How Xbox Is Changing the Nature of Exclusivity

Last week, the Xbox community was sent into a tizzy over rumors that Xbox exclusives Hi-Fi Rush and Sea of Thieves might soon be exclusive no more.

The rumors remain unproven, but an imminent Xbox Developer Direct has given these reports extra weight. And beneath Xbox console fans’ outcry over the potential loss of more exclusives to other consoles, there is an interesting question rising from the dust of the console war battlefield. For the last console generation, Xbox has been pursuing a markedly different strategy to its competitors: while Nintendo and Sony were busy selling tens of millions of console units on the power of first-party exclusives, Xbox has been trying to build an ecosystem of software that transcends a single box under the TV. Gaming for everyone, Xbox games on every platform where people are playing. Sounds nice, right?

With the Activision Blizzard deal now done and Xbox squarely behind both Sony and Nintendo in terms of console sales this generation, all eyes are on Xbox to do something astonishing that will turn the tide in its favor and maybe transform the industry in the process. What will the trick be? Multiple massive blockbuster first-party releases? Finally making cloud gaming something people actually want to do? Releasing Game Pass on Switch?

Okay, it’s unlikely Xbox has some big 4D chess move prepared this year, and certainly not in time for the Developer Direct. But conversations with a number of industry analysts have convinced me that 2024 is the year we finally start seeing Xbox’s grand ecosystem strategy – and all it entails for exclusivity, multiplatform play, and cloud gaming – finally start to take shape.

The Quest for an Xbox Ecosystem

Xbox has publicly been on the “ecosystem” train since before the current console generation. Way back in 2018, Spencer said at a Barclays conference that Xbox Game Pass was the future, and that future was going to be on “every device.”

“We use the flywheel that we have with customers on an Xbox to start the growth in Xbox Game Pass. But as somebody sitting back and taking a longer-term view of where our business is going, you should look at that as a business model that we think scales to billions of people not hundreds of millions of people like retail does.”

The following year, Spencer told Kotaku that “the consoles are not where the profit in this side of the business is made,” and that instead the focus needed to be “all about how many games are people playing. And how much people are spending playing those games and how often they play.”

But the conversation isn’t just about Game Pass or subscriptions. Since the release of the Series X and S, Spencer and other Xbox spokespeople have reiterated variations on the theme of meeting players wherever they want to play, including conversations about tech and game releases on other platforms. This mantra perhaps fed rumors in 2019 that Xbox Game Pass was coming to Nintendo Switch. While that ended up being one step too far, Xbox did bring previously-exclusive games Cuphead and Ori and the Blind Forest to Nintendo’s platform later that year — an unprecedented move for a company selling its own gaming box.

Xbox has tried to temper fears that it’s not focused on growing its own console, especially amid ongoing criticisms this generation that it doesn’t have enough first-party exclusive hits. In 2020, Spencer made an effort to reconcile his gaming philosophy with the fact that any Switch or PlayStation rendition of GamePass would inevitably come with caveats: “The other competitive platforms really aren’t interested in having a full Xbox experience on their hardware. But for us, we want to be where gamers want to be and that’s the path that we’re on.”

Last summer, he and other Xbox leaders asserted that console was “critical” to the future of Xbox. And then, at the end of last year, Xbox CFO Tim Stuart appeared to reiterate the GamePass everywhere strategy, only for Spencer to seemingly rebuke it not long after.

On a surface level, this series of public comments, official decisions, and rumors can make it a bit tricky to tell how serious Xbox is about the whole “ecosystem” thing. But Circana analyst Mat Piscatella frames the last five years of news headlines differently when I ask him his thoughts on it, noting that Xbox has actually been “pretty consistent” on what’s actually come to market, and that the mish-mash of strategy conversations we’ve seen over the last generation is more emblematic of a company in transition, with all the challenges that come with it.

“They haven’t gone all-in on the strategy, at least not yet,” he says. “Bringing games and services to other platforms in order to drive dollars on the content and services side would surely help, but there’s also the hardware business to support, so I’m sure there’s quite a bit of push and pull happening. And parts of the established base want to cling to the old hardware installed base driven model, and have been quite vocal about it.

“It’s a tough place. They’re trying to expand the audience and drive new ways of playing, but also don’t want to leave the audience that’s been with them from the start behind. It’s a difficult thing to do, with many interests and inputs to balance.”

Xbox’s current strategy is born out of necessity

It’s no wonder Xbox is running into obstacles – what it’s suggesting is a pretty dramatic overhaul of the existing model for how games, consoles, and exclusivity have worked for years. As NYU Stern School of Business professor and author of SuperJoost Playlist Joost van Dreunen puts it, “Xbox has redrawn the games industry landscape. Where historically the market was made-up of insular walled gardens, Xbox’ current strategy proposes a device-agnostic, cross-platform roadmap.”

Ampere Analysis’ Piers Harding-Rolls notes that it’s also uniquely positioned to suggest an ecosystem strategy thanks to its “history in the PC gaming space, its key role with Windows and its long list of B2B services targeting the games sector, including Azure and developer tools,” But he acknowledges too that Xbox’s move seems to have been born, at least in part, out of necessity, as Xbox has fallen behind in the so-called “console wars” since the heyday of the Xbox 360.

The Series X and S have not helped it gain much ground. Omdia’s console forecast suggests that Xbox Series X and S hardware sales dropped by 12.7% year over year in 2023, despite it being at phase in its lifecycle that would traditionally be considered a “growth phase” and releasing what should have been a blockbuster exclusive in Starfield.

“To make matters worse, we’re expecting the seven-year-old Switch to have outsold Xbox Series X/S by almost a factor of two in 2023,” says Omdia senior games analyst James McWhirter.

Multiple analysts I spoke to pointed out to me that while some might have expected Xbox to rectify this situation somewhat with its recent acquisition of Activision-Blizzard, its pledge to keep major games multiplatform for at least a decade means it won’t be able to capitalize on them as exclusives to bolster those console sales anytime soon. Meanwhile, Xbox’s whole “ecosystem” situation isn’t exactly rocketing them to the moon either.

“We’re seeing slowing adoption of Xbox Game Pass even though Microsoft will claim otherwise thanks to the repositioning of Xbox Live Gold as Xbox Game Pass Core,” McWhirter says. “Our forecast estimates total Xbox Game Pass subscriptions (excluding Core/Live Gold) to be at 33.3 million at the end of 2023, which represents subscriber growth of just 13% – down from 15% in 2022. Notably, over half (55%) are currently on the device-agnostic Ultimate tier.”

Piscatella notes too on X/Twitter that subscription services specifically aren’t growing as fast as they used to. Xbox’s kingdom cannot be built on subscription alone (especially if key developers aren’t sold on its value), nor can it be built overnight. Phil Spencer wasn’t lying last summer when he said that consoles remained “critical” to the success of Xbox, but here’s a new reading of that statement for you: consoles seem to be “critical” to sustain the business while Xbox metamorphosizes. That’s why Spencer is, quietly, still advocating for the big exclusives the Xbox console audience keeps demanding, even as Microsoft president Satya Nadella seems far less interested in the idea. Even if it’s third place in the console market, Xbox needs that bronze medal as a lifeline while it makes inroads into new sectors where it hopes to win gold, such as cloud gaming and this supposed bold new software ecosystem of cloud, subscriptions, exclusives, and mobile games it keeps alluding to.

2024: The Year of the Ecosystem?

So when will we see Xbox finally emerge and make good on its promises of gaming for everyone, everywhere? Will the Developer Direct this week herald a bold new era? Is 2024 the year of Xbox at last?

Well… probably not. These things take time. But that doesn’t mean we shouldn’t expect to see more inroads built this year. Most analysts I spoke to agreed that while Xbox’s 2024 first-party portfolio will likely be stronger than that of previous years, it isn’t going to rocket the console to the top of the sales charts.

For one, 2024 will almost certainly offer clarity on Xbox’s strategy for Activision Blizzard games, especially with regard to which ones are coming to Game Pass and when, what it plans to do with PC-exclusive World of Warcraft and back catalog games like Starcraft, and what Xbox owning Call of Duty will really mean for how those games are sold, accessed, and played. The acquisition’s ripples on Activision Blizzard development itself won’t be felt for a few more years, but the ecosystem strategy will begin almost immediately.

Which brings us back to all those rumors of Hi-Fi Rush and Sea of Thieves coming to Switch or PlayStation. McWhirter says that, despite what naysayers online might suggest, Xbox bringing these current-exclusives to its competitors actually benefits Xbox more than Nintendo or PlayStation. “There are signs that Hi-Fi Rush underperformed relative to Microsoft’s expectations in terms of its impact on Game Pass subscriptions growth and engagement and full game downloads. Releasing a late port to, say, the Switch, makes continued development of titles like it more sustainable while securing timed exclusivity on Xbox while adding value to Game Pass.

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