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WSJ Your Money Briefing
E3: Microsoft's Focus on Xbox Games Over Console Price
00:06:51
At this year's E3 gaming conference, Microsoft is previewing 50 new games with a focus on software and services, but is not planning a price drop on its Xbox console. Heard on the Street columnist Dan Gallagher explains why Wall Street supports that move.
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- [00:00]
Small Business Owner
Access to affordable credit helps me pay my employees, but I don't really need it.
- [00:05]
Retail Industry Representative
Inflation is killing me, but who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill.
- [00:15]
Small Business Owner
See banks and credit unions help small businesses make payroll. This bill would cut the vital resources
- [00:20]
Retail Industry Representative
they need while increasing megastore profits. They deserve it, don't they?
- [00:26]
Consumer Advocate
Tell Congress stop the Durbin Marshall money grab for corporate megastores paid for by the Electronic Payments Coalition.
- [00:32]
Dan Gallagher
YOUR Money Briefing Money and market stories
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J.R. Whalen
from the Wall street journal. I'm J.R. whalen in New York. Wall street likes what it sees in Microsoft's efforts to stay competitive in the gaming sector. We'll explain in a moment. First, these MONEY headlines. US Consumer prices last month had their biggest jump since the beginning of 2012. One driver of higher prices this year has been gasoline. The average cost of a gallon of Regular gas was $2.90 in 248 in December when excluding the volatile energy and food categories, so called core Prices also rose 0.2%, signaling broader inflation. And just to frame everything properly, last year's inflation numbers were weaker, making May's price growth reading appear stronger than it may be. But not all prices rose. While the medical care and education, communication and new vehicle indexes rose, the food, apparel, recreation and personal care indexes were flat, and household furnishings and operations and used cars in truck prices fell in May. Competition for law students among law firms escalated in recent days after several national firms boosted starting salaries for recent elite law school graduates to $190,000 a year. Law firms typically raise salaries in line with their peers, citing the need to stay competitive when hiring from law school campuses. Also, many mid market firms uniformly raised salaries in 2016 and to match those of the most elite Wall street firms despite profitability. That makes the business case behind raising salaries vary widely now in terms of average annual profits per partner in the nation's top 100 firms. The American Lawyer legal trade publication says they range from $460,000 to $5.7 million. This is your Money briefing from the Wall Street Journal. Welcome back everybody. Many in the tech world will have their eyes on Microsoft at this week's E3 conference and how its new games can bolster its Xbox console. Wall Street Journal Heard on the street columnist Dan Gallagher joins us to discuss how the company plans to stay competitive with its rivals. So Dan, Microsoft gave folks a peek at its plans and its new crop of offerings already on the gaming side. And one thing not on the list was a drop in price for the Xbox console. And that might take some people by surprise.
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Dan Gallagher
I've been covering the E3 conference for years now. It's. It doesn't happen every year, but it's not uncommon for the console makers like, like Microsoft, like Sony or Nintendo to use the event to, to bring down the price of their consoles because that's, you know, normally these things launch at a certain price. They're new. And then over time, because they're in the market for a number of years, the price comes down. And as the price comes down, more people buy into it. So it wasn't. There were some leaks kind of before the conference, you know, that they might drop the price, but they end. They didn't. And I, you know, as I wrote, I'm not terribly sur they didn't because they have other priorities.
- [03:31]
J.R. Whalen
What Microsoft did do was preview 50 new game releases, including 18 that are exclusive to the Xbox console. Wall street likes that approach.
- [03:40]
Dan Gallagher
It does. Microsoft has really become. And if you look at the company's broader strategy, even outside of games, they're really pushing towards a world where they're trying to maximize essentially services that use their tools and their software, but not necessarily has to exist on their platform. That's a big difference from the years in. They really wanted everything to exist in Windows because that was their main money driver specific to games. What they're trying to do is bolster the games and the content so that people are, you know, they, they feed more subscriptions to things like Xbox Live and that more people are coming to it. And the game business now, I think, is kind of slowly coming out of the focus on just getting consoles out there. Xbox has undersold PlayStation 4 by a pretty wide margin. They're probably not going to ever close that gap because it's years now and they're well behind. I think what they're doing is really trying to play to their strengths.
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J.R. Whalen
Wall street and investors like growth and across the industry, digital services driven by subscriptions and downloads and in game sales, that's the leaders in revenue growth in this sector.
- [04:49]
Dan Gallagher
It is. This is where the focus of the business has really come away from plastic discs sold at retail. It's more about a sustaining recurring digital revenue stream. Microsoft is putting some big investments. One thing I didn't mention in my column, but our colleague Sarah Needleman wrote in her story, is that Microsoft also has bought four new game studios. These are smaller studios and they also took and they formed another partnership with one. And these are again ways to increase the amount of kind of games and content that they have control over that are going to move over their systems, and that ideally improves the economics even more.
- [05:29]
J.R. Whalen
And an example of a game that will benefit Microsoft but does not come from Microsoft is the ever popular Fortnite game.
- [05:37]
Dan Gallagher
It is. And that actually in their, in their latest fiscal quarter, they actually disclosed a really huge jump in revenue from, you know, essentially video game services and software. That was, that was primarily due to Fortnite because when people are playing Fortnite over the Xbox, you need to have an Xbox Live account and a subscription to be playing that with your friends. Lots of people are playing that game. So Microsoft benefits from that. They do benefit more from the games that they actually own. And I think that's why they're trying to propel more of their own content in this. And, you know, ideally, big hits like Fortnite, you know, it's hard to copy, and just say you're going to have that, because those are by nature, they're a big surprise. But if they get, if they get more people using the titles that they own, that's even better economics for them.
- [06:23]
J.R. Whalen
And this formula is not expected to go away anytime soon. An analyst you spoke with says at least for Microsoft hardware, as a share of gaming revenue is expected to steadily decline going forward.
- [06:34]
Dan Gallagher
Yeah, yeah. Because as they, as they grow their services more, as they get more people like using the services on the sustained basis, they, there's less reliance on that, on that, you know, console hardware to sell it. It's not going to go away. And they're going to need to continue to sell consoles because as long as video games remain, you know, a big share of video games are in the console market, they'll have to play there. But for, you know, for a lot of, for several years, the criticism of Microsoft is that video games were kind of a loss for them because they were, they would take a loss on the consoles early on. They've come away from that now. And as they've built up more revenue streams in gaming, it's become actually a pretty profitable business for them.
- [07:11]
J.R. Whalen
All right, that's Wall Street Journal heard on the street columnist Dan Gallagher joining us from our San Francisco bureau. Dan, thanks for being with us.
- [07:18]
Dan Gallagher
My pleasure.
- [07:19]
J.R. Whalen
And that's your money briefing. I'm JR Whalen in New York for the Wall Street Journal.
- [07:23]
Small Business Owner
Access to affordable credit helps me pay my employees, but I don't really need it.
- [07:28]
Retail Industry Representative
Infliction is killing me, but who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill.
- [07:38]
Small Business Owner
See banks and credit unions help small businesses make payroll. This bill would cut the vital resources
- [07:43]
Retail Industry Representative
they need while increasing megastore profits. They deserve it, don't they?
- [07:49]
Consumer Advocate
Tell Congress, stop the Durbin Marshall money grab for corporate megastores paid for by the Electronic Payments Coalition.