Xbox Game Pass price hikes were ‘inevitable’, analysts say

Xbox puts new Call of Duty on Game Pass, day one. One year ago, when the FTC challenged Microsoft’s acquisition of Activision Blizzard in US courtsThe very idea of ​​an annual Call of Duty on Game Pass had gamers melting. But now the monkey’s paw is curling up.

Earlier this week, Xbox announced that it would be raising the price of Xbox Game Pass Ultimate from $16.99 per month to $19.99 per month in the US, with similar price increases in all other markets. That would have been annoying enough, but Xbox is also introducing a new “Standard” tier at the original Game Pass Ultimate price that doesn’t include day-one access to games and has a more limited library. And Xbox is shutting down subscriptions to its console-only tier, implying that the tier as a whole might not last long. The grand “day one on Game Pass” promises of previous years are slowly starting to fray.

It’s a frustrating turn of events for Xbox fans. But according to analysts, at least this was all inevitable. The changes to Xbox Game Pass, they say, are a business reality that each subscription service Foreign markets have taken the same approach amid inflation, slowing consumer adoption and demand for continued, uninterrupted growth.

Why is Xbox raising Game Pass prices again?

The reasons why Xbox is raising the price of Xbox Game Pass are neither shocking nor new, according to analysts. We’ve already I experienced this once last yearand Xbox’s reasoning probably hasn’t changed so much as evolved. As Piers Harding-Rolls of Ampere Analysis puts it emphasizes in his own writings on the subjectThe cost of creating and releasing games has increased, and Xbox wants to make money, it’s as simple as that. Xbox needs its subscribers to pay more to offset the licensing costs of games in general, as well as the cost of adding a major annual premium release (Call of Duty) to Game Pass Ultimate.

Harding-Rolls and other analysts I’ve spoken to over the past year have repeatedly stressed to me the reality of Xbox’s position with Game Pass: Subscriber numbers have plateaued at a much lower volume than Xbox had hoped. As Circana analyst Mat Piscatella tells me, the subscription market in general has flattened in recent years. U.S. spending on video game subscription services is down slightly since the start of 2024 compared to a year ago, to $2.2 billion, and cloud gaming subscription offerings have not been enthusiastically received by gamers. As a result, Xbox — which has entered the paid subscription category — has not been enthusiastically received by gamers. hard The company, which has chosen to rely on a subscription system in a way that its competitors have not, must make changes if it wants to achieve its long-term goals. But the number of possible changes it is able to make in this scenario is limited.

“When you need to grow revenue – as Xbox bosses do – you only have a few levers when it comes to Game Pass,” said Simon Carless, author of GameDiscoverCo explains. “It’s either a question of volume or yield. And it’s clear that volume has been flat for some time, both on Game Pass Core (formerly Xbox Live Gold) and on the current Game Pass.

“Xbox has done a good job of gradually moving its subscribers from the cheaper Live Gold to Game Pass. But now they need to continue to grow – and/or continue to fund the larger division they’ve created with all these acquisitions. So the new changes move Game Pass subscribers to higher tiers – while creating select middle tiers for those who don’t want Day 1 games.”

Joost van Dreunen, professor at the Stern School of Business in New York and author of the playlist SuperJoostadded an observation that I had not taken into account. If the The average gamer buys two to three premium games per yearAt $140 to $210, Game Pass Ultimate is now much more expensive. But Xbox no longer seems to be targeting the average console gamer — at least not with Game Pass Ultimate. Game Pass Ultimate is aimed at hardcore fans, gamers who typically play more games, longer, and make greater use of Xbox services and infrastructure. “Charging them for that privilege makes financial sense,” van Dreunen observes, adding that these players also tend to be less sensitive to price increases — a point Piscatella also made.

“Of course, price sensitivity can change over time,” Piscatella continues. “Even the most loyal customers will change their minds about continuing to subscribe to a service if it fails to deliver an acceptable level of value or service. But for now, the bet is that most current subscribers will continue to subscribe. Call of Duty’s arrival on the service could also lead to new subscribers (though I personally doubt that will translate into millions of new subscribers, but who knows). I also see the $14.99 Game Pass Standard tier acting more as a price anchor than a service they want people to subscribe to (“Wait, for just $5 more a month I get access to day one games?!? What a deal!”)”

Ampere Analysis estimates that 74% of current Game Pass console subscribers own the Ultimate version of the service, meaning that roughly a quarter of subscribers are in lower tiers. That includes the Console tier, which will soon be closed to new subscribers, and Xbox wants as many lower-tier subscribers as possible to upgrade. Hence the decision to limit access to games on day one to specific tiers… and more specifically, to dangle Call of Duty as a carrot to attract new subscribers as well as upgrades.

What happens next?

Okay, so Xbox is going to raise prices and change tiers in September. Great. What happens next? Will it raise prices again after raising them two years in a row? Will it add more tiers? Will we finally see Xbox follow Netflix’s lead and offer a cheaper ad tier?

Well… maybe all of the above, analysts say! Jijiashvili believes that Xbox’s price increase was and continues to be “inevitable” due to continued inflation, as well as the aforementioned slowdown in subscription growth. Xbox needs to increase its “average revenue per user,” or ARPU, particularly in order to offset the new Call of Duty unit sales it will inevitably lose to Game Pass. And Harding-Rolls reminds us in his piece that Xbox is still busy building a mobile app store, so there could be a mobile-focused version of Game Pass in the works that would include bonuses for King games like Candy Crush Saga.

But mobile or not, Harding-Rolls predicts that Xbox’s bet will ultimately pay off. Ampere estimates that Game Pass’s global ARPU will grow 5.4% this year, but then jump to 15.3% in 2025. And Ampere expects global consumer spending on Game Pass as a whole to reach $5.5 billion in 2025. Whether that’s enough for Xbox remains to be seen.

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Van Dreunen made an even more piquant prediction: an ad-based version of Game Pass. He expects such a tier to be added next year, similar to what’s been seen on other services like Netflix. I asked him to explain what he thinks an ad-based tier for a gaming service would look like:

“If you recall, Xbox had a revenue target for 2030 that included $1.4 billion in ad sales as part of its ambition to have 100 million Game Pass subscribers,” van Dreunen explained. “There will be three phases, broadly speaking. In the first phase, I expect ads to appear as banner ads in the Xbox and Game Pass menus. This will be largely a test case, and it will start slowly. However, once Microsoft builds out this capability over the next few years, I expect interstitial ads (during loading screens, for example) in a second phase. Finally, and assuming it works well for its ecosystem, Microsoft is likely to make an acquisition in the ad tech space to gain the ability to facilitate both programmatic ads and centralized inventory using the ad industry’s existing measurement and toolsets. This last component is obviously the furthest away.” »

The people I spoke to seemed confident that the trend of changing subscription tiers and rising prices is likely to continue for some time to come. But there’s a lingering sense of uncertainty among analysts surrounding the upcoming October release of Call of Duty: Black Ops 6 on Game Pass. Will it drive the subscriber numbers that Xbox clearly wants? If so, will it change enough to justify continuing what has been hailed as one of the best deals on gaming? If not, what happens to Game Pass and Xbox’s broader business model?

No one seems to know for sure. Piscatella called Xbox’s strategy “going all-in,” and Jijiashvili used a similar analogy, saying it was “Microsoft’s biggest bet on Game Pass yet.” If successful, Game Pass will see a surge in new subscribers and many lower-tier subscribers upgrade. But, he added, if Call of Duty doesn’t shake things up by increasing subscription numbers, “then nothing else will.”

Rebekah Valentine is a senior journalist at IGN. Have a story idea for us? Send it to rvalentine@ign.com.