He believes that Microsoft has been offering a business-level experience at an affordable price, and that the changes will benefit the Redmond tech giant.
However, on October 1, Microsoft announced a 50% price increase for Xbox Game Pass Ultimate, prompting some users to cancel their subscriptions en masse. Did Microsoft really make a strategic mistake? In his latest SuperJoost Playlist newsletter, veteran game analyst Joost van Dreunen, former founder of SuperData Research (acquired by Nielsen Media Research in 2018), offered a more nuanced analysis.
Van Dreunen quotes a former Xbox employee. A significant price increase does not seem like a good solution from the consumer’s point of view. However, the analyst points out that Game Pass has offered a model that could be called a reverse airline economy, thus far. This analogy refers to the fact that, in air travel, premium passengers subsidize second-class tickets. With Microsoft’s subscription service, however, gamers have long enjoyed a business-class experience while paying economy prices.
The general consensus was that Game Pass was almost too good to be true, considering the variety of games available and the low cost. For several years, Microsoft tried to encourage growth at all costs. However, van Dreunen adds that this resulted in an inherently low-margin model, with heavy users consuming a disproportionate amount of resources without generating proportional revenue. Microsoft tried to attract more users by adding popular games to the subscription service, including last year’s Call of Duty: Black Ops 6. This resulted in the largest weekly increase in Game Pass subscriptions. Apart from that, however, the number of new subscribers is trending downward.
Microsoft realized that it couldn’t easily gain as many subscribers as it had hoped, even with relatively low prices. Some analysts believed that this would be possible. The next step was to reorganize the subscription service to make it sustainable on its own. This led to a new, multi-tiered approach: Essential, Premium, and Ultimate. The analyst believes this may be the right formula.
“The evidence suggests that Microsoft isn’t abandoning Game Pass, but rather, transforming it. By shifting from a one-size-fits-all subscription model to one that better aligns price with usage, Microsoft may have found the formula that eluded Stadia and others. If this pivot from growth to profitability succeeds, it will determine the future of Microsoft’s service and whether gaming subscriptions can ever truly rival entertainment subscriptions,” van Dreunen said.
Satya Nadella, the CEO of Microsoft, noted that the acquisition of Activision Blizzard made Microsoft the largest game publisher. This explains the company’s multiplatform strategy, which aims to be present everywhere, as with Office. Nadella did not mention Game Pass, which he once described as Microsoft’s attempt to create a Netflix-like experience for games. However, games are significantly different from watching TV shows, movies, or even listening to music. Many gamers focus on one big title at a time, so having access to a huge game library is not necessarily appealing to them.
Only time will tell if this new approach is sustainable.
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