Microsoft Corp.’s Xbox division surprised many video game enthusiasts this week when the company announced a
50% price hike, to $30 a month, for the highest level tier in its Game Pass subscription service.
Online reaction was swift, with California Governor Gavin Newsom
blaming the price increase on President Donald Trump’s tariffs, and video game retailer
GameStop Corp. posting a cartoon suggesting customers would be better off just buying games in stores.
The price hike and other changes to the Game Pass plans are a sign that Xbox’s big streaming push is still not generating the revenue it would like eight years after launch, according to interviews with seven current and former Xbox employees. The company is putting some of its top titles on the streaming service, but that’s cutting into sales of higher-margin games like
Call of Duty, which came with Microsoft’s 2023 acquisition of Activision Blizzard Inc., said the people, who asked to not be identified discussing internal company matters.
Xbox gave up more than $300 million in sales of
Call of Duty on console and PCs last year, according to one of the former employees, who asked not to be identified discussing internal estimates.
“Game Pass hasn’t delivered the explosive growth Microsoft anticipated post-Activision, and they’ve realized their infrastructure costs don’t align with their pricing model,” said Joost Van Dreunen, founder of the video-game analytics firm Aldora.
A spokesperson for Xbox declined to comment for this story.
The company has largely lost the race for dominance in game hardware to
Sony Group Corp.’s PlayStation and
Nintendo Co.’s Switch, which developed exclusive titles that proved to be extended hits with fans. Game Pass, which offers games for a monthly fee, is a potential growth vehicle for Xbox, one that offers steady, repeatable revenue.
Like other entertainment companies such as
Netflix Inc. and
Walt Disney Co., Xbox launched its streaming service at a relatively low price. It cost $10 a month for over 100 games when it debuted in 2017. Those were all older titles. A year later, Xbox announced it would offer subscribers its own new games, on the day of their release, for no extra fee.
Current and former employees said that move was controversial internally. Developing new video games can take years and cost hundreds of millions of dollars and the model had long been to sell them for $60 to $70 each, making more still on upgrades and in-game purchases. The Game Pass streaming model upended that by putting so many titles in an all-you can-eat subscription.
Over the past decade, Microsoft invested billions acquiring some of the most successful video game studios. The $69 billion deal to purchase Activision Blizzard was the largest video game acquisition in history. Microsoft
told a UK regulator that acquiring new titles for Game Pass was one of the reasons for the purchase.
Putting
Call of Duty on Game Pass was a great deal for subscribers, but not great for Xbox’s sales of the game, according to former employees with knowledge of the business. While the latest iteration of the shooting title,
Call of Duty: Black Ops 6, was the top selling video game in the US last year, and the
biggest ever for the franchise, that was largely due to Sony’s PlayStation, which accounted for 82% of sales, the trade publication IGN
reported.
Subscription revenue was up 16% industrywide, according to IGN, due in part to customers playing the new
Call of Duty on Game Pass. Some may have paid for a month or two and canceled, unlike the industry’s old model where they would have paid $70 and owned the game.
“Call of Duty: Ghosts” games displayed at a GameStop store in Las Vegas in 2013.Photographer: Ethan Miller/Getty Images
Sony, by contrast, doesn’t offer big new games like
Call of Duty on the day they are released on its subscription service, called PlayStation Plus.
In September, former Xbox Game Studios vice president Shannon Loftis
wrote on LinkedIn that while Game Pass “can claim a few victories with games that otherwise would have sunk beneath the waves (
Human Fall Flat, e.g.), the majority of game adoption on [Game Pass] comes at the expense of retail revenue.” Loftis declined to comment further to Bloomberg.
The games industry in general has struggled in recent years, with players spending more time on existing titles and not taking as many chances on new ones. In September 2024, Microsoft
cut 650 jobs in the Xbox unit after
slashing 1,900 months prior in January. This year brought more layoffs and
at least four games canceled. Microsoft Chief Financial Officer Amy Hood has asked Xbox to find other ways to increase profit, according to the current and former employees.
Former Federal Trade Commission Chair Lina Kahn, who unsuccessfully sued to block Microsoft’s Activision merger, said in a
post on X Friday that “Microsoft’s acquisition of Activision has been followed by significant price hikes and layoffs, harming both gamers and developers.”
After a surge during the pandemic, Game Pass’s rate of growth has slowed significantly, from 80% between
2020 and
2021 to 36% between
2022 and 2024, according to numbers Xbox released. Subscribers were
34 million in February of 2024, the last time the company shared the data.
Xbox has said Game Pass is profitable, with revenue reaching a record of nearly $5 billion for the fiscal year that ended in June.
Xbox
announced three pricing tiers for Game Pass on Oct. 1. Fans can pay $10 a month for about 50 titles, $15 for 200 games and $30 for 400-plus games, including 75 on the same day they are released for consoles. That list will include highly anticipated new titles like
Call of Duty: Black Ops 7 and
The Outer Worlds 2.
“We know not everyone wants the same thing in their Xbox experience, so we’re evolving Game Pass to offer more flexibility, choice, and value to all players,” the company said in a press release.
Meaning if you want to play those pricey new titles on day one with Game Pass, you’ll have to pay more for the subscription.
.
.
