Microsoft (MSFT) Cancels Xbox Live Gold Price Hike

Microsoft Corporation (MSFT) took less than 15 hours on January 22, 2021, from announcing a steep price hike for its Xbox Live Gold subscription plan to offering an apologetic retraction in the face of fierce and widespread criticism. Microsoft had planned to double the annual cost of Xbox Live Gold in certain markets, including the United States. In its initial announcement, Microsoft said, “In many markets the price of Xbox Live Gold has not changed in years and in some markets it has not changed in over 10 years.”

What is Xbox Live Gold?

Xbox Live Gold is one of four monthly Game Pass plans offered by Microsoft. Its main features are, according to Microsoft:

• Get 2 free games to play every month.
• Join the largest community of gamers on the most advanced multiplayer network.
• Experience the best of competitive and cooperative online multiplayer on console.
• Save up to 50% on select titles in the Microsoft Store.

Xbox Live Gold isn’t the most comprehensive and expensive game plan offered by Microsoft. Rather, it’s Xbox Game Pass Ultimate, which includes all the features of Xbox Live Gold and more.

How Microsoft planned to raise prices

The bullet points below list planned changes originally announced by Microsoft on the morning of January 22, 2021, as well as changes made on the evening of the same day:

• Existing members with 12-month and six-month plans will see no price increase and can renew at their current prices. This offer stands.
• For existing and new members, the price of a one-month plan was to drop from $9.99 to $10.99. This price increase has been cancelled.
• For existing and new members, the price of a three-month plan was to drop from $24.99 to $29.99. This price increase has been canceled
• For new members, the price of a six-month plan was to drop from $39.99 to $59.99. This price increase has been cancelled.
• Existing Xbox Live Gold members can upgrade to Xbox Game Pass Ultimate at no additional cost, for the remaining term of their current Gold membership, up to a 36-month cap. This offer stands.

In 2020, Microsoft stopped offering new 12-month Xbox Live Gold subscriptions, which were priced at $59.99 per year. The upshot of all of the above was that, for new members, Microsoft planned to double the cost of a 12-month subscription to just under $120. However, in its updated announcement, Microsoft says 12-month subscriptions at $59.99 are available. Meanwhile, Sony Corporation (END) maintains the price of a 12-month subscription for PlayStation Plus at $59.99.

The standard price for Xbox Game Pass Ultimate is $14.99 per month, but Microsoft is trying to entice new members with a promotional price of just $1 for the first three months.One obvious conclusion is that Microsoft is looking to move existing and potential Xbox Live Gold members to the more expensive Xbox Game Pass Ultimate (at just under $180 per year, standard price). That still seems to be the case, given that Microsoft still offers upgrade incentives.

Apology and retraction from Microsoft

Microsoft added this statement, in bold, to the top of its amended Xbox Live Gold pricing announcement:

We messed up today and you were right to let us know. Connecting and playing with friends is a vital part of the game and we have failed to meet the expectations of players who rely on it every day. Therefore, we have decided not to change Xbox Live Gold pricing.

We’re turning this moment into an opportunity to bring Xbox Live more in line with how we see the gamer at the center of their experience. For free games, you will no longer need an Xbox Live Gold membership to play these games on Xbox. We are working hard to make this change as soon as possible in the coming months.

If you’re already an Xbox Live Gold member, you’ll stay at your current price for renewal. New and existing members can continue to enjoy Xbox Live Gold for the same prices they pay today. In the US, $9.99 for 1 month, $24.99 for 3 months, $39.99 for 6 months, and $59.99 for 12 months at retail.

Thanks.

The original price increase announcement appears verbatim below this statement, but with lines drawn through the passages that detail the planned price increases that have been rescinded.

Importance for investors

Microsoft apparently believed it had significant pricing power with Xbox systems and subscription plans. Additionally, he seemed emboldened by his ability to quickly build up the Xbox Game Pass membership ranks to 15 million by September 2020, thanks in part to $1 introductory offers.

However, a review from tech-related website The Verge called the planned price hike “[a] clumsy, clumsy move” that “risks a year of goodwill.” In addition, the author pointed out some extreme anomalies that rising prices would have created: “This means that many Fortnite gamers 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 Windows platform it’s free to play. In fact, PC gamers playing Xbox Live compatible games don’t even have to pay for Xbox Live Gold to access multiplayer. This is a bizarre situation that Microsoft knowingly puts itself in.”

At the time of the price hike announcement, it was unclear whether it was a masterful exercise in pricing power or a colossal mistake that would create significant ill will towards the company. The latter now appears to be the case.

In particular, as a tech giant that’s very much under the political microscope, Microsoft generally has to tread carefully. Commentary in The Verge noted, “This is a huge leap and a bad time: This is happening in the midst of a pandemic, just as Microsoft reported strong increases in gaming revenue throughout 2020.”

Look forward

The only open questions that remain are the severity and duration of the damage to the company’s image, and what effect it will have on the future of the Xbox product line. It’s also worth watching what, if any, repercussions will be in store for the Xbox executives who created this disaster. Indeed, Microsoft published a press release on its results and earnings call scheduled for January 26, 2020, and it is possible that this getaway will raise some questions for management.