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pww.comMicrosoft Corporation Presents at Jefferies Interactive Entertainment Virtual Conference, Nov-12-2020 10:00 AM - NasdaqGS:MSFT

NasdaqGS:MSFT

Tim Stuart [Executives] 💬

Tim Stuart, the CFO of Microsoft's gaming division, discussed various aspects of Microsoft's gaming strategy during the Jefferies Interactive Entertainment Virtual Conference on November 12, 2020. Below is a detailed summary of his statements:

Launch of Xbox Series X and Xbox Series S

  • On November 10, 2020, Microsoft launched the Xbox Series X and Xbox Series S, marking its biggest launch ever in terms of units, geographies, and overall footprint.
  • The price points for the consoles were set at $499 for the Xbox Series X, touted as the world's most powerful console, and $299 for the Xbox Series S, described as the world's best value in gaming.

Strategy and Differentiators

  • The strategy is focused on removing friction for users who would normally wait for price drops by offering competitive pricing and a strong content lineup.
  • Microsoft aims to differentiate itself through the introduction of Xbox All Access, which combines a hardware purchase with Game Pass in a monthly subscription priced at $24.99 for the Xbox Series S and $34.99 for the Xbox Series X.
  • The company is leveraging its Azure cloud infrastructure to reach gamers globally, including emerging markets like Africa and India, and to enable cloud gaming.

Supply and Demand

  • Despite efforts to meet high demand, supply shortages are expected to persist through the post-holiday quarter (Microsoft's Q3, calendar Q1).
  • Supply constraints are anticipated to ease by the pre-summer months, allowing for a better alignment between supply and demand.

Impact of Cloud Gaming

  • Microsoft's Azure cloud provides a significant advantage over competitors, enabling the company to stream games to a wide range of devices and reach 80% of gamers worldwide.
  • The combination of Azure, Game Pass, and Microsoft's content pipeline is seen as a unique differentiator.
  • The adoption of 5G technology, combined with Azure, will enhance low-latency gaming experiences in new markets.

Content Strategy

  • The acquisition of ZeniMax Media (parent company of Bethesda Softworks) for $7.5 billion reflects Microsoft's commitment to expanding its content pipeline.
  • Microsoft aims to balance first-party and third-party content, ensuring that Game Pass remains attractive to gamers and that third-party publishers can succeed on the platform.
  • The company will continue to pursue acquisitions to bolster its first-party studios and content offerings.

Pricing and Monetization

  • Microsoft acknowledges the increasing costs of game development and the potential for publishers to raise prices, but has not made specific announcements regarding first-party pricing.
  • The company supports a mix of subscription-based and free-to-play models, aiming to coexist with free-to-play games by offering unique benefits to Game Pass subscribers.

Future of Gaming

  • While console gaming will remain a focus, the future of gaming is expected to shift toward cloud gaming, driven by advancements in technology like 5G.
  • Microsoft anticipates that cloud gaming will become more mainstream over the next decade, potentially reducing the need for dedicated consoles.

Cross-Platform Play

  • Microsoft encourages cross-platform play and does not intend to pull all Bethesda content from competing platforms like Sony and Nintendo.
  • However, the company aims to ensure that its content appears first, better, or best on Microsoft platforms, particularly through Game Pass.

Partnership with Sony

  • Microsoft is positioned as a cloud provider for partners that may lack their own cloud infrastructure, including Sony, which has partnered with Microsoft for cloud services.

Financial Model

  • The financial arrangements with partners like EA for inclusion in Game Pass vary, with different revenue-sharing structures depending on the specific agreement.

Outlook

  • The focus going forward is on driving growth, expanding the reach of Game Pass, and targeting new gamers in emerging markets and among mobile-first consumers.

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