Last week, we reported on rumors that Microsoft (NASDAQ:MSFT) was preparing to launch a new subscription option that would bundle an Xbox One console with its popular online gaming services. Yesterday, the company announced Xbox All Access, a limited-time offer available through U.S. Microsoft Stores.
As predicted, this new subscription includes Xbox Live, Xbox Game Pass and an Xbox One game console for as low as $21.99 per month.
The prospect of Xbox game consoles being much easier to afford as we head toward the holiday shopping season helped MSFT stock, with a 1.1% pop on the day.
Microsoft Announces Xbox All Access
On August 27, Microsoft officially announced Xbox All-Access. Described as a limited-time offer with U.S. availability, the monthly subscription service includes the company’s existing Game Pass and Xbox Live online game services and, most importantly, the choice of an Xbox One S or Xbox One X game console.
Pricing ranges from $21.99 per month (with an Xbox One S) to $34.99 per month (with the more powerful Xbox One X), and buyers sign on for a 24-month term.
The financing aspect of the service is administered by Dell (through its Dell Preferred Account financial arm). There is no upfront cost, Microsoft says customers actually save up to $130 compared to buying the services and hardware individually, and once the two years is up, customers own the console outright.
If Microsoft isn’t actually making more money from Xbox All Access — and in fact could be leaving $130 on the table — why is the move considered a big deal, with real upside for MSFT stock?
It’s all about the PlayStation 4, the rival game console from Sony (NYSE:SNE).
Catching Up to the PlayStation 4
Last week, I wrote that while gaming has become a $10 billion business for Microsoft, the company has aspirations for it to hit $100 billion. That would be a big deal for Microsoft’s stock, but that kind of growth is tough to pull off.
And at the moment, Sony’s PlayStation 4 is in the way. The Xbox One ran into trouble before it even launched, thanks to fumbled messaging from Microsoft over issues like used game support and its initial positioning as an entertainment center rather than a gaming-focused device. As a result, Xbox One sales have never hit hoped for levels and the PS4 has run away with the lead in this generation of game consoles.
Even the release of the Xbox One X — the world’s most powerful game console, and then slashing its price from $599 to $499 — has failed to slow the Sony juggernaut. At this point, the PlayStation 4 has outsold the Xbox One by a greater than 2-to-1 margin. In May, PS4 lifetime sales passed the 79 million mark (for a 59% market share), while the Xbox One hit 37.5 million (for a 28% share).
That huge lead in market share for Sony translates into game exclusives as developers chase the much larger market, and that only reinforces Sony’s position. Microsoft does have one key advantage in its cloud-based gaming services — Xbox Live and Xbox Game Pass.
With Xbox All Access, Microsoft is employing the same strategy used to sell smartphones: eliminate the biggest barrier to buying the hardware by amortizing its cost over a two-year term and bundling it with services.
Instead of having to shell out anywhere from $229 to $499 for a console, Xbox All Access offers a game console, plus the leading online gaming service (Xbox Live) and access to over 100 games (Xbox Game Pass) for as little as $22 monthly. This has the potential to seriously boost Xbox sales over the holiday season. It appeals to parents, to gamers who may have been shut out by the high cost of entry, and it could even convince PS4 owners to also pick up an Xbox.
In the long run, Xbox All Access isn’t just about boosting Xbox One sales and bringing more players on Xbox Live. It’s about changing the trajectory so going into the next generation of consoles (expected in 2020), Xbox is on the upswing with momentum that’s more likely to attract developers (and players) to the new console. And that will help the company push toward that $100 billion gaming goal, with the resulting payoff for MSFT stock.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
