Since the launch of the first Xbox console in 2001, Microsoft (MSFT) -1.39%) sold fewer units than . in each console battle Sony‘s (SONY) -0.17%) PlayStation, but the tide may turn.
Year-to-date, Sony’s PlayStation 5 (PS5) and Microsoft’s Xbox Series X and Series S consoles have been engaged in a close battle. In July, PS5 sold more than Xbox in Japan and Europe, but Xbox sold more units in North America, according to video game tracker VGChartz.
To date, PS5 has sold 21.8 million units, compared to 16.1 million for Xbox Series X/S. In the previous console generation, the PS4 was more than two to one better than Xbox One. The ratio is much narrower this time around, and there are a few key reasons why Microsoft has a legitimate chance to dethrone Sony in the console war.
Microsoft is fighting more aggressively
Gaming is shifting from hardware dependency (eg consoles and PCs) to a multi-platform distribution strategy. More gamers are signing up for cloud gaming subscription services, which offer a wide selection of titles. These services give more importance to each company’s game catalog to attract subscribers.
Providing gamers with the best catalog of exclusive games has always been a benefit to Sony, which owns multiple studios known for developing great gaming experiences. But Microsoft has a big financial advantage over Sony, and it’s starting to harness that power.
Microsoft has made several acquisitions in recent years to pile more developer talent at Xbox Game Studios. It turned out that the 2020 acquisition of Bethesda owner ZeniMax Media for $7.5 billion was just a warm-up. Microsoft is about to deal a damaging blow to Sony with its $68.7 billion bid to buy out Activision Blizzard, one of the largest gaming companies in the world. The deal is expected to close during Microsoft’s fiscal 2023, which ends in June.
If the winning parameters in the gaming battle between Sony and Microsoft weren’t already clear, they should be now. Microsoft can beat Sony by offering gamers the most comprehensive catalog of the biggest franchises in the industry. Instead of selling more consoles, Microsoft could win by expanding Xbox users — and expanding the Xbox Game Pass subscription service is a big part of that strategy.
In 2021, Microsoft’s Xbox Game Pass subscription service grew 67% to 25 million users, according to Statista. Sony’s PlayStation Plus is twice the size, but only gained 2 million new subscribers last year. This one Netflix-style gaming services are the industry’s future battleground, and Microsoft clearly had momentum going into 2022, which spilled over into competitive console sales.
More than 3 billion people play video games, so it’s a battle who can reach the first billion. I would bet on Microsoft in a heartbeat. Assuming the deal closes, Activision Blizzard will give Microsoft a massive 361 million player base and allow Microsoft to skip PlayStation’s 100-plus million account base.
To complete the acquisition, Microsoft will likely have to negotiate an agreement with the Federal Trade Commission that it will not make it to Activision’s best-selling game. Duty, from the PlayStation to make it exclusive to Xbox. But Sony is clearly concerned.
Within two weeks of Microsoft’s announcement of Activision, Sony announced it was acquiring Bungie, which develops the former Activision franchise. Destiny. Activision has sold the publishing rights to: Destiny returned to Bungie in 2018 after the game fell short of sales expectations. From that perspective, Sony’s move for Bungie isn’t much of a consideration for Microsoft.
The game is played under Microsoft’s terms
For the past two decades, PlayStation has dominated the console gaming market, but Sony’s recent strategy shows a company playing defensively as Microsoft gains market share in console sales and Xbox Game Pass subscriptions.
Sony has been making more of an effort lately to publish its PlayStation games on other platforms, such as PCs, to expand its audience, but the jury is still out on whether this is enough to keep up with Microsoft.
The problem for Sony is that the video game industry is shifting from its core competency of making consumer electronics to the power of Microsoft, which is subscription services.
The biggest problem is that Sony doesn’t have $68 billion to buy a gaming company. Microsoft makes enough money from operations to buy almost every game studio in the world to add exclusive titles to Xbox Game Pass. While Microsoft is still behind Sony in terms of console sales, it may have already won the war.
John Ballard has positions in Netflix. The Motley Fool holds positions in and recommends Activision Blizzard, Microsoft and Netflix. The Motley Fool has a disclosure policy.
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