On October 1, Microsoft shocked Game Pass subscribers by announcing a substantial (+50%) price increase for the highest tier, Ultimate, which jumped from $19.99 to $29.99 monthly. This led some users to cancel their subscriptions in droves, but did Microsoft really make a strategic mistake?
Veteran games analyst Joost van Dreunen, formerly founder of SuperData Research (acquired by Nielsen Media Research in 2018), offered a more nuanced analysis in his latest SuperJoost Playlist newsletter.
To start with, van Dreunen relays a take from a former Xbox employee, who said that it's a case of 'bad optics'. Certainly, such a massive price increase doesn't look good from the point of view of consumers, but the analyst points out that Game Pass had so far offered a model that could be called airline economics in reverse. The analogy refers to the fact that, in air travel, premium passengers subsidize economy fares. On Microsoft's subscription service, though, for a long time, players got a business-class experience while paying economy prices. Indeed, there was a common saying that Game Pass was almost too good to be true for the library of games that it offered and the low barrier to entry.
For several years, Microsoft was trying to boost growth at all costs, but van Dreunen adds that this created 'an inherently margin-thin model in which heavy users consumed disproportionate resources without proportional revenue.'
The publisher attempted to lure many more users by adding popular games to the subscription service, including last year's Call of Duty: Black Ops 6. That game's launch offered the largest weekly spike in Game Pass subscriptions, but other than that, the trend of new subscribers has gone downward, as shown in this chart based on data from Antenna, an analyst firm (of which van Dreunen is an investor) focused on the subscription economy.
When Microsoft realized it couldn't easily get as many subscribers as it perhaps hoped (and some analysts believed) even with relatively low pricing, the next step was to restructure the subscription service so that it would become sustainable on its own. This led to the new multi-tiered (Essential, Premium, and Ultimate) approach, which the analyst believes just might be the right formula:
The evidence suggests Microsoft isn’t abandoning Game Pass but transforming it. By shifting from a one-size-fits-all subscription to a segmented model that better aligns price with usage, Microsoft may have found the formula that eluded Stadia and others. It is here that Microsoft can lead: if this pivot from growth to profitability succeeds, it will determine both its own service’s future and whether gaming subscriptions can ever truly rival their entertainment counterparts.
Yesterday, Microsoft CEO Satya Nadella noted that the acquisition of Activision Blizzard transformed the company into the largest gaming publisher, thus explaining the new multiplatform mandate to be 'everywhere', like with Office. Nadella did not talk about Game Pass, which he once described as Microsoft's attempt to create a Netflix-like experience for games.
Indeed, playing games is considerably different from watching TV shows or movies or even listening to songs. Many gamers focus on one big title at a time, so being able to access a vast game library is not necessarily of interest to them. Time will tell if the new approach will prove truly sustainable.
About the author: With over two decades of experience in gaming journalism, Alessio Palumbo has led the gaming vertical at Wccftech since August 2015. He started working at a young age for Italian websites like Everyeye.it, Gamestar.it, Nextgame.it, and Multiplayer.it before kickstarting the indie English-language publication Worlds Factory as its founder and Editor in Chief. In the last decade, he has coordinated the overall output of Wccftech's gaming section, managed PR relations, assigned reviews, produced daily news coverage, edited gaming content as needed, and delivered game reviews. Arguably, his trademark content is the long series of exclusive developer interviews that have been cited by Wikipedia and by the biggest news media and gaming publications. His passion for technology also makes him knowledgeable when it comes to gaming hardware and tech. His favorite genres include RPGs, MMORPGs, and action/adventure games.
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