Xbox Game Pass Price Hikes Were ‘Inevitable’, Analysts Say – IGN

Xbox is putting the new Call of Duty on Game Pass, day one. A year ago, when the FTC challenged Microsoft’s acquisition of Activision Blizzard in US courts, the very idea of an annual Call of Duty on Game Pass had gamers over the moon. Now though, the monkey’s paw is curling.

Earlier this week, Xbox announced it would raise the price of Xbox Game Pass Ultimate from $16.99 a month to $19.99 a month in the US, with similar price increases occurring across 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 point that doesn’t include day one game access, and has a more limited library. And Xbox is closing off subscriptions to its Console-only tier, implying the tier as a whole might not be long for this world. The magnanimous “day one on Game Pass” promises of prior years are slowly beginning to fray.

It’s a frustrating turn of events for Xbox fans. But according to analysts, at least, this was all inevitable. Xbox’s Game Pass changes, they say, are a business reality that pretty much every subscription service out there has similarly embraced amid inflation, slowing consumer adoption, and demand for continuous, non-stop growth.

Why is Xbox raising Game Pass prices again?

The reasons why Xbox is increasing the price on Xbox Game Pass are neither shocking nor new, analysts tell me. We already went through this once last year, and Xbox’s reasoning likely hasn’t changed so much as it has evolved. As Ampere Analysis’ Piers Harding-Rolls points out in his own writing on the subject, the cost of making and releasing games has increased, and Xbox wants to make money, plain and simple. Xbox needs its subscribers to pay more to offset the costs of licensing games generally, as well as the cost of adding a significant annual premium release (Call of Duty) to Game Pass Ultimate.

Harding-Rolls as well as other analysts I’ve spoken to over the last year have repeatedly pointed out to me the reality of Xbox’s position with Game Pass: subscriber numbers have leveled off at a far smaller volume than Xbox hoped. As Circana analyst Mat Piscatella tells me, the subscription market in general has flattened in the last few years. US spending on video game subscription services is down slightly year-to-date in 2024 compared to a year ago, at $2.2 billion, and cloud gaming subscription offerings have not been met with exuberance from players. As a result, Xbox – which went in hard on a subscription business in a way its competitors did not – must make changes if it wants to meet its long-term goals. But there are a limited number of possible changes it is capable of making in this scenario.

“When you have to increase revenue – as Xbox bosses do – you only have a couple of levers when it comes to Game Pass,” Simon Carless, author of GameDiscoverCo explains. “It’s either volume or yield. And it’s clear that volume has been leveled out for some time, across both Game Pass Core (formerly Xbox Live Gold) and actual Game Pass.

“Xbox has done a good job of gradually shifting their subscribers from the cheaper Live Gold to Game Pass. But now they need to keep growing – and/or continue to pay for the bigger division they’ve created with all these acquisitions. So the new changes are shifting Game Pass subscribers to higher tiers – while creating select intermediate tiers for those who don’t want Day 1 games.”

Joost van Dreunen, NYC Stern School of Business professor and author of SuperJoost Playlist, added an observation I hadn’t considered. If the average gamer buys two to three premium games annually, totaling between $140 and $210 in spending, Game Pass Ultimate now costs far more than that. But Xbox doesn’t seem to be targeting the average console gamer anymore – not with Game Pass Ultimate, anyway. Game Pass Ultimate is for die-hard fans, the players who generally play more games, for longer, and use more of Xbox’s services and infrastructure. “Charging them for the privilege makes financial sense,” van Dreunen observes, saying that such gamers also tend to be less sensitive to price increases – a point Piscatella also makes.

“Now that price sensitivity can change over time, of course,” Piscatella continues. “Even the most loyal customers will change their mind on continuing to subscribe to a service should it fail to deliver an acceptable level of value or service. But for now, the bet is that current subscribers will mostly continue to subscribe. Call of Duty coming to the service could also lead to new subscribers (although I’m personally dubious that it will result in millions of new subscribers, but who knows). I also see the Game Pass Standard tier at $14.99 acting as more a price anchor than a service they wish people to subscribe to (“Wait, for only $5 more per month I get day one games?!? What a deal!”)”

Ampere Analysis estimates that 74% of current Game Pass subscribers on console have the Ultimate version of the service, meaning that roughly one-fourth of subscribers are on lower tiers. That includes the Console tier, which will soon be closed to new subscribers, and Xbox wants as many of those lower tier-subscribers upgrading as possible. Hence, the decision to limit day one game access 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 raising prices and changing tiers around in September. Great. What happens next? Will it raise prices yet again after already hiking them two years in a row? Will it add more tiers? Will we eventually see Xbox go the Netflix route and throw in a lower-priced ad tier?

Well…maybe all of those, say analysts! Jijiashvili thinks that Xbox raising prices both was and continues to be “inevitable” due to ongoing inflation, as well as that aforementioned slowing subscription growth. Xbox needs to increase “average revenue per user,” or ARPU, especially in an effort to offset the single-copy sales of the new Call of Duty it’s inevitably going to lose to Game Pass. And Harding-Rolls reminds us in his piece that Xbox is still busy building a mobile app store, so there may be a mobile-focused version of Game Pass on the way that includes bonuses for King games like Candy Crush Saga.

But mobile or not, Harding-Rolls is predicting that Xbox’s gamble will ultimately be successful. Ampere estimates global Game Pass ARPU will increase by 5.4% this year, but will then jump to an increase of 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 will be enough for Xbox is another question.

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