Nearly a quarter of Xbox owners have cut back on entertainment spending during pandemic

Microsoft recently completed a phenomenal quarter for its games business, recording a 51% spike in revenues while revealing that its Xbox Live service had hit the 100 million monthly active users milestone. Additionally, its Xbox Game Pass subscription platform now has 18 million members. The numbers coincided with 86% growth in Microsoft’s hardware business thanks to the newly launched Xbox Series X and Series S consoles, but it’s no secret that software and services is the Xbox business bread-and-butter.

Xbox head Phil Spencer has made it abundantly clear how invested in Xbox Game Pass Microsoft has become. Services are fundamental to Microsoft’s future game business growth, and for good reason – Xbox Live, Xbox Game Pass, and xCloud all provide Microsoft with ongoing recurring revenue opportunities. With momentum on its side, Microsoft briefly considered doubling the price of Xbox Live Gold to $60 for a 6-month subscription, but reverted its decision in less than 24 hours, meaning that $60 buys Xbox owners 12 months still.

At the time, pundits pushed the idea that Microsoft had been aiming to drive more users towards its Xbox Game Pass Ultimate plan, which includes Xbox Live Gold, but it’s also worth considering that Xbox Live has been a driving force in establishing online gaming for almost two decades and its pricing structure has barely budged. It launched in 2002 for $50 annually, and despite the tremendous improvement to infrastructure, servers, and features, it’s just $10 more today.

Most entertainment subscriptions (Netflix, Hulu, etc.) have raised their fees multiple times during that timeframe to account for increased costs, value proposition, and of course, inflation. It makes perfect sense that Microsoft had at least considered a price increase, but the timing – even if game spending is up overall – is just not right. According to Interpret’s New Media Measure®, 23% of Xbox One owners (as well as 23% of Xbox Live Gold subscribers) have reported reducing their spending on entertainment in general due to the ongoing COVID-19 crisis. One way or another, you can bet that Microsoft will look to generate higher recurring revenues through Xbox Live and Game Pass in the near future, but the optics are important too.