Some of its best top-end gear is locked behind the Deluxe Edition.
The decisions around loadout options are most restrictive and unfortunate. Certain powers feel essential, like Shift allowing teleporting and quick movement especially vertically. Others are flat out inferior or hyper-specific for more hardcore fans. Like Nexus, the one that can tether enemies together, is fiddly and unreliable.
I was hoping Arkane kept with its tradition of giving players more credit in our understanding of how abilities can synergize. I know Deathloop leans into action elements more than its predecessors. The beauty of an immersive sim or sandbox game is still flexibility of choice. Limiting the use of various hard-earned powers feels like an unnecessary constraint. Hand the player tools then let them decide, rather than forcing them to pick.
Elsewhere there’s superfluous features that didn’t jive with so many other smart decisions. There’s a sort of cosmetic outfit system for Colt and Julianna, which doesn’t mean much when everything is first person. These are mostly earned by protecting the loop as Julianna, which I guess is some incentive to play as her. Then there’s dual wielding weapons, a setup that’s against the very framework of having a weapon in one hand then a power or hacking device in the other. The only time I used it was with one of the special weapons that transforms from dual pistols to a submachine gun, because there’s a damage boost associated with doing so.
In terms of opposition to Colt’s bloodbath, most enemies are flat-out dumb. The main challenge comes from overwhelming numbers rather than savvy tactics. Difficulty levels in this context would be very much welcome. It’s so easy to trick or lose Eternalists. At least it can be hilarious!
For the most part, Deathloop avoids the deathtrap of most time loop games: Repetition. That is until the endgame, when there’s little else to figure out or discover. When the targets are all lined up. There’s really only one way to finish the game properly. So it comes down to execution. It’s demoralizing to be invaded or make one mistake busting that final run. Losing time towards the finale is what hurts most, not materials or upgrades because the player is swimming in them by that point.
Arkane shows its more level-based roots here in guiding toward the optimal run, less akin to moving chess pieces on a board and more like finally seeing the solution in a board game with a predefined path. No matter what one has done before, conforming to the “right way” is the only option. Which is why I consider Deathloop to be ultimately a linear narrative jumbled up to make it seem otherwise, which is excellent during the discovery phase then traditional once the picture clears up.
I will say its final gauntlet of ripping through the Visionaries was admittedly intense the first time I did it. Like a boss rush. It was amplified because Julianna showed up at night during the last push. I wonder if the game’s programmed to do that. If so, kudos to the team for ramping up that adrenaline. Subsequent tries are much less so, because the player already knows what to do. It’s the problem of knowing a solution before being able to finish a puzzle, leading to an anticlimactic situation.
Quality of life features and various options are a mixed bag. The tutorial menu is exceptional. All of the game’s mechanics and systems are organized in a single spot, which is convenient. Heads-up display has a ton of flexibility. There’s not much in the way of dedicated accessibility options beyond text size. No colorblind considerations or detailed controller mapping. There’s no actual map or waypoint system, which could be helpful even considering all the hand-holding it does documenting everything the player finds. Plus there’s no photo mode, for those that might be curious.
Visual options on console are more varied. All of them have dynamic 4K scaling. One mode favors resolution, a second is where performance prioritizes a steady 60 frames-per-second then a raytracing mode. Naturally I played in performance mode, which was flawless. I have read about certain challenges on PC, which Arkane is addressing.
Sad to report I did experience certain technical issues on PlayStation 5. The game hard-crashed twice, causing me to lose progress since it saves only at the start of a given area. I had one instance where the menu overlay froze and wouldn’t leave the user interface, making the game unplayable without restarting. The most weird of all was on the controller side, losing control of the character, dropping inputs and not being responsive. I’ve never had that happen with any other PlayStation 5 game since its launch. I even updated the game pad to the latest software, it continued to happen occasionally.
Ultimately Deathloop feels like the foundation of an incredible game most notably in its structure, systems and level design. Its style is impeccable, which only carries it so far.
Here’s the toughest part of Deathloop. Maybe this is personal, though I bet I’m not the only one. It can be tiring playing a game where you have to be “on” all the time. When everything is out to kill you. It would be ideal if there were ways to guard against being seen. If cosmetics actually acted as disguises or deception came into play. Maybe more eavesdropping and investigation. Learning information by pretending to be an Eternalist. Using a mask to mingle at Alex’s party then isolate a target. The “sneak around until caught then murder anything that moves” mentality is much more basic than comparable assassin simulators like Hitman. It can feel just as badass to execute a clinical misdirection, and it’s often more efficient.
To act within the constraints of Deathloop takes a lot of experimentation, patience and time. One early tool-tip pops up to say “don’t just shoot everything.” Once Colt is powered up, it’s quite literally a feasible option, if not the best path, to do exactly that. Why slow and steady when there’s a much more effective strategy? There can be fun in experimentation I guess, though is that a good enough motivator for most players? Not those like me.
Up until this point, I haven’t included much about its narrative. It’s tricky to avoid spoilers in the context of a time loop game, and honestly the story isn’t anywhere near a highlight. There’s random tidbits of history and lore told via collectibles. Julianna drip-feeds certain points of Colt’s past during dialogue. I think the story itself is less important than the manner in which it’s told here. There’s also the ending, of which there are multiple versions, all of which are disappointing and ambiguous. I’m alright with open-ended conclusions. This just isn’t a partially good one of those.
Ultimately Deathloop feels like the foundation of an incredible game most notably in its structure, systems and level design. Its style is impeccable, which only carries it so far. It’s truly a more constrained, even linear experience disguised as something with more options and possibilities. Story is jumbled by its nature then even when it’s mapped out, it’s mostly middling.
It claims to offer a lot, then limits how the player uses its tools. This makes it tricky to describe Deathloop at its core. First person action? Puzzle murder sim? Run-based shooter? Semi-sandbox stealth? If this were a test, the only answer would be “it wants to be all of the above which means it ends up being something else.”
Some of these make it amazing. It’s a heck of a lot of fun in the heat of battle, hip-firing shotguns and clearing baddies on the way to a boss room. Then slows to a snooze, walking the same looking rooms for crumpled papers or recorded logs. There’s rewarding side content, then optional exploration that just isn’t worthwhile except for the most diehard of lore fanatics.
It’s a conundrum. In some ways more ambitious than predecessors in Arkane’s heritage, yet the result is just as focused. Jumbling the timeline is a clever presentation style. Like a murderous Memento or even more bloody Pulp Fiction. The journey of getting there is where true genius is revealed, because the final revelation is much more pedestrian than it could have been.
It’s presented as having freedom and creativity mixed within a loop concept. It ends up being closer to a linear shootercampaign with a handful of powers and select hacking capabilities all jumbled up a la Source Code, where the goal is to figure out how to execute the right outcome rather than an outcome of one’s choosing. There’s fun in getting there, it’s a fantastic game. There’s just a handful of elements that miss the mark, enough not to dub it a masterpiece.
Release Date: September 14th, 2021
Developer: Arkane Lyon
Publisher: Bethesda Softworks
Platforms: PlayStation 5 (Timed Console Exclusive), PC.
Recommendation: It’s an odd one from a platform standpoint, the rare PlayStation 5 console exclusive published by a company now owned by Microsoft. Deathloop itself is up there with Arkane’s prior releases, especially better on the action side. Definitely a must-play for PS5 and PC owners specifically those that prefer shooters as opposed to pure stealth games. Don’t expect it to say much thematically or in the way of a riveting narrative. It’s purely a fun time figuring out puzzles, select side content and blasting through maps full of enemy fodder. Worth it!
“Oh, you think the human mind is safe? That’s cute!”
It’s difficult to be genuinely funny. Always walking a line between upbeat and morose, corny and original, hilarity and outright bombing. Even trickier to make media that’s consistently humorous, especially a video game spanning over multiple hours. Near impossible to find the right balance between that humor and hitting impactful subject matter plus layering an entertaining gameplay loop on top of everything.
Psychonauts 2 is that near impossible outcome.
It’s a unique, comical and even thought-provoking third-person adventure game that combines exquisite humor, witty references, well-written characters, productive exploration, trippy environments and satisfying mechanics. It’s that full course meal with no filler, unlike any other series in the industry and a worthy follow-up within a franchise that stands out for mostly the right reasons. The weird ones, too.
Psychonauts 2 is clearly a labor of love from developer Double Fine Productions, made mostly prior to the studio becoming part of Xbox Game Studios. The sequel to 2005’s cult classic Psychonauts is the culmination of many years, assisted by a crowd-funding campaign. The team obviously used that time to maximize the belly laughs, detailed world-building and genius general direction that makes it so good.
It’s fun. And funny. Granted, occasionally dark. Then has the courage to ask big questions surrounding mental health, self-reflection and human consciousness. It’s a psychology lesson and philosophy debate layered within third-person action platforming. A total trip, and well worth the wait.
Studio founder Tim Schafer and team start Psychonauts 2 with a great cutscene intro, summarizing both the first release and virtual reality game Psychonauts in the Rhombus of Ruin. This allows a quick refresher for fans then an entry point for everyone else. The recap shows how 10-year old physic Razputin “Raz” Aquato fled from the family circus, was found by a spy agency called the Psychonauts, fought off a rogue summer camp counselor with the help of fellow campers, learned about his psychic powers in the original then rescued Psychonauts leader Truman Zanotto in the VR spin-off.
A few days later, the sequel begins.
Back at Psychonauts “Motherlobe” headquarters, self-proclaimed dentist and amateur brain surgeon Dr. Loboto is being interrogated because of his involvement in Zanotto’s kidnapping. By diving into his brain, a common tactic used by the squad, agents Sasha Nein and Milla Vodello along with the player controlling Raz learn that someone internally is feeding information to an outside evil mastermind. Turns out Loboto is merely a puppet. The boss’ name is Maligula. Allegedly deceased long ago, her “Deluginist” followers are attempting to bring her back with necromancy, an area the Psychonauts have suspiciously been funding recently. That doesn’t sound good. It means there’s a mole! The sequence acts as both story setup and an introduction to action mechanics, namely platforming in 3D realms and light melee combat with ranged capabilities.
The Motherlobe acts as a home base where Raz learns he’s actually an intern. It’s an awesome hub, more expansive than Whispering Rock summer camp. Agents scatter the halls. A mural of “The Psychic Six” founders looms over the common area. There’s a mail room, barber shop and even a bowling alley. Raz meets the other interns, a scenario reminiscent of his fellow campers in the prior game.
Considering it takes place in both the physical and mental planes, Psychonauts 2 is all about its cast of characters with the interns, agents, foes and even Raz’s family playing huge parts. Many of them are quite literally the levels or “dungeons” as these places exist only inside their minds and are cleverly intertwined. It’s fun getting to know the Aquatos in particular and how certain folks from the original are related to new characters. It makes for a feeling of familiarity and togetherness, like the player is part of something bigger where everyone still has plenty of quirks.
The main campaign revolves around figuring out who is snitching within the organization. Which means chatting with people and using a Psychic (PSI) Portal of course, where Raz’s astral projection jumps into select minds to gather information and learn about their motivations. Way cool, I know! Dialogue options are smart and quirky even if they have no effect on the core narrative. Character interactions make the Motherlobe and surrounding areas feel alive, enticing all sorts of exploration that’s immensely rewarding. Figuring out the mysteries of someone’s thoughts. And gathering up the best kinds of collectibles.
As is evident with the description of the plot and character names, Double Fine is among the best in the industry at references, puns and double entendre use. This really is a highlight as little details go a long way to add up to something immeasurable. It’s hard not to stop everywhere and admire what the designers crammed into these locales. Design decisions like these make its world simultaneously bizarre and uniquely endearing. Double Fine can play with so much using these settings that blend the real with imaginary worlds.
For instance, health is called Mental Energy. Censors are brawler enemies that stamp out unwanted thoughts. Regrets are dangerous flying bugs carrying heavy kettlebells because they weigh people down. It features aptly named collectibles like physical manifestations of that person’s thoughts called Figments, Emotional Baggage that requires Raz to find a tag to comfort it or cute Half-a-Mind brains which need two lobes to make a whole. Instead of a fingerprint, one’s Thinkerprint is used for accessing areas.
It’s very fun noticing a small touch or chuckling at an enemy description, partly because it’s relatable. Double Fine lightly pokes fun while simultaneously acknowledging the seriousness of mental health. There’s a stylized feel throughout the entire project, like it’s tuned to feel uncanny yet familiar. The player uses an intern’s manual as a journal to track quests, skills or inventory. There’s so much care in Psychonauts 2, whether obvious or hidden, and it all contributes to the cohesiveness of its tone.
Mission structure is standard, then has multi-layered objectives within each story quest. There’s the main campaign trying to uncover the mole with its own set of requirements around that investigation. This takes Raz to mind locations such as the casino hospital of Hollis Forsythe, interim leader of the Psychonauts, and agent Compton Boole’s mental cook-off among others.
Then there’s optional tasks opened by talking with certain characters. A conniving intern convinces the player to take on a scavenger hunt, claiming it’s important agency business (hint: it kinda isn’t). Lili, Raz’s girlfriend and Zanotto’s daughter, asks for help in trying to help her father bounce back from his captivity. A set of interns need help boosting the signal of their pirate radio station. Then there’s the Aquato family side quests, a personal favorite because it shows more about Raz’s past. His father Augustus played a role late in Psychonauts, now we meet the full crew including his precious Nona who keeps reminding him of the family’s curse that they will die in water. Most end up tying back into the narrative in exciting ways.
All of these are really a great way to flex an improved movement system. Raz is a child acrobat by trade meaning he’s already an expert double jumper, ledge grabber and wall bouncer. Then there’s the Levitation power, which lifts Raz on top of a ball for him to move more quickly and get to greater heights. It’s floaty and a bit unwieldy, used as a psuedo-sprint button since there’s no dedicated button for speed. Platforming is generally solid, though I’d like a more controlled sprint mechanic. It can occasionally be difficult to know where Raz is landing when leaping, the sort of situation where an indicator could help. Especially among higher level challenges.
Even so, one of the highest compliments I can pay Psychonauts 2 is it’s more fun to move around and take the scenic route than use fast travel (which is a nice option to have here of course). There’s always something to collect or a character to find. A fun area to explore. This sort of love for traversal is a staple of the genre’s best experiences.
It wouldn’t be a video game about psychics without powers, of course! Certain “PSI-Powers” are carryovers from the original: The aforementioned Levitation technique. Telekinesis, the ability to throw objects. PSI Blast is a projectile energy beam. Pyrokinesis is, naturally, a big old fireball. And Clairvoyance allows Raz to see from another being’s perspective. This materializes what they think of him, and changes based on the person. Or animal. It can be quite amusing.
As he’s grown a few days since last game, Raz learns a handful of new abilities. Mental Connection is used to connect ideas, essentially grapple points, and pull the player towards them. Primarily a movement mechanic that allows for more vertical exploration plus a combat tactic where Raz to zip around, pull enemies or snag objects in mid-air. There’s also Time Bubble slowing anything in its path. Helpful during platforming to new places or fighting against quick opponents. Lastly there’s Projection where the player creates a separate paper version of Raz. This copy can open secret areas or serve as a much-needed distraction during battle. He’s also a master of one-liners.
Double Fine shows off clear innovation and creativity baked into environment and level design along the way. There’s four main open areas in Psychonauts 2 plus more than a dozen individual minds to tour. Almost all of them are memorable, especially in how they bend themes or blend them together. As Raz starts to learn his new powers in the second act, exploration really opens up. Notably into more vertical spaces. For example in the physical world, The Questionable Area is a bootleg theme park and natural attraction outside the Motherlobe which houses deposits of “Psitanium,” the game’s fictional element and main currency. It’s also where Raz’s family sets up shop. There’s a later game open area that ties into the game’s lore, featuring some of the earliest Psychonaut technology.
Jumping into a human consciousness is really where the artwork, color palette and innovation pick up. These are just big enough to enjoy collectible gathering and power experimentation, then have focused objectives to get done in order to progress the story. Without digging into spoilers, I’d like to highlight two of these mental environments to prove what makes this game so special.
As mentioned before, a woman named Forsythe is temporarily leading the Psychonauts while Zanotto is recovering. She’s also the intern coordinator, so Raz has to start his bureau education within her mental classroom. The other leaders are setting up a big casino mission, which Forsythe forbids any interns from joining. These savvy kids get the idea to, quite literally, “change her mind” by urging Raz to use Mental Connection. The player ends up tricking her into associating risk with success. Now she wants to gamble with the agency’s finances.
Forsythe was a medical professional before joining the Psychonauts, so her mental space starts as a run-of-the-mill hospital. Through collectibles, Raz learns that her mentor stole her seminal work. Once Raz changes her mind, her worldview shifts to a hospital casino hybrid where neon signs and bright lights take the place of a traditional sterilized look. The player has to unlock a high roller suite by figuring out puzzles and fighting their way through her psyche, which will stop her from gambling everything away. A roulette wheel accompanies the maternity ward. “Pillenko” is a pachislot machine with a pharmacy twist.
It’s an exceptional aesthetic with only a tinge of dark humor. Like when a snarky playing card says to Raz: “Sorry, I don’t talk to jokers.” The scenario also presents a myriad of questions: Is it smart to convince people to change their minds? What are the consequences? Will that impact who they are? Forever?
Separately, my favorite mind palace is called PSI King’s Sensorium. It’s a sensory overload of color and sensation set amidst the psychedelic backdrop of a music festival. It’s fully color-shaded, even Raz himself looks different. A truly bursting rainbow of shades and sounds galore. During the associated mission, the player has to work with a ball of light to set up an epic concert. A Feast of the Senses.
Problem is, the band and instruments are all missing. Each member represents one of the five senses, so the player drives a hippy van around an over-world map looking for the missing mates. At one point, the ball of light says some characters “like to get high.” Raz points to a mountaintop. “Oh you mean they go way up there?” And there’s long lines of people waiting for food in the world where the nose band member is located. Tongue-in-cheek references like this abound in Psychonauts 2, tickling the funny bone.
There’s mechanical and symbolic significance here amidst all this natural (and potentially chemical) beauty. First it’s the introduction of the Time Bubble power, representing how people should slow down and enjoy their surroundings. PSI King also suffers from Panic Attacks that manifest as especially brutal enemies. These ugly creatures are super fast, disorienting and downright ugly. And, of course, the culmination of Raz’s effort during this sequence has massive story implications. Part of the payoff is hearing the game’s best song.
For those that have played Psychonauts, PSI King’s Sensorium is definitely the Milkman Conspiracy of the sequel. Both of these minds show Double Fine’s genius, melding extraordinary location design with relevant themes, artwork and gameplay. This blissful concoction couldn’t happen anywhere except video games.
Psychonauts 2 occupies this open space in the industry as a fantastic action platformer not based on a furry mascot, cartoon character or Italian plumber. Its content is much more nuanced than standard adventure games, its environments more daring and jokes hit that much harder.
Now, I have to address combat. The best way to describe it is serviceable, leaning towards solid. It’s certainly not the game’s strongest aspect, more a means to an end than a great time in the moment. Raz uses a psychic hand to slap enemies around, which can be upgraded for further combos or beefed up damage. There’s the PSI Blast ranged attack, perfect for defeating aerial opponents. That also has boosts to create additional projectiles or reduce cooldown. The player can dodge out of the way, even counter attack, though I found this whole process slightly slower than I’d like.
Then his other powers come into play, such as tethering with Mental Connection or burning an area with Pyrokinesis. The latter is a specialty of mine because it causes enemies to break off their current path and run around on fire. Problem is that hit feedback and damage indication are weak, plus the melee moves in particular lack a certain oomph present in better action games. I didn’t mind fighting, though at a certain point in the story I started to avoid conflict when in free roam spots.
Boss fights are far superior to individual combat encounters with fodder enemies. These were always surprising and had mechanics specific to a given area. One would require flinging objects at certain targets with Telekinesis, another asked the player to grapple around the arena in order to output damage. A couple were anticlimactic in the end. Which happens when there are this many, I suppose.
On the mechanical side, a key aspect to balance out platforming and combat is the inclusion of puzzles. They mainly integrate with movement to manifest in environmental puzzles, requiring the player to pilot Raz around areas to complete mini-goals before progressing. Connection thought clouds within a subject’s mind is a popular one. Back in PSI King’s Sensorium, connecting spotlights to prisms in order to make rainbow bridges. Another mind has the player riding a bowling ball around ramps and overpasses. There’s even an entire cooking competition sequence during which Raz is prepping the correct ingredients while being timed, hoping to craft that perfect dish.
Its smart combination of spacial and traditional puzzles are essential to making Psychonauts 2 so effective, many of them reflecting the current hardships or confusion within someone’s brain. It’s less about patching up issues and more about understanding. Winning little battles, then trying to at least continue on after conceding that solving doesn’t necessarily mean fixing.
Beyond its overall presentation technique, Easter Eggs and callbacks are icing on the cake. Which makes sense. The game is set mere days after the last one, as agents make sure characters such as Coach Oleander (a protagonist previously) and Dr. Loboto know when claiming they are changed people. Similar to something like Waterloo World in Psychonauts, there are over-worlds within certain mental spaces that connect to individual levels. The fast travel friend Oatmeal aka “Little Buddy” is present as well.
For those games that offer it, progression is an increasingly important system because it’s a primary reward loop. Good games are rewarding. The best ones respect a player’s time commitment. This is one area where Psychonauts is traditionally cumbersome, which is still the case in the sequel. Even more so with the introduction of a Pin customization system.
Overall, Raz has a Rank. This isn’t increased by experience points. Rather, it can move up a few different ways. The easiest is to collect 100 Figments or what’s called a PSI Challenge Marker, the latter of which is more hidden in harder-to-reach places. Each of those earns a single rank. The other way is by using a vending machine to combine two different items together: Nine PSI Cards, another collectible that’s easier to find, with one PSI Core that can be purchased with currency. That process creates a PSI Challenge Marker, which again bumps up the rank. Got all that?
I understand the desire to make collecting items meaningful. It’s just the whole combining process isn’t intuitive or streamlined. When the game has to constantly remind the player how to rank up, that tells me there’s one too many steps involved.
Then there’s Intern Credits used to upgrade individual PSI Powers. These are earned by completing tasks, ranking up or snagging certain items across the world. A very useful system that allows four powerful upgrades for each power. I maximized Levitation in order to vary my movement capabilities plus Pyrokinesis because, well, fire is always useful!
Adding even more complexity, flexibility and even pizazz are what’s called Pins, personalized options purchased strictly via collected Psitanium nuggets. Raz can have three equipped at any time. They are haphazardly categorized, a messy presentation that screams it was good in theory though thrown together in execution. The pins themselves are quite fun and malleable. It’s a smorgasbord of different choices. Some are cosmetic, like a classic dance for Raz’s idle animation. Many are practical including a ground pound for Levitation or gaining Mental Energy when grappling. Then there’s those that completely change how the game plays. Glass Cannon increases both incoming and outgoing damage. Time Warp makes a Time Bubble speed up instead of slow down.
There’s even a pin to gain the ability to pet animals. Why that isn’t on by default, I’ll never know!
This is all coordinated by agent Otto Mentallis, master engineer and gadget guy. He’s the brains of the team when it comes to tinkering and experimenting with mechanical objects. His Otto Matic vending machine sells all of these cores, items and pins. He even lets Raz borrow two gadgets: Thought Tuner offers access to new areas by finding “stray thought” grapple points. Otto-Shot Camera is a basic, effective photo mode. His lab also has a nice touch with the Hall of Brains, showing off the title’s myriad of financial backers. Like one big brain gumball machine, another perfect choice in any number of presentation decisions by Double Fine.
Looking at other options, namely those of the quality of life and accessibility variety, the studio thankfully puts a focus on these features. There’s a suggested control scheme that can be fully customized. A number of assist features from subtitle size, text clarity, colorblind considerations, no fall damage, invincibility and narrative combat mode which makes the player super powerful when fighting. There’s a content warning and mental health disclaimer after booting it up. Similar to the original, the Collective Unconscious allows access to prior mental locations then there’s a fast travel mechanic whether in big open spaces or within minds when revisiting them. You can tell Double Fine cares about its players, no matter their abilities.
Performance is consistent on current generation, noting that I played on Xbox Series X. Based on a chart shared by Double Fine ahead of launch, older consoles will run at 30 frames-per-second. Loading time is impressively fast which helps a ton during travel and post-game. It’s the type of game that lets its art and color carry it visually as opposed to outright resolution. Both high dynamic range (HDR) and variable refresh rate (VRR) are available on Xbox Series X|S while PlayStation 5 doesn’t offer these more advanced options. I’d say it will look and run well enough even last generation for most players other than the most picky, which probably have the new boxes or a gaming PC already.
I’d be remiss not to mention its soundtrack, full of jazzy tunes, punk anthems, background beats and even rock operas. The music is highlighted by Jack Black’s incredible psychedelic power ballad shown in a 2020 trailer here. There’s also expert use of sound effects, changing the sound of walking on different surfaces, blaring casino machines, bouncy boings as Raz levitates around plus squishy noises when poking throughout a brain world. Yet another example of the heightened attention to detail, this time on the sound engineering side.
Because it’s a character story, there’s a notable quality in its voice acting prowess. Richard Steven Horvitz shines as Raz. Nick Jameson doubles as Oleander and Loboto. Roger Craig Smith, Yuri Lowenthal and even Elijah Wood were recruited for select roles. Then of course, a Double Fine favorite, Jack Black himself makes his presence felt. This is a small sampling of the talented actors that make dialogue so engaging and deliver on the writing team’s intended humor.
I did have reservations about certain choices from Double Fine, as much as I adored the whole package of Psychonauts 2. Many might be considered nitpicks. There’s random two-dimensional platforming segments that seem to be there more for visual flare than mechanical enjoyment. This 2D angle pops up in a couple different minds, I could take it or leave it mainly because the mechanics are much more limited than anywhere else making Raz feel notably heavy.
While it offers certain features, I think it could do even more from both a cosmetic and game mode standpoint. There’s so much the team could do with outfits and areas. The player can pick which color ball is under Raz as he levitates, but can’t choose his look! There’s an Aquato circus area that’s way underutilized. It’s ripe for time trials, acrobatic challenges or even survival modes. I see big upside for an expansion even, especially adding new spots based on different people’s minds.
The game walks a fine line between helpful and distracting when it comes to text pop-ups and reminders. I counted a few times where two or three overlays littered the user interface, which was unexpected from a game this sleek. I know it’s trying to convey helpful information. This just isn’t as welcome in the middle of a tricky platforming section.
It’s hard not to stop everywhere and admire what the designers crammed into these locales. Design decisions like these make its world simultaneously bizarre and uniquely endearing. Double Fine can play with so much using these settings that blend the real with imaginary worlds.
Many games claim it, yet few of them succeed: There really is no experience quite like Psychonauts 2 out there. A masterful and refined sequel that builds on the original’s formula, it’s expanded to include an even richer cast of characters and the amazing areas within their respective minds. There’s not many complaints throughout and a whole lot of laughs until the end.
What surprised me most is where its story went, how well it includes so many special characters then comments on mental health without being heavy-handed. There are twists. Serious revelations. I felt for characters, especially when others try to make decisions for them. It’s a genuine, even if somewhat convoluted, narrative about family, relationships, what people do to try to help one another, the consequences of choice and how everyone has their own inner demons.
Psychonauts 2 occupies this open space in the industry as a fantastic action platformer not based on a furry mascot, cartoon character or Italian plumber. Its content is much more nuanced than standard adventure games, its environments more daring and jokes hit that much harder.
World detail is magnificent. Even when visiting places multiple times, which can be done during the campaign or end-game clean-up. In fact, I’d highly recommend sticking around after the finale because things change in reaction to what’s happened. Even after around 25 hours deep into my play-thru when I hit the ending, I didn’t want to stop playing. After the credits rolled I jumped back into levels multiple times, surprised to see they had changed and reacted to the state of its world.
Double Fine are masters of their craft, this is exactly where they should be and I’m thankful for it. They specialize in dual meaning, character modelling, hybrid themes and exceptional references. It’s easy to miss how much they pack into these areas which makes it that much more pleasing to revisit them. I adore so much about Psychonauts 2 that I’ll probably keep exploring well after this review, which is a testament to the high level of talent on display and the superb polish that makes this game shine.
Release Date: August 25th, 2021
Developer: Double Fine Productions
Publisher: Xbox Game Studios
Platforms: PlayStation 4, PlayStation 5 (Backwards Compatible), Xbox Series X|S, Xbox One. Xbox Game Pass (Cloud, Console & PC). PC.
Recommendation: 100% recommended. An amazing modern adventure game boasting plenty of charm, a bit of darkness and wacky locations to explore. It keeps players entertained as they traverse through various minds to uncover mysteries surrounding the agency’s history, its enemies and Raz’s family dynamic. Essential playing as one of the best 3D platformers in the last couple generations.
Sources: Double Fine Productions Media Kit, Microsoft, Screenshots via Xbox Series X.
Disclaimer: Review code provided courtesy of Microsoft/Xbox for coverage ahead of launch.
During Microsoft’s fiscal fourth quarter results presentation yesterday for the period ending June 2021, the massive American technology conglomerate shared how its gaming division is faring amidst the global pandemic and early in this latest console cycle. This presentation revealed how the Xbox team achieved a handful of impressive records.
First, Microsoft’s gaming revenue for the trailing 12-month period back from Q4 is its highest in reported history. The Xbox division generated nearly $15.4 billion in annual sales. That’s 33% higher than the same 12-month period this time last year, when it was almost $11.6 billion.
That makes this the second quarter in a row that annual gaming sales were above the $15 billion threshold for Microsoft, showcasing how both hardware momentum and subscription expansion are boosting results even as third-party software contributions slow from highs in 2020.
In terms of the new generation of Xbox Series X|S platforms that launched late last year, Chief Executive Officer (CEO) Satya Nadella said on the earnings conference call they are the fastest-selling boxes in the 20-year history of the Xbox brand. These have “more consoles sold life-to-date than any previous generation” according to Nadella. This led to Xbox Hardware growth of 172% during Q4, with the caveat being of course this compares to a low point at the end of a prior generation.
Which is notable especially in terms of the current hardware supply environment for all manufacturers. Xbox is selling every single box its suppliers can make, as consumer interest far exceeds production capabilities right now. I anticipate this will continue for the foreseeable future, at least through the next fiscal year ending in mid-2022.
Parallel to the hardware performance is that of gaming software and related services, represented by the Xbox Content & Services sub-segment. This is the one notable lackluster portion of the report, with a fourth quarter decline of 4%. Increases in Xbox Game Pass and first-party releases couldn’t outpace declines in third-party.
Speaking of the Xbox Game Pass service, unfortunately Microsoft executives didn’t share updated figures for its paid subscriber base. Last count it was officially 18 million as of 2020 year-end, though more recent media reports have estimated the figure at upwards of 23 million as of April. My current estimate is 25 million, though I imagine Microsoft would share that milestone so it might be just below it for now.
Knowing these records and high level performance, I’ll now dig a bit into underlying numbers and executive comments.
If you pop open these gallery images above, you’ll see a.. number of insights.
First, the annual revenue figures for Xbox based on reported growth. Overall, gaming revenue for Microsoft rose 11% in Q4 bolstered by a major contribution from hardware and subscriptions. Based on historical sales figures, this equates to roughly $3.74 billion in quarterly revenue. That’s the highest sales ever for Xbox during a fiscal fourth quarter i.e. April to June.
Aggregating this quarterly figure into annual results and you’ll see the trend line for 12-month revenue is at that record $15.4 billion level. Even if slowing its growth trajectory, there’s no denying Microsoft’s combination of hardware launch and ecosystem play are at least pumping up Xbox’s top-line.
One note. Technically the quarterly result for gaming revenue is currently an estimate based on growth figures reported in Microsoft’s earnings slides. The company hasn’t formally filed its 10K with the Securities & Exchange Commission (SEC) where it reveals exact gaming revenue figures. It should be very close.
(Update: Microsoft posted its annual filing on July 29th. 12-month gaming revenue reached $15.37 billion, essentially spot-on.)
For context here, how does this compare to peers in the industry?
Well, since I know you checked out my July to August 2021 earnings calendar, you’ll see both Sony and Nintendo report their respective first quarter results next week. So using recent annual figures from March 2021, Sony’s Gaming & Network Services segment reached over $24 billion while Nintendo’s overall sales totaled roughly $12 billion at the time. Essentially, Microsoft sits between the two other hardware manufacturers. And all of them are doing very well lately.
Unlike its competitors, Microsoft doesn’t reveal profit metrics for its Xbox segment. That doesn’t mean we can’t infer from what it does share. Might get technical here, bear with me. The broader More Personal Computing business unit, of which Xbox is a part, saw operating income of $4.87 billion in Q4, up from $4.09 billion. However, gross margin percentage declined 1% since last year due to a shift to gaming. Margin as a metric basically accounts for expenses deducted from total sales.
Now there’s a variety of factors impacting profitability within this segment. Suffice to say that a slight dip in margin percentage caused by this shift means gaming was a bit less profitable than others here which are Windows, Devices and Search Advertising. It’s impossible to back into exact numbers, unfortunately.
Xbox is selling every single box its suppliers can make, as consumer interest far exceeds production capabilities right now. I anticipate this will continue for the foreseeable future, at least through the next fiscal year ending in mid-2022.
When it came to growth during Microsoft’s latest Q4, Xbox Series X|S hardware was certainly the star.
The aforementioned 172% growth for Xbox Hardware is the result of simply high demand meeting limited supply. It’s effectively the best it can be right now, as Xbox consoles are consistently selling out.
With Xbox Series X|S being the fastest-selling in the company’s history, how does that translate to unit sales? Well, we don’t exactly know formally because Microsoft stopped sharing these a while back.
Still, there are estimates out there. Friend of the site and analyst at Niko Partners Daniel Ahmad attempts to estimate units shipped for Xbox Series X|S at roughly 6.5 million since November 2020. Aligned with Nadella’s comments, this figure would outpace the prior record holder of Xbox 360 at 5.7 million starting in 2005 plus 2013’s Xbox One with roughly 5 million shipments across the same 6-month span.
Which makes sense, especially given recent performance in its largest market of the United States. The Xbox platform had its best June month ever according to The NPD Group, as I wrote about recently. Definitely check out that piece to see more specifics.
The other sub-segment within gaming is Xbox Content & Services, which saw somehwat mixed results during the fourth quarter.
Revenue here was 4% lower than this time last year, mainly because of software published by third parties available on the Microsoft store or retailers. This makes sense because the prior four quarters all experienced growth above 30%. It was bound to revert from those prior peaks.
Amidst this decline, executive comments still indicate expansion in services and player interest in particular. Chief Financial Officer (CFO) Amy Hood noted the team saw “strong engagement across the platform” during Q4.
The management team said Xbox Game Pass is “growing rapidly” while referencing certain statistics, similar to those we’ve heard in the past about how subscribers play and spend more than their non-member counterparts.
There was specific mention of cloud gaming this time, a service that Xbox has embedded within its top-tier Xbox Game Pass Ultimate and expanded to more countries in recent months. While not specific, Microsoft said that “millions” are streaming to their various devices.
What this mix of results and comments around Xbox Content & Services tells me is that last year was really fantastic during the height of pandemic quarantine orders, the audience base is still there yet spending less than that time especially on software. Subscriptions are propping it up, which is exactly what the team wants from pushing ecosystem and its robust Xbox Game Pass library.
Growth could slow a bit near-term for the Xbox division. I do think the baseline has been reset by newer audience members plus lapsed gamers sticking around and spending lately, which will help comparing growth against those high points last year.
Taking a step back to the company overall, Microsoft posts some staggering results in the scheme of things. Over $46 billion in fourth quarter revenue, an increase of 21% and well ahead of analyst estimate of $44.2 billion. Operating profit of $19.1 billion is 42% higher than this time in 2020, leading to an earnings-per-share figure above consensus as well.
Then what’s next after this record year for Xbox? Beyond healthy guidance for the firm overall, gaming is expected to grow into the first quarter of fiscal 2022.
“We expect revenue growth in the low double-digits,” said Hood in reference to gaming. “Console growth will again be constrained by supply. And on a strong prior year comparable, Xbox content and services revenue should grow low single digits.”
I can see that, consistent with its release schedule and hardware inventory limitations. There’s no flagship first party launches until Halo Infinite, and even that has a nebulous holiday release at present. There’s higher profile third party multi-platforms like Madden NFL 2022 from Electronic Arts in August and NBA 2K22 in September, which will contribute on the content side. There’s also a slew of new versions, smaller or indie titles in the coming months. The Ascent. 12 Minutes. Psychonauts 2. Hades and Microsoft Flight Simulator on console.
It might be tricky for Xbox to match the sales highs of the last 12 months, given the previous global stay-at-home situations and leading into a new console generation. Growth could slow a bit near-term for the Xbox division. I do think the baseline has been reset by newer audience members plus lapsed gamers sticking around and spending lately, which will help comparing growth against those high points last year.
Xbox Hardware will be strong, even if supply increases at a slower rate than originally anticipated. I believe subscriptions will keep pace, though am tapering expectations on content and software spend until the quarter ending December.
All in all it’s big results for 2021, like we’re seeing most places in the games industry. The question becomes where will it go from here.
Feel free to reach out here in the comments or on social media with your reactions or questions. Thanks for visiting!
Sources: Microsoft Investor Relations, The NPD Group, Wu Yi (Photo Credit).
I know it feels like 2020 never ended. Yet somehow, the front half of 2021 is now in the books. It was another challenging one for a variety of reasons, yet one of the bright spots continues to be video game sales which I hope has provided some much-needed joy and respite for everyone.
And with that, we have.. numbers, of course!
Recently, industry tracking firm The NPD Group dropped both a monthly and second quarter 2021 report on the domestic games market. With it, sharing some notable records in the process and showing how spending on all categories this year is trending upwards.
In terms of growth, overall monthly consumer spending on games in the U.S. rose a steady 5% against a high comparable last year, set in the middle of stricter quarantine guidelines. Led by a Hardware category that more than doubled its level this same time in 2020. Within that, Microsoft’s Xbox Series X|S topped dollar sales. Even setting a new June record within the Xbox platform’s 20-year history. Separately, Nintendo Switch maintains a staggering streak when it comes to leading on unit sales, which it did again in June, as it has every month for 31 consecutive months! Both of these impressive feats occurred amidst a global chip shortage, signaling a boost in otherwise limited stock lately.
Content i.e. software, subscriptions and add-on sales moved up slightly, propped by usual suspects like Call of Duty and MLB The Show plus three new releases in the Top 5 on the general chart: Sony’s Ratchet & Clank: Rift Apart, Nintendo’s Mario Golf: Super Rush and Scarlet Nexus from Bandai Namco. Accessories was the only segment showing a decline in June 2021, though only 1% as PlayStation’s DualSense continues its consistency there.
Expanding to second quarter, total spend inched up 2% compared to the same three month period last year. However for the full first half of 2021, total sales climbed a solid 15% as all categories exhibited double-digit bumps. Spending on games isn’t slowing down compared to the height of the pandemic, proving new audience members are sticking around and core players are keeping up the hobby.
It’s time to delve deeper into each segment individually, including a close look at the software charts for both June and 2021 to date!
United States Games Industry Sales (May 30th, 2021 – July 3rd, 2021):
During June 2021, overall consumer spending in the domestic games market reached $4.93 billion, rising 5% compared to the same time last year. That’s now two consecutive months of year-on-year growth after a dip back in April.
While Content remained the leading segment by spending, it was Hardware making the biggest splash as production slowly yet surely ramps up. The last category of Accessories dipped slightly in June, cooling off a bit in the hot summer months domestically.
“Hardware was the obvious big story of June,” said The NPD Group’s Mat Piscatella. “Xbox Series was the star of the month, but all major platforms showed double or triple digit dollar sales growth vs year ago. Demand is nowhere near satiated, supply is still a massive challenge.”
Across the second quarter between April to June, total spend in the U.S. hit $14 billion. That’s up 2% since the same time in 2020. The NPD Group reported Q2 growth across a variety of sub-groups: personal computer (PC), cloud, non-console virtual reality, mobile, subscriptions plus, of course, gaming consoles.
“Consumer spending has not only maintained the elevated levels reached a year ago, but exceeded them in key areas such as hardware, mobile and subscription spending,” said Piscatella in the Q2 report at the firm’s website.
This trend is illustrated even more when looking at the entire first half of 2021. The total for consumer spend jumped 15% to $28.94 billion during the six month span ending June, driven by console growth in particular. Demand for new consoles still outstripped inventories, though manufacturers proved resilient with production even as it’s difficult to source certain parts in the supply chain.
When focusing on Content alone, sales in June reached $4.32 billion. Up a modest 1% year-on-year. Looking at second quarter, this major category saw $12.6 billion in sales, growing 2%. Notably driven by subscription spend, showing double-digit growth in Q2 (although the firm wasn’t specific in that figure). Across the time frame from January to June, Content bumped upwards of $25.36 billion, 13% higher than first half of 2020.
New releases wrote the narrative here for June. Sony published Ratchet & Clank: Rift Apart, the month’s top-selling software title. The latest mainline Ratchet & Clank action-adventure platformer achieved the best dollar sales ever in franchise history, a staple within the broad portfolio of developer Insomniac Games. The prior record holder for the series was April 2016’s Ratchet & Clank, a counterpart to a movie launched that same month.
Right behind chart mainstay Call of Duty: Black Ops Cold War, which ranked #2, was Nintendo’s latest sports offering in Mario Golf: Super Rush. Within the States, this title set a new Mario Golf record for first month dollar spend, outpacing that of GameCube’s Mario Golf: Toadstool Tour way back in 2003. Nintendo hasn’t yet shared global unit shipments for its latest Switch exclusive sports game, though I expect a similarly solid start when it does on August 5th.
June’s biggest surprise to me was Scarlet Nexus fighting to the five spot on the combined platform chart. An action Japanese Role-Playing Game (JRPG) from Bandai Namco is the latest in splendid starts for Japanese titles expanding overseas during simultaneous global launches, echoing examples like Square Enix’s NieR: Replicant at #5 in April 2021, Capcom’s Monster Hunter Rise in the second spot during March 2021 plus Dragon Ball Z: Kakarot also from Bandai Namco, the best-selling title in January 2020.
Through the first half of 2021, chart composition is familiar. Call of Duty: Black Ops Cold War was the best-seller with Resident Evil: Village and MLB The Show 21 right behind it at #2 and #3, respectively. One notable position is the 9th-ranked Outriders from Square Enix, a quietly consistent seller during the first half even if it lost some ground compared to May.
It’s time for the lists themselves, both monthly and first six months of the year.
Top-Selling Games of June 2021, U.S., All Platforms (Physical & Digital Dollar Sales):
Ratchet & Clank: Rift Apart
Call of Duty: Black Ops Cold War
Mario Golf: Super Rush*
MLB The Show 21^
Resident Evil: Village
Mario Kart 8*
Marvel’s Spider-Man Miles Morales
Mortal Kombat 11
Animal Crossing: New Horizons*
Call of Duty: Modern Warfare 2019
Super Smash Bros. Ultimate*
Assassin’s Creed Valhalla
Super Mario 3D World + Bowser’s Fury*
Mass Effect: Legendary Edition
Tony Hawk’s Pro Skater 1+2
The Legend of Zelda: Breath of the Wild*
Pokémon Sword & Shield*
Sea of Thieves
Top-Selling Games, 1st Half 2021, U.S., All Platforms (Physical & Digital Dollar Sales):
Call of Duty: Black Ops Cold War
Resident Evil: Village
MLB The Show 21^
Super Mario 3D World + Bowser’s Fury*
Marvel’s Spider-Man: Miles Morales
Monster Hunter Rise
Mario Kart 8*
Assassin’s Creed Valhalla
Moving onto gaming consoles during June 2021, the Hardware category saw gains across all three major platforms in PlayStation, Xbox and Nintendo, driving exceptional growth of 112% to $401 million. That’s the top June sales amount for Hardware since June 2009’s $617 million.
I mentioned before the great, record-breaking month for Xbox where Series X|S led by dollar sales. That’s the first time since its launch in November 2020. It recorded the best June month ever for an Xbox platform, beating out June 2011. No doubt driven by new content for console exclusive Sea of Thieves, continued pace from MLB The Show 21 plus the allure of Xbox Game Pass as the best value proposition in games.
Microsoft wasn’t the only manufacturer with an exciting month. Nintendo Switch led by unit sales in June 2021, as it has every month for years now during its wild run of success. PlayStation 5 continues its extremely quick start. Sony’s new generation (big ol’) box is still the fastest-selling home platform in tracked history, as measured by unit sales during the first 8 months on market. Note this statistic excludes handhelds, since Game Boy Advance is still the fastest-seller overall.
Stretching the time frame to second quarter, console spending moved up 12%. Then between January and June, this Hardware category earned $2.35 billion. That’s a fantastic 45% increase, even if compared to a time that was later in the console cycle last year.
It’s worth repeating that numbers during the early portion of a new platform generation are driven by supply rather than demand, more now than ever given the inventory environment. Essentially, Xbox produced enough Xbox Series X|S units to lead by dollar sales during June. Demand is for all platforms is stellar, even Nintendo Switch four years after its debut. This contrasts a chip shortage expected to block higher production output for a year or two, at least.
The only mildly disappointing category during both June and second quarter was Accessories, unable to keep pace with its counterparts. Understandable given the strength of spending this time last year. Although it did exhibit growth when looking at the aggregate during the first half of 2021, an encouraging sign.
Monthly spending on this category comprised of game pads, headsets etc declined 1% to $207 million in June and was 12% lower than last year when looking at the second quarter. Still, it saw 14% growth during the first six months of 2021, rising to $1.23 billion.
Sony is the consistent leader here. The PlayStation 5’s DualSense Controller Midnight Black edition topped this accessory group during June. Out of the four best sellers last month, three of those were DualSense game pads. Similarly, DualSense’s base White variant led the segment for the year so far.
It appears additional spending on these pieces of ancillary hardware is slowing in the early summer months, so will see where it goes leading into the back half.
The domestic games market saw many bright spots during June, especially for platform holders. Each of them had bragging rights in their own way, and all of them are doing well despite production challenges.
Individual software titles, subscriptions and mobile are keeping up consistency in spending, proving how the industry was not just able to grow its audience during the last year or so, but keep it around to maintain commercial momentum and interest in the medium.
Which makes sense to those tracking closely. Gaming is somehow both the most massive entertainment segment in the world and the quietest, a trend that last week’s reporting clearly shows especially when considering double-digit gains across each category since the year’s start.
I hope everyone stays well until next month when July marks the start of 2021’s second half, always an exciting time for those of us that love to follow. Feel free to drop a comment here or on social media. Be safe and thanks for reading!
*Digital Sales Not Included, ^Xbox Digital Sales Not Included
Sources: Billy Freeman (Photo Credit), The NPD Group, PlayStation Press Center.
After Sony’s somewhat messy reveal yesterday of many things PlayStation 5 plus Microsoft’s announcements last week regarding the Xbox Series X|S platforms, the foundation of gaming’s next console generation are starting to fall into place.
With these announcements and a subsequent trickle of details, both manufacturers are solidifying their individual strategies. Sony with its more direct platform marketing and big-budget exclusive software compared to Microsoft’s two-tiered hardware plan plus service as an ecosystem play.
And I believe that both of these can, and will, work out for them.
Starting with Sony, the Japanese tech giant shared that the PlayStation 5 base version starts at $499 with a Digital Edition set for a quite competitive $399. The only difference being the latter doesn’t have a physical disc drive. Both release on Thursday, November 12th in seven markets, then November 19th in the remainder. Launch lineup includes games like Demon’s Souls and Marvel’s Spider-Man Miles Morales (which now has an Ultimate Edition with a remastered version of 2018’s Marvel’s Spider-Man), with the most notable point being increased prices compared to last generation. The broad video game price increase is officially underway.
Sony’s showcase also had brand new announcements like Final Fantasy XVI from Square Enix and Warner Bros’ Hogwarts Legacy then capped off teasing a new God of War title in development from its Santa Monica Studio. Overall, it was a tight, informative presentation albeit missing a number of key details for things like software release windows and pre-order timing.
Messaging from Sony has been all over the place in the time since this reveal. First off, Sony allowed retailers to dictate when pre-orders went live despite saying that they would provide “plenty of notice” previously. Also in the past, executives like Sony Interactive Entertainment’s President & CEO Jim Ryan have stressed how the company believes in generations. That is, targeting games for strictly the new console as opposed to cross-generational type releases.
Then yesterday, the garbled communication accelerated. The team said PlayStation 5 games including Marvel’s Spider-Man: Miles Morales, Sackboy A Big Adventure and even next year’s flagship graphical powerhouse Horizon Forbidden West will also have PlayStation 4 releases. An inconsistency with seemingly its underlying strategy of established generations. Now, this makes all the sense in the world from a business standpoint. There are 112 million PlayStation 4 consoles in the wild, most owners of which won’t upgrade for a number of years. A clean-break generational move is antiquated in 2020, when backwards compatibility and maintaining a library is important.
Early adopters are going to buy the shiny new box regardless. It’s more about people six months or years from now that will determine the trajectory of sales. These companies have to consider those just as much as the enthusiasts.
In another twist, Ryan said in a coupleinterviews with media that the overall catalog of games is less significant than having “new, great” software offerings. Combine this with the massive $100 million or more budgets for its first party projects, Ryan doesn’t think that launching games into a subscription service is sustainable.
The irony is that I believe bridging the gap between PlayStation 4 and PlayStation 5 is one of the reasons why Sony can be successful in the upcoming cycle. Maintaining continuity with its legacy owners and their libraries will allow people to upgrade without fear of losing access to their favorite games, especially with many titles being live services now and not providing clear upgrade paths. Early adopters are going to buy the shiny new box regardless. It’s more about people six months or years from now that will determine the trajectory of sales. These companies have to consider those just as much as the enthusiasts.
Another reason I believe Sony can achieve is competitive pricing, especially the Digital Edition at $399. This model comes without sacrifice in the power department, it’s just that it only allows for digital downloads. Sony apparently had locked in the idea of getting at least a version to the same launch price of PlayStation 4, and they succeeded. The question comes down to availability, and anecdotal evidence says the digital version is much harder to find despite Sony saying that the PlayStation 5 will have more units overall at launch than its predecessor.
Finally, and it’s no secret, Sony’s software prowess is near unparalleled in modern game development. Its studios are among the most talented in the business. With projects like Horizon Forbidden West and God of War 2021 in the pipeline from internal teams, Sony seems to be leveraging a similar software strategy as last generation in quality, single-player experiences.
It’s also making key partnerships with external publishers, such as the aforementioned deal with Square Enix for Final Fantasy XVI console exclusivity plus its work with Bluepoint Games on major remakes, to round out the portfolio. There’s also a new service offering as part of its PlayStation Plus membership: PlayStation Plus Collection, where legacy titles will be available for PS5 owners.
That’s how Sony can win. Solid hardware pricing to sell volume of both editions, new foundational games on console then PlayStation Plus and even PC on the back end down the line. It just needs better and more honest messaging, clean up the pre-order process ahead of November and share information on upgrade paths like it has with Marvel’s Spider-Man: Miles Morales in that the game moves with players from PS4 to the upcoming generation.
Switching to its main competitor in Microsoft of course, its Xbox Series X and Xbox Series S consoles debut a bit earlier the same week on November 10th in a simultaneous global launch, for $499 and an utterly aggressive $299 respectively. Both are also available via what’s called the Xbox All Access financing program, for $34.99 and $24.99 per month each. This comes with a subscription to Xbox Game Pass Ultimate, an immediate library of software. Which is a key part of enticing especially new buyers, not having to drop so much money up front like generations of the past.
As I’ve stated before, the American software and cloud conglomerate’s modus operandi is ecosystem and services. Lowering the barrier to entry, offering games and subscriptions on a variety of devices beyond its consoles, embracing cloud as a complement to traditional gaming plus connecting everything in its Xbox brand. Its Xbox Game Pass catalog of games monthly subscription service is arguably the best value in the industry, considering that all new first party titles launch simultaneously into the service on their retail date.
Then there’s Project xCloud. Microsoft formally launched the cloud streaming offering just earlier this week for Xbox Game Pass Ultimate members in various countries for use on Android phones and tablets. It’s a play on the future direction of the industry. Despite some critics prognosticating otherwise, I don’t believe it’s a replacement for traditional games. It’s a complement that will offer yet another way to play console and PC quality software. Which means it won’t cannibalize sales, it will be accretive to the business line.
“We really built this strategy around that – play the games you want, with the people you want, on the devices you want or already have,” said Phil Spencer, Head of Xbox. “The high-level goal for us is can we build a platform where more people want to play more games more often?”
What this means is that Microsoft is foregoing one-time purchases up front to make it up in volume, monthly fees and player engagement. It hopes to monetize on an ongoing basis, and keep people in the ecosystem whether using hardware, PC or even mobile via cloud.
So, what does this have to do with winning? Everything.
A holistic approach makes Microsoft less dependent on core hardware sales and major, blockbuster exclusives than ever before. Its hyper-competitive pricing tier for Xbox Series S gives the most realistic entry point for various slices of the market: lapsed gamers, those on the fence about an upgrade and even PlayStation owners looking for a way to try games not available on that platform. Sure, the company is chalking up a loss on hardware and even generating less revenue up front with service discounts. It’s still built up a user base of 10 million strong for Xbox Game Pass as of last month, many of which have or will renew even when their discounts expire. And according to various accounts, this leads to people not just playing more games but also buying them, bumping up software sales alongside the subscription.
Xbox has also been much better about messaging and marketing, sending a clear signal with both its pricing and retail packaging. Its social media team is on fire, rolling with the punches during leaks and summarizing perfectly the contrast between its console models. While some argue that offering two models with similar names is confusing, I strongly disagree and think that tech consumers are more knowledgeable than that in the age of multiple iPhone models and countless TV iterations. The pricing alone tells the story: Xbox Series S is for those looking to enter next gen at an affordable price, Xbox Series X is for the enthusiasts that are much less sensitive to cost.
A holistic approach makes Microsoft less dependent on core hardware sales and major, blockbuster exclusives than ever before. Its hyper-competitive pricing tier for Xbox Series S gives the most realistic entry point for various slices of the market
The main question (and it’s a big one, no doubt) surrounding Xbox is its software lineup, at least early in the cycle. Without games like Halo Infinite, Forza Motorsport or Senua’s Saga: Hellblade 2 at launch, it will lean more on smaller titles like The Medium from Bloober Team and Ebb Software’s Scorn, older first party games like Gears 5 and Gears Tactics plus external, multi-platform releases such as Assassin’s Creed: Valhalla and Destiny 2: Beyond Light. With the amount of studio acquisitions and announced games like the aforementioned bunch plus Rare’s Fable and Everwild, I anticipate a more beefed up portfolio within two years of launch. Which is really the time that’s most make-or-break for sales.
Microsoft is one of the world’s largest companies, and while Xbox is a key brand segment, it’s a small portion of the overall business. We’re still talking about an $11.5 billion or more annual revenue generator here, one where Microsoft is clearly investing in parallel to its Cloud offerings. The firm can sustain a hit from discounted Xbox Game Pass and All Access programs, as long as the opportunity is there to keep players over time. These are meant to build up the audience base and benefit over the longer term, even if shorter term it appears to be slower than its competition.
As noted throughout, we now know how both Sony and Microsoft are throwing down aggressive pricing this holiday season for some powerful next generation boxes. Both are investing internally, mapping out marketing, purchasing studios and making partnerships in attempts to win mind-share and, most importantly, dollars.
Sony promises more PlayStation 5 consoles at launch than PlayStation 4, offers an enticing Digital Edition upgrade for PS4 owners while also solidifies a more impressive launch lineup of software even if its messaging has been jumbled. Microsoft’s message has been direct: Its Xbox Series S is the most affordable of the bunch and both consoles are available via a financing option for folks that might not want to pay up front or have been impacted financially by coronavirus.
It’s not quite time yet for my detailed forecasts, though this piece should give an early indication of where I’m at in that I expect both manufacturers to sell out of launch stock then move into the later years of this generation with unique offerings that absolutely will attract buyers. Even some that will overlap. If I had to pick, I’m slightly more bullish on Sony’s prospects especially if they can supply enough Digital Editions to the market at that extremely attractive $400 point.
That doesn’t mean its competition can’t also win. Each has something the other doesn’t, which means victory is attainable for all. Most of which, console gamers. Even if they’ll probably continue to fight among themselves for eternity.
Stay safe all. Thanks for reading!
All prices reference above in U.S. Dollars. Local pricing available at manufacturer websites.
Sources: Fast Company, GamesIndustry.Biz, Microsoft, Sony, TechRadar, Washington Post, Xbox Wire.
It’s now around two months before next generation gaming consoles are set to release, and one of the manufacturers has finally moved publicly on price.
Well, sort of.
In the middle of the night here in the States, Microsoft formally unveiled its “smallest Xbox ever” in the Xbox Series S, the counterpart to its higher powered Xbox Series X platform. The leaner, more cost-friendly Series S will launch at $299 with a financing option at $25 per month via Xbox All Access.
Its existence has been the worst kept secret in the industry for a year or more, originating at the same time speculation began about Microsoft’s new generation approach featuring multiple, simultaneous console launches. Last night this intensified, mainly due to a post at Thurrott.com showing leaked promotional packaging for the Series S.
According to another leaked Series S promo posted by WalkingCat on Twitter, this time a full on video ad, Microsoft is certainly going for the segment of the audience that might want to upgrade or enter the Xbox ecosystem, doesn’t care about physical discs and refuses to break the bank in order to play the newest games.
Series S is an all-digital box, which means no disc drive, and it’s 60% smaller than the beefy Series X. While it has a quick-loading solid state hard drive (SSD), it’s only 512GB which is restrictive in terms of internal storage space. Especially for a console that only downloads or streams games. Its specs are of course reigned in compared to any next gen version so far, though targets comparable output in terms of performance. Supports high frame rates, 4K upscaling and more as you’ll see in the commercial.
Furthering the fervor, Windows Central dropped even more major news in that its sources say the powerful Xbox Series X will launch at $499 with a $35 per month financing option.
AND that both Xbox consoles will be out on Tuesday, November 10th.
(Edit: Microsoft has confirmed that at least Xbox Series S launches this day. I anticipate both will be at the same time.)
(Second Edit: Microsoft revealed that Xbox Series X will also release on this date, at $499.)
Whew. After months of snacking on crumbs, we now have a lot to digest. First, let’s talk timing.
This all sounds legitimate. Friend of the site Jez Corden and his team at Windows Central are reliable for most things Microsoft and this is consistent with the company’s own marketing of a November release. Plants it squarely before the holiday rush and right during the windows of big third party titles like Destiny 2: Beyond Light, Assassin’s Creed Valhalla and Cyberpunk 2077.
(The irony of a Bungie game that isn’t Halo being effectively a launch title for an Xbox console isn’t lost on me!)
And, this timing just might be before its rival Sony PlayStation 5 as well, which is rumored actually for later that week on Friday, November 13th.
If the simultaneous Xbox release happens to be November 10th, then it’s a few days after my prediction. I thought the console would hit on a Friday, though Microsoft is seemingly opting for a Tuesday strategy. Similar to its Xbox 360 debut in 2005. Really, the exact day of launch is less important in the grand scheme than is moving first and having it ready to go before Black Friday and holiday shopping begins in its major markets.
Still, what continues to stand out to me is a distinct lack of exclusive, first party launch games now that Halo: Infinite is delayed to next year. The timing tells me that Microsoft is leaning into those aforementioned third parties, updates from last generation software and its Xbox Game Pass service to entice people to upgrade. Perhaps when Microsoft officially reveals the date, it will also have a surprise announcement for a new launch game. (Not betting on it.)
There’s also the question of future-proofing, which is why this latest set of consoles try to target things like 8K resolution and 120 frames-per-second at the top end. These boxes need to be relevant years from now. Can the Series S accomplish this with its current specs? Probably not. Which is why we’ll likely see a mid-generational upgrade like we did last time around, so future-proofing isn’t as important as it once was.
Next up, that pricing!
The first word that came to mind when hearing these revelations is: Aggressive. Like, extremely so.
Earlier this year, I speculated that $499 would be the minimum price for Series X based on its specs and likely build cost. I’m on record saying I expected $349 for a cost-friendly Series S with the option to reduce based on its specs (which we never knew in advance, in my defense). Microsoft reaching or beating these, especially the $299 Series S point, clearly shows a strategy of making next gen affordable for as many people as possible even if the lower end specs aren’t dazzling.
These days for the $11.6 billion in annual revenue Xbox gaming division, it’s just as much about attracting buyers to Xbox Game Pass. The two-tiered console approach covers a significant part of the market now. Enthusiasts will always upgrade early, that’s the audience for Series X. It’s the more casual audience, those that are platform agnostic or even lapsed gamers that are most likely to bite on that juicy $299 price tag.
Another smart move from a marketing perspective is Microsoft starting with the price announcement of only its entry level version. Putting that in public mind-share on its own, rather than showing both at once. Taking this sort of staggered approach injects a sense of affordability in the market, saying to consumers that it really isn’t crazy expensive to move into the next generation of console gaming.
I fully expect to see at least a version of each console bundled with Xbox Live, Xbox Game Pass and even the streaming service Project xCloud, the last of which is an especially intriguing play for the all-digital Series S. An Xbox Series S bundled with an introductory subscription to Xbox Game Pass Ultimate could be the best bang for the buck early in the console cycle.
In terms of general sales predictions, I’m still cautiously upbeat on early prospects in November and all of the fourth quarter calendar year. For both console manufacturers, mind you. We still don’t know price or timing for Sony’s PlayStation 5, so I’m hesitant to go on record with figures or comparisons at this stage other than to say I’m expecting demand to be steady though unsure about production quantities.
Even so. With the confirmation of an all-digital version in the next gen Xbox family, Microsoft sales should shift towards that lower-margin model which means slightly lower overall revenue generation. I still fully expect early adopters to upgrade to the Series X. The question becomes how many of the people that might not have upgraded, or might have picked the PlayStation 5 Digital Edition, will now buy Series S? That will dictate sales even more than the hardcore players.
Of course it also comes down to production, which we know will be impacted by coronavirus and availability of parts. In 2013, Xbox One sold a million units in a day to be the biggest launch in Microsoft’s gaming history. And that was priced $100 more than its competitor. Between the two models this time, there’s potential for setting another record internally.
So, what now?
Microsoft ended its Twitter reveal saying that they will share more soon. Windows Central notes the likelihood of Xbox holding a press event in the near future, after which time I assume pre-orders will also go live for both versions. Expect this to be *very* soon, like within days now.
While overnight we saw our first glimpse of next generation pricing, plus received all-but-confirmed rumors of cost and timing for the Xbox suite of devices, we’re now waiting for that official confirmation.
Then, it’s Sony’s move. My “almost” final prediction for PlayStation 5 Standard Edition is $499 and Digital Edition is $399. Which would be great for that Series S entry point. When will we know? Well, right after Microsoft’s event seems like a sure thing.
I’d bet the house.
Stay tuned here or Twitter for more news, commentary and sales talk on next generation consoles plus everything in gaming. Thanks for reading!
All prices quoted in US Dollars. Sources: Microsoft, Thurott, WalkingCat on Twitter, Windows Central, Xbox Wire.