According to a Microsoft executive, gaming is “somewhat resilient” to economic weakness

Microsoft’s The head of gaming said on Wednesday that video games can weather the economic weakness, although the software maker expects a slower recovery in other parts of its business that targets consumers.

Rising prices and interest rates have prompted investors to hurry and find financial markets that can withstand a downturn. Gaming remains a high priority for Microsoft as the company works to complete the publisher’s $68.7 billion acquisition Activision Blizzard.

Other parts of technology could be at risk in a recession. alphabet and meta platforms still derive most of their revenue from advertising, with the former still relying on internet search and the latter on social media. Patrick Lo, CEO of the network hardware manufacturer Netgearwhich on Wednesday reported a 14% annual sales decline, said in a statement there was a “challenging macroeconomic environment” for most consumers.

Microsoft is more diversified than these companies, although executives earlier this week said its outreach to consumers would hurt sales of Windows operating system licenses, Surface PCs and advertising on properties like Bing and LinkedIn in the current quarter.

During the quarter, the company expects to add more subscribers to its Xbox Game Pass service, which offers unlimited access to hundreds of video games, Amy Hood, its chief financial officer, told analysts in a conference call Tuesday. Gaming revenue should decline in the low- to mid-teens percentage range due to strong growth in the year-ago quarter, which included first-party games, Hood said.

Microsoft Gaming CEO Phil Spencer expressed optimism about the prospects for the entity.

“Over the years, games have proven to be reasonably resilient to these issues during times of economic uncertainty for families,” he said at the Wall Street Journal’s WSJ Tech Live conference in Laguna Beach, California.

Not everyone shares Spencer’s view.

“The video game industry has never been ‘recession-proof,’ but that line gets emphasized every time the r-word is mentioned,” wrote Mat Piscatella, executive director and video game industry advisor at market researcher NPD Group, in a July tweet.

Piers Harding-Rolls, research director at researcher Ampere Analysis, has made similar comments.

“After two years of tremendous expansion, the gaming market is poised to give back some of that growth in 2022 as multiple factors combine to undermine performance,” he told CNBC in July.

But Spencer can point to Microsoft’s own experience of recessions to support his claim.

In 2008, during the global financial crisis, Microsoft lowered the prices of Xbox consoles in various markets when the public took an interest in them Nintendo Wii. It turned out to be “on the console side, our best vacation numerically and calendar year in Xbox history,” said Robbie Bach, then president of Microsoft’s entertainment and devices unit.

In 2020, a brief recession coincided with the outbreak of the coronavirus, but this resulted in people staying at home and playing more games, including on Xbox consoles and PCs. “People everywhere are turning to gaming to maintain human connection while practicing social distancing,” CEO Satya Nadella said in April 2020.

Today, Spencer said, Microsoft is letting people choose how much to spend if they want consoles. The company is offering the Xbox Series X for $499 and the less powerful Xbox Series S for $299. Microsoft is subsidizing the cost of $100 to $200 per console with the expectation that it will recoup the money from accessory sales and in-store purchases, he said. It’s up to players whether they want to pay $10 or $15 a month for Game Pass subscriptions. You can also buy games directly or play certain games for free.

Spencer said he doesn’t think Microsoft will be able to keep game prices constant forever. But they can provide an impressive amount of entertainment compared to other pursuits. “People can play video games for hundreds of hours,” he said.

CLOCK: Hill: Microsoft’s and Alphabet’s weakness has us reconsidering expectations for earnings estimates overall