Microsoft
The FTC says Microsoft’s recently announced across-the-board price increases for its Xbox Game Pass subscriptions represent “exactly the type of merger-related consumer harm that the FTC alleged” when it sought to block Microsoft’s merger with Activision. In a letter to the court released as part of the FTC’s ongoing appeal in the case, the federal regulator alleges that Microsoft’s actions are a clear example of “product degradation” caused by “a firm exercising market power after the merger.”
The letter focuses primarily on the soon-to-be-discontinued $10.99/month Game Pass for consoles tier. It will be replaced by a $14.99/month Game Pass Standard tier (a 36% price increase) that no longer includes “day one” access to all of Microsoft’s first-party titles. To retain that key benefit, “Console” subscribers will have to spend 81% more for the $19.99 Game Pass Ultimate tier, which also includes a number of additional perks over the current $10.99/month option.
Is it “acquisition based”?
The FTC notes that these changes “coincide with the addition Call of Duty at the most expensive tier of Game Pass.” Previously, Microsoft had publicly promised that this Game Pass access for Activision’s ultra-popular shooter would come “without any price increase for the service based on the acquisition.”
It’s that “acquisition-based” clause that’s likely to give Microsoft some wiggle room to justify its planned price changes. Inflation is also a sufficient explanation for much of the price increase in nominal terms: The $14.99 Microsoft charged for a month of Game Pass Ultimate when it launched in 2019 is equivalent to $18.39 today, according to the BLS’s CPI calculator. When Microsoft raised the monthly price of Game Pass Ultimate from $14.99 to $16.99 last year, just before the merger with Activision was finalized, the company said in a statement that it had “adjusted prices to reflect competitive conditions in each market.”
Microsoft may have a harder time dealing with the so-called “degradation” inherent in the move from the discontinued Game Pass Console subscription to the new, more expensive Game Pass Standard. Sure, the replacement includes the online multiplayer benefits of Game Pass Core, which could previously be purchased separately. But removing long-promised day-one access to first-party games will significantly reduce the value most subscribers get from the new option.
It’s now been more than a year since the FTC first announced its intention to appeal the decision that ended its injunction attempt against the merger deal. While Microsoft and Activision have continued to merge since then, courts have struck down similar mergers on appeal even after a merger deal has fully closed.
Elsewhere in its letter, the FTC notes previous arguments that Microsoft’s recent round of nearly 2,000 Xbox-related layoffs is a sign of “reductions in investment in production and product quality” after the merger.
