Microsoft figured out how to grow its gaming business despite tanking Xbox hardware revenue

Microsoft’s gaming division managed to deliver a 4% revenue boost in the first three months of the year, even as its flagship Xbox gaming console hit a bumpy road.

The gaming business’ overall increase is primarily due to the company’s Xbox Live online service, which officially crossed 44 million members.

That’s up 26% from the membership compared to this time last year. And all those new members helped Microsoft’s gaming service collect 22% more revenue than it did last year. Overall transactions among all Xbox Live subscribers also increased during the quarter, Microsoft said.

Xbox game revenue is up 9% compared to the year ago, thanks in large part to sales of Minecraft, which Microsoft bought the rights to in late 2014 for $2.5 billion.

While Xbox’s software side is doing well, hardware revenue took a nose dive, dropping 26% compared to the same period last year. The two factors that contributed to the decline was a sharp drop in unit sales for the Xbox 360, and slashing the Xbox One’s price down to $299. As time goes on Xbox One hardware will become less expensive to produce, but for the time being Microsoft will have to rely on continuing software gains to offset its hardware struggles.

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