Microsoft Corporation (MSFT) is doubling the annual cost of its Xbox Live Gold subscription plan in select markets. In its announcement, Microsoft says: “In many markets, the price of Xbox Live Gold has not changed for years and in some markets, it hasn’t changed for over 10 years.”
What Is Xbox Live Gold?
Xbox Live Gold is one of four monthly Game Pass plans offered by Microsoft. Its key features are, per Microsoft:
- “Get 2 free games to play every month.”
- “Join the greatest community of gamers on the most advanced multiplayer network.”
- “Experience the best in competitive and cooperative online console multiplayer.”
- “Save up to 50% on select titles in the Microsoft Store.”
Xbox Live Gold is not the most comprehensive and expensive gaming plan offered by Microsoft. Rather, that is Xbox Game Ultimate, which includes all features of Xbox Live Gold and more.
How Prices Are Changing
Existing Xbox Live Gold members in those regions where prices are being raised will be notified sometime during the next month. The changes are:
- Existing members with 12-month and six-month plans will see no price increase and can renew at their current prices.
- For both existing and new members, the price of a one-month plan increases from $9.99 to $10.99.
- For both existing and new members, the price of a three-month plan increases from $24.99 to $29.99.
- For new members, the price of a six-month plan will be $59.99.
- Existing Xbox Live Gold members can upgrade to Xbox Game Pass Ultimate at no extra cost, for the remaining term of their current Gold membership, with a cap of 36 months.
In 2020, Microsoft stopped offering new 12-month Xbox Live Gold memberships, which had been priced at $59.99 per year. The upshot of all the above is that, for new members, the cost of a 12-month membership is doubling to just under $120. Meanwhile, Sony Corporation (SNE) is holding the price of a 12-month subscription for PlayStation Plus at $59.99.
The standard price of Xbox Game Pass Ultimate is $14.99 per month, but Microsoft is trying to lure new members with a promotional price of just $1 for the first three months. An obvious conclusion is that Microsoft is looking to move existing and prospective Xbox Live Gold members to the more expensive (at just under $180 per year, at the standard price) Xbox Game Pass Ultimate.
Significance for Investors
Microsoft apparently believes that it has significant pricing power with Xbox systems and subscription packages. Moreover, it seems emboldened by its ability to quickly build up the ranks of Xbox Game Pass members to 15 million by September 2020, partly through $1 introductory offers.
However, a critique in tech-related website The Verge calls this “[a] poorly timed and clumsy move” that “risks a year of goodwill.” Moreover, the author points out some extreme anomalies that the price hike creates: “That means many Fortnite players will now have to pay $120 a year just to play on an Xbox console. Fortnite on PlayStation and Nintendo Switch is free, and even on Microsoft’s own Windows platform, it’s free to play. In fact, PC gamers playing Xbox Live-enabled games don’t even have to pay for Xbox Live Gold to access multiplayer. It’s a bizarre situation for Microsoft to knowingly place itself into.”
It is fair to say, at this point, that the jury is very much out on whether Microsoft’s price hike is a masterful exercise of pricing power or a colossal blunder that creates significant ill-will toward the company. In particular, as a tech giant that is very much under the political microscope, Microsoft generally needs to tread lightly. The commentary in The Verge notes: “That’s a huge jump and a badly timed one: it’s happening in the middle of a pandemic, just as Microsoft has reported big boosts to its gaming revenue throughout 2020.”