Xbox Live Gold's Price Is Increasing For One Reason: To Shove You Toward Game Pass [UPDATE]

UPDATE: Microsoft has since rolled back the proposed Xbox Live Gold price increases; the company also announced that free-to-play games would genuinely be free, without the need for a subscription.

The original story follows below

After years of its price remaining static, Microsoft announced a sharp increase to the price of Xbox Live Gold. While the lower tiers are seeing relatively modest increases, you'll be paying significantly more for the usually cost-effective long-term purchase. And though Microsoft's statement explaining the move is couched in language about reevaluating regional marketplaces, the real goal is clear: Microsoft wants you to sign up for Game Pass.

To understand where Microsoft wants to steer its customers, we need to look at the different value propositions it offers. In the old Xbox Live Gold pricing scheme, this was fairly clear: you could pay $10 for a month, $25 for three months, or $60 for 12 months. By providing such a large price break on a yearly subscription compared to the monthly or quarterly ones, Microsoft was gently pushing its users to subscribe on an annual basis for the "best value." Eating some of the cost was worthwhile to have a steady base of devoted Gold members, many with the annual bill re-upped automatically.

With today's moves, that value difference is essentially erased. $60 is now the price for a 6-month subscription, effectively doubling the cost, and that appears to be the highest tier offered. The monthly subscription went up slightly too, by one dollar, but that simply means you're choosing between paying $10 or $11 monthly. Not exactly a huge difference. (Microsoft did note that re-upping existing subscriptions will maintain your current price.)

But by bringing the base cost of Gold up to roughly $10/month, Microsoft aims to make Game Pass that much more enticing. When a Gold subscription was essentially only $5/month, some price-conscious consumers might feel the jump to the $15/month Game Pass Ultimate (which includes Gold) is too much. But at the new price, they're only separated by a mere five bucks.

This also makes Game Pass Ultimate itself the "best value" offering. With the lower-priced Gold, Game Pass Ultimate was comparable to either the console or PC version of Game Pass, plus a Gold subscription. Now when you subscribe to Game Pass--at the exact same price--you're getting a much better deal.

Piers Harding-Rolls, research director for games at Ampere Analysis, told GameSpot that this signals the "final part" in a long-term strategy of shifting Xbox users up to its highest subscription tier. He noted that this aggressive push has been ongoing for quite a while now, first with converting Gold subscribers to Game Pass, then introducing Ultimate with the PC version of the service, and now by shifting the pricing of Ultimate and Gold to be closer together.

"Xbox Game Pass users are more valuable to Xbox," Harding-Rolls explained, "they are more sticky, play more games and spend more on content."

Harding-Rolls also noted that a 12-month subscription is still available at retail, and hasn't been phased out yet. And while this move could suggest Microsoft intends to phase out the retail cards as well, he doesn't think this is necessarily the case.

"I don’t think it's inevitable this will disappear as the competitive environment at retail is completely different to the storefront where there are no competing services," he said. "Microsoft is continuing with an aggressive strategy to convert users to Ultimate. This will likely continue through 2021, but in the mid-term I can see price increases for Ultimate in the future especially as more users adopt streaming for distribution. This eats into profitability so will likely need a price increase to boost margins."

NPD analyst Mat Piscatella issued similar sentiments on Twitter: "Were the goal simply to maintain Gold subs the price would inch up, not jump," he said.

This comes after months of rumors that Microsoft may do away with Gold altogether, as paying a premium for online services is becoming less appealing as the console environment becomes ever more PC-like. It's especially odd to ask for an online fee when it comes to popular free-to-play games, like Fortnite and Call of Duty: Warzone. Perhaps most strikingly, Microsoft has already promised that Halo Infinite's multiplayer will be free-to-play, which looks much less appealing if the online ecosystem itself has gotten a price hike.

Whether Microsoft eventually makes concessions to F2P games, though, it has already seemingly tried to soften the blow. Alongside the announcement of a Gold price hike, the company outlined its Games With Gold for February--itself a benefit that has been overshadowed by the massive Game Pass library. Next month will bring five games instead of the usual four, including the first-party Gears 5. In the short term, at least, the added price is coming with an extra benefit. Microsoft is also being more generous with conversions Gold to Ultimate, by offering a 1:1 trade instead of the slight loss in time you'd eat for converting before.

Whether the extra GWG offering continues into the future or not, though, the new pricing structure is here to stay because Game Pass is Microsoft's vision for the future. It's Xbox's secret weapon, a robust subscription service that keeps players in the ecosystem and trying new games all the time. Moving its users en masse to the service is clearly a top priority, even if it means altering some of its legacy services.