Xbox is changing and it’s confusing everyone

It’s been six months since Microsoft’s bizarre Xbox “business update” podcast, where the company first announced that four Xbox-exclusive games were heading to PS5. In the months since, Xbox fans have feared that Microsoft is throwing in the towel on the brand — and any sort of vibrant future for Xbox hardware.

Microsoft hasn’t done much to ease their concerns. After spending big on Activision Blizzard, it’s now increasingly looking for gaming revenue opportunities far beyond an Xbox console.

It all started with that infamous Xbox podcast. Microsoft strangely didn’t mention the four games that were coming to PS5 during the podcast, leaving an air of mystery and confusion until Hi-Fi Rush, Pentiment, Sea of Thieves, and Grounded were all confirmed less than a week later. At the time, Xbox chief Phil Spencer said he was leaving it up to the individual studios to make the announcements, but then Xbox studios head Matt Booty made the announcement in a blog post.

During the podcast, Spencer also responded to reports of Starfield and Indiana Jones being readied for PS5. His careful wording led many Xbox fans to believe Indiana Jones wasn’t coming to PS5, but Microsoft shattered that dream last week by revealing that Bethesda will release Indiana Jones and the Great Circle on PS5 in spring 2025.

I’ve seen many Xbox fans and pundits over the past week now claim Spencer was lying, but it wasn’t a lie; it was just a cleverly worded question and response — “PR speak,” in other words. Perhaps it was designed to undermine reporting about Starfield and Indiana Jones being considered for PS5, or perhaps the question was just clumsy because the Xbox podcast format had been hastily put together after leaks. Either way, the result has been confusion.

Xbox has had six months to clear up the muddled message around its new strategy, especially as it seemed like it was only going to be four games. “We made a decision that we’re going to take four games to the other consoles, just four games,” said Spencer during that Xbox podcast in February. “Not a change to our fundamental exclusive strategy.”

But there has been a subtle change in Microsoft’s exclusive strategy. Xbox events used to include a booming Xbox announcement voice that signaled “exclusive” to the hoards of hardcore fans in the audience. Microsoft didn’t even utter the word exclusive during its recent Xbox summer showcase, a sign that the times are changing.

Chief among other Xbox changes is the ongoing impact of the Activision Blizzard acquisition. Despite it being run as a separate company, it has already had a profound effect on Microsoft’s gaming business. Gaming revenue at Microsoft would have been down 4 percent in the recent quarter, but it was up 44 percent instead thanks to 48 points of additional Activision Blizzard revenue.

Activision Blizzard was Microsoft’s biggest ever acquisition, and the company almost immediately started shifting its Xbox strategy once the deal was finalized. I think this has led to some of the confusing messaging, and the Activision-like revenue opportunities are certainly why we saw those first four games and Bethesda bringing Indiana Jones and the Great Circle to PS5. With Xbox console sales and Game Pass not meeting ambitious internal targets, Microsoft has to find growth elsewhere. Xbox now has a debt of sorts to repay Microsoft for this Activision Blizzard acquisition, something that Spencer alluded to at Gamescom last week.

“We run a business,” said Spencer, responding to a question about Xbox games on PlayStation. “It’s definitely true inside of Microsoft that the bar is high for us in terms of the delivery that we have to give back to the company because we get a level of support from the company that’s just amazing and [helps] what we’re able to go do.”

That multibillion-dollar investment has finally caught the eye of investors, too. It’s very rare to hear analysts ask about Xbox during Microsoft’s earnings call because they’re far more interested in the company’s bigger businesses, but BMO’s Keith Bachman wanted to hear Microsoft’s thoughts on the Xbox business during a Q&A session last month.

Microsoft CEO Satya Nadella responded by discussing having “content for everywhere people play games,” including consoles, PCs, and phones. Microsoft CFO Amy Hood also weighed in, describing the future of the Xbox business as looking “more like, to us, a software annuity and subscription business with enhanced transactions and ownership of IP.” Neither mentioned Xbox hardware, which has defined much of what Xbox is over the past 20 years.

Microsoft has also confused Xbox fans recently with the marketing message of “no console required” for its latest Xbox Cloud Gaming efforts. A larger focus on rival consoles, mobile, PC, and even cloud gaming devices all goes hand-in-hand with the de-emphasis on console exclusives.

“If it was up to me, I would love to get rid of the entire exclusives on consoles, but that’s not for me to define, especially as a low share player in the console market,” said Nadella during the FTC v. Microsoft case last year. “The dominant player there [Sony] has defined market competition using exclusives, so that’s the world we live in. I have no love for that world.”

Alongside hardware, game exclusivity has also defined Xbox and the way it competes for decades. Halo, Forza, and Gears of War are all big Xbox-exclusive franchises that have helped attract gamers to the Xbox console and platform. With rumors of a Forza Horizon 5 release on PS5, we could be about to witness the next step in breaking down the console exclusivity that Nadella says he dislikes.

“We have to anticipate there’s going to be more change in some of the traditional ways that games are built and distributed,” said Spencer at Gamescom last week. “That’s going to change for all of us. But the end result has to be better games that more people can play.”

As much as it might pain Xbox fans, it’s clear that Microsoft is changing up its gaming business in a significant way that it’s hoping will change the industry, too. Microsoft sure could be a lot more direct about its plans to help stem some of the confusion, but I think if you read between the lines, it’s clear that console exclusives won’t be a big part of Microsoft’s gaming plans anymore. There’s no longer any doubt that we’re going to see more Xbox games on PlayStation — the question now is how many and when.

Thanks for subscribing and reading to the very end. What are you hoping to see from Microsoft in the fall? You can reach me via email at [email protected].

If you’ve heard about any of Microsoft’s other secret projects, you can also speak to me confidentially on the Signal messaging app, where I’m tomwarren.01. I’m also tomwarren on Telegram if you’d prefer to chat there.