Microsoft (NASDAQ: MSFT ) is hoping that diehard gamers will save the day. Shares of the software giant moved sharply lower on Friday after posting disappointing quarterly results, but one of the rare pockets of inspirational growth in the report was a 20% spike in transactional revenue within Xbox Live.
Microsoft revealed that there were 46 million Xbox Live subscribers earlier this year, and apparently they're growing more comfortable in spending money within the platform. That's important, because the video-game industry itself is mired in a funk.
Industry sales have been sliding for four years, and things aren't getting any better. Trend tracker NPD Group reported late on Thursday that industry sales fell 15% in June, weighed down by a 30% plunge in hardware sales.
No one's freaking out just yet, though. With Sony (NYSE: SNE ) and Microsoft set to update their consoles later this year, it's perfectly natural for gamers to be holding back from buying new systems. Why buy a PS3 or Xbox 360 when the PS4 and Xbox One are now just a couple of months away?
However, keep in mind that the industry's been slumping since 2009. It wasn't the anticipation of new consoles that was holding back gamers then. The growing popularity of apps played on smartphones and tablets has siphoned off a lot of casual video-game players. It's not just Microsoft's Windows business that's been hurt by the growing popularity of iOS and Android devices.
The silver lining is that Microsoft's Xbox 360 is the top dog in this country. The console has been the top-selling system for 30 consecutive months, and momentum would certainly suggest that the Xbox One will be the country's top choice later this year.
Sure, Microsoft didn't do itself any favors by pricing its system $100 more than Sony. Microsoft also upset the gaming community with restrictive features of the new platform, though it did backtrack on the more controversial measures, something that Sony savored in pointing out during last month's E3 conference.
Hardcore gamers are still a potent market for Microsoft. They make up one of the few categories that's gaining ground on the competition. On the other hand, the pie is getting smaller. Microsoft conceded on Thursday that it shipped 100,000 fewer Xbox 360 systems in its latest quarter than it did during the same period a year earlier.
However, the 20% increase in transactional revenue -- despite the overall decline in Xbox platform revenue during the quarter -- points to a future where Microsoft can deliver digital goodies to tens of millions of players. As Microsoft expands its Xbox One system beyond gaming, ambitiously aiming to transform everything from the way we watch TV to shop online, it's one of the few reasons to get excited about Microsoft in an age where PC sales continue to slide and Windows becomes less relevant in an operating system-agnostic world. It will never be enough to offset the high-margin Windows revenue that investors have enjoyed for years, but it should help slow the software giant's slide in relevance.
Don't let Mr. Softy down, diehard gamers.