Xbox puts 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 courtsThe idea of an annual Call of Duty on Game Pass made gamers very happy. Now, however, the monkey’s paw is curling.
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 hikes in all other markets. That would have been bad enough, but Xbox is also introducing a new “Standard” tier at the original Game Pass Ultimate price point that doesn’t include day one access to games and has a more limited library. And Xbox is closing subscriptions to its console-only tier, implying that the tier as a whole might not have much longer to live. The magnanimous “day one on Game Pass” promises of previous years are starting to fray.
It’s a frustrating turn of events for Xbox fans. But analysts say this was all inevitable. Xbox’s Game Pass changes are a business reality that’s almost each subscription employ There is also a similar embrace amid inflation, declining consumer acceptance and the demand for continuous, non-stop growth.
Why is Xbox raising Game Pass prices again?
The reasons Xbox is raising the price of Xbox Game Pass are neither shocking nor new, analysts tell me. We’ve already I experienced this last year tooand Xbox’s reasoning probably hasn’t changed so much as it has evolved. As Piers Harding-Rolls of Ampere Analysis points out in his own writings on this subjectThe cost of making and publishing games has gone up, and Xbox wants to make money, plain and simple. Xbox wants its subscribers to pay more to offset the cost of licensing games in general, as well as the cost of adding a significant 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 pointed out to me the reality of Xbox’s position with Game Pass: Subscriber growth has 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 set to decline slightly in 2024 from a year ago, at $2.2 billion, and cloud gaming subscription offerings have not been met with enthusiasm by players. As a result, Xbox—which in difficult on a subscription business in a way that its competitors haven’t – needs to make changes if it wants to achieve its long-term goals. But there are a limited number of possible changes it can make in this scenario.
“If you need to increase revenue – as Xbox bosses do – you only have a few options when it comes to Game Pass,” said Simon Carless, author of GameDiscoverCo explains. “It’s either volume or revenue. And it’s clear that volume has been flat for a while now, both for Game Pass Core (formerly Xbox Live Gold) and for the actual Game Pass.
“Xbox has done a good job of gradually moving their subscribers from the cheaper Live Gold to Game Pass. But now they need to keep growing – and/or keep paying for the larger division they’ve created with all these acquisitions. So the new changes move Game Pass subscribers to higher tiers – while creating select in-between tiers for those who don’t want Day 1 games.”
Joost van Dreunen, professor at the NYC Stern School of Business and author of SuperJoost Playlistadded an observation that I had not considered. If the The average gamer buys two to three premium games per yearWith a total of $140 to $210 in spending, Game Pass Ultimate now costs considerably more than that. But Xbox doesn’t seem to be catering to the average console gamer anymore – at least not with Game Pass Ultimate. Game Pass Ultimate is for die-hard fans, the players who generally play more games, longer, and make greater use of Xbox’s services and infrastructure. “Making them pay for the privilege makes good financial sense,” van Dreunen notes, noting that such gamers are also less susceptible to price increases – a point Piscatella makes as well.
“Now, 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 doesn’t deliver an acceptable level of value or service. But for now, the bet is that current subscribers will largely continue to subscribe. Call of Duty coming to the service could also lead to new subscribers (although I personally doubt it will result in millions of new subscribers, but who knows). I can 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 games on day one?!? What a deal!”)”
Ampere Analysis estimates that 74% of current Game Pass subscribers on console are on the Ultimate version of the service, meaning that roughly a quarter of subscribers are on lower tiers. That includes the Console tier, which will soon be closing to new subscribers, and Xbox wants as many of those lower-tier subscribers to upgrade as possible. Hence the decision to limit day one access to games to specific tiers… and more specifically, dangling Call of Duty as a bait-and-switch to entice new subscribers and upgrades.
What happens now?
Okay, so Xbox is raising prices and changing tiers in September. Awesome. What happens now? Is it going to raise prices again after raising them two years in a row? Is it going to add more tiers? Is Xbox eventually going to go the Netflix route and add a cheaper advertising tier?
Well… maybe all of them, analysts say! Jijiashvili thinks Xbox’s price increases were and remain “inevitable” due to both persistent inflation and the aforementioned slowing subscription growth. Xbox needs to increase its “average revenue per user,” or ARPU, largely in an effort to offset the standalone sales of the new Call of Duty that it will inevitably lose to Game Pass. And Harding-Rolls points out in his piece that Xbox is still building out a mobile app store, so perhaps a mobile version of Game Pass is on the way that includes bonuses for King games like Candy Crush Saga.
But mobile or not, Harding-Rolls predicts Xbox’s gamble will ultimately pay off. Ampere estimates that worldwide Game Pass ARPU will grow 5.4% this year, but 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 is another question.
Van Dreunen had an even bolder prediction: an ad-based version of Game Pass. He expects such a tier to be added sometime next year, similar to what we’ve seen on other services like Netflix. I asked him to explain what he thought an ad tier would look like for a gaming service:
“If you recall, Xbox previously set itself a revenue target for 2030, which included $1.4 billion in ad sales as part of its ambition to sign up 100 million Game Pass subscribers,” van Dreunen explained. “There will be roughly three phases. Initially, I expect ads to be served as banner ads in the Xbox and Game Pass menus. Mostly as a test case, it will start slowly. But as Microsoft develops this capability over the next few years, I expect interstitial ads (e.g. during loading screens) as a second phase. Finally, and assuming this works out well for its ecosystem, Microsoft will likely make an acquisition in the adtech space to gain the ability to facilitate both programmatic ads and centralized inventory using existing ad industry metrics and toolsets. The latter component is obviously the furthest away.”
Those I spoke to seemed confident that the trend of shifting subscription service levels and price increases would continue for a while. But analysts remained uncertain about the upcoming release of Call of Duty: Black Ops 6 on Game Pass in October. Will subscriber numbers grow as Xbox clearly wants? And if so, will they be enough to justify continuing what was previously touted as one of the best deals in games? And if that doesn’t happen, what happens to Game Pass and the broader Xbox business model?
No one seems to know for sure. Piscatella referred to Xbox’s strategy here as “shoving everything in,” and Jijiashvili used a similar analogy, saying it was “Microsoft’s biggest bet on Game Pass yet. If it’s successful, Game Pass will see a wave of new subscribers and a lot of lower-tier subscribers upgrading. But, he added, if Call of Duty doesn’t move the needle on increasing subscriptions, “then nothing else will.”
Rebekah Valentine is a senior reporter for IGN. Have a story tip? Send it to rvalentine@ign.com.