Microsoft’s gaming revenue dropped significantly in the second quarter of its fiscal 2020. Xbox’s Q2 revenue plummeted 21% year-over-year during the three-month period ending December 31, the company said while reporting earnings today. But while this is a precipitous decline, it looks worse than it actually is.
This decline is due to Xbox One pushing far past its prime. Microsoft is planning to release the next-gen Xbox Series X this holiday. And many consumers have already made their hardware choice and are now waiting for the new systems. That’s all part of the cyclical nature of the console business.
But Microsoft noted that it’s not just about hardware.
“Xbox content and services revenue decreased 11% against a high prior year comparable,” reads Microsoft’s earnings report. “That’s primarily from a third-party title, which is partially offset by subscriptions growth.”
The third-party title is almost certainly Fortnite. And Epic’s battle royale is the main reason this most recent quarter compares so poorly to the same quarter from the previous year. Microsoft’s end-of-generation decline likely would have started during calendar 2018, but Fortnite came along. That game turned into a revenue behemoth, and Microsoft (as well as Sony, Nintendo, and Apple) all got 30% of every dollar Fortnite dollars spent through their stores.
The success of Fortnite inflated Xbox’s software and services numbers in fiscal 2018 and 2019. Now that Fortnite is merely quite successful instead of a phenomenon, it is no longer concealing some of the expected weakness that was always in the console space.
The good news for Microsoft, however, is that it is still seeing revenue growth for subscriptions. And Xbox Live Gold and Xbox Game Pass is exactly where it wants players spending their money.