Analyst Claims Game Pass Provided Business Class Experience for Economy Pricing; New Segmented Model Could Be the Solution

Microsoft’s Game Pass Price Increase: A Strategic Move or a Misstep?

On October 1st, Microsoft surprised Game Pass subscribers with a dramatic 50% price hike for its Ultimate tier, raising it from $19.99 to $29.99 per month. This significant increase prompted a wave of cancellations among users. But did Microsoft truly err in this decision?

Joost van Dreunen, a seasoned games analyst and former founder of SuperData Research, provided valuable insights in his latest issue of the SuperJoost Playlist newsletter. He offers a more intricate view of the situation.

Understanding the Price Increase: A Matter of Perception

According to van Dreunen, feedback from a past Xbox employee characterizes the situation as one of “bad optics.”While the price increase might be alarming to consumers, the analyst suggests that Game Pass was operating under a model akin to “airline economics in reverse.”Typically, in the airline industry, premium passengers subsidize those in economy class. However, Game Pass had been delivering business-class service at economy prices, making it hard for stakeholders to maintain viable margins.

For years, Microsoft aggressively pursued user growth without considering financial sustainability. This strategy led to a margin-thin model where heavy users were consuming resources extensively without generating corresponding revenue.

The Popular Game Strategy: Mixed Results

Microsoft targeted increased subscriptions by adding blockbuster games to the service, like last year’s release of Call of Duty: Black Ops 6, which generated a significant spike in weekly sign-ups. Despite this, Antenna analyst data indicates a downward trend in new subscribers following the initial surge, as illustrated in the accompanying chart.

Restructuring for Profitability

As Microsoft recognized the challenge in attracting the anticipated number of subscribers, it opted to restructure Game Pass towards sustainability. The newly introduced tiered model—comprised of Essential, Premium, and Ultimate—aims to better align pricing with usage.

Van Dreunen posits that this segmented approach could be a strategic advantage for Microsoft, enabling it to learn from the shortcomings of platforms like Stadia. If this shift from prioritizing user growth to focusing on profitability proves successful, it could pave the way for the future of gaming subscriptions, positioning them to compete seriously with traditional entertainment services.

The Broader Impact of Microsoft’s Strategy

In a recent statement, Microsoft CEO Satya Nadella noted that the acquisition of Activision Blizzard has elevated the company to the ranks of the largest gaming publishers. He emphasized a multiplatform strategy, akin to the universal availability of Office applications, but did not directly address the evolving Game Pass initiative, which he previously described as an aspiration to create a Netflix-like gaming experience.

However, gaming fundamentally differs from consuming TV shows, movies, or music. Many gamers tend to engage deeply with one major title at a time, potentially making a large game library less appealing. The upcoming months will be critical in determining whether Microsoft’s new strategy can deliver a sustainable model for Game Pass.

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