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Today I've got a banging proposition for
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you. So, do you want to spend $80 for
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new games on a console that nobody
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wants? That seems a little bit insane,
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but it's actually what uh well, Xbox
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have just dropped on us with their new
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global price hike. Now, look, I expected
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$80 to eventually become the new normal
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for big AAA games in the next console
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gen. I was wrong. It's sooner. Nintendo
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obviously moved first with their Mario
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Kart pricing, but now we've seen Xbox
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follow Nintendo's lead. But it's not
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just for the video games. This price
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hike has hit absolutely everything and
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it reveals Microsoft's strategy. Take
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for an example the Series X. Why would
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you spend even more money on an Xbox now
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that the games will also be released on
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every other platform, especially when
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the Series X is now more expensive than
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a PS5 or a handheld PC? So, we're all
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starting off on the same page. Xbox's
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last decade was a barely mitigated
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disaster. Okay, Game Pass was there to
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salvage their corporate narrative, but
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Sony utterly destroyed them two
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generations in a row. Reports even
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suggested that CEO Satia Nadella
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considered pulling out of games,
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culminating in a decision being made. On
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the one hand, pull out, on the other
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hand, double down. Satia chose the
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latter. We do know, of course, that he
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spent over $76 billion on Bethesda and
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Activision Blizzard. Now, at the time,
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we thought that was all to get them more
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exclusives. Ideally, so that people
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would finally have a reason to buy the
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Xbox because obviously, well, uh, didn't
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really work out with Halo Infinite. And
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perhaps that was the hope, but it was a
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fool's hope. That obviously didn't
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happen. Xbox is still behind. And that
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brings us to the modern postmassive
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layoffs version of this company. Xbox
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are releasing games. And the thing is,
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players actually love them. I mean,
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right now, Indiana Jones and Oblivion
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are on my PS5. I'm happy with them. And
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if you're a Game Pass subscriber, you've
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also just got Expedition 33 and
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Blueprints. That's kind of wild. So
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basically, be it Game Pass, PS5, PC, or
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Strange to Your Television, Microsoft's
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got actually good games absolutely
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everywhere. And they're happy to make
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money from that, even if it means that
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they also are lining Sony's pockets,
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which they absolutely are. I don't want
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to shock you, but basically this is uh
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Microsoft deciding to finally focus on
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selling software and making their money
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there. And it's with that in mind that
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we now dissect the price hike. Let's
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start with the most relevant increase
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that to the actual games. So prices are
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going to increase for some new games to
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$80 later this year. And this absolutely
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is peak never waste a good crisis
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energy. Basically, by doing it now, by
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announcing it now, they're kind of
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hoping to avoid sticker shock later.
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Only some games are impacted here. Call
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of Duty is the obvious contender. I'd
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say the big Xbox IPs like a new Gears of
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War game or the new Fable game. Those
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will probably be 80 bucks. Though, let's
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be real for a second. Just look at
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Expedition 33 and what it was able to
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pull off for what, $49.99? It cost 45
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quid in the UK, so that is a hell of a
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deal for a video game. Now, if you were
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to take a more double A feeling
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Microsoft game like say Outer Worlds 2,
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if that was to hit $80 in a world where
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Expedition 33 is like just over half of
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that, that's pretty rough. I have to
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wonder if a lot of these companies are
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going to start pricing themselves out of
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the market. And if it is the case that
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actually this $50 price range is going
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to start working really well. But
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anyway, that's the software price hike.
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Now, I've got to talk about the
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hardware. These increases, to put it
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rather bluntly, just feel like an
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execution to me. And that's because
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unlike PlayStation, Nintendo, these are
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not restricted to any one set of
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regions. Right? This is impacting the
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USA, Europe, UK, Australia, and
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unspecified other regions. They'll all
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see an increase, but I'm just going to
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use the US here as our working example
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because there's actually a twist to that
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that I'll get to in a sec. Now, the
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Series S costs 80 bucks more, and both
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digital and disc drive Series X's get a
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$100 increase. That means that the
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Series X is a $100 more expensive than a
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PS5. And I mean, man, I think about the
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Series S. That was already a tough sell
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given the limited performance of that
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machine and the low amount of storage
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that it ships with. 80 bucks more than
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that. I struggle to make sense of that.
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Just buy a PS5. Anyway, base controller
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models are spared, but the special
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limited editions are going to be $80 and
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$90. And then the elite controller gets
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a 20 buck increase to $200. That's a lot
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of change. And the wireless headsets are
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going up 10 bucks to
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$120. So basically, ouch. And unlike
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with PlayStation where they decided to
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defend their competitiveness in the US
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by only having the price increases
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elsewhere, these are actually hitting
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the US. And in terms of percentage
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increase, they're actually hitting the
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US harder. There's a fairly obvious
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reason why. So, um, yeah, let's just go
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explain that. When asked if tariffs are
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to blame, Microsoft actually declined to
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comment. But let's be honest, we all
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know that's going to be part of it. And
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I mean, you could say, right, we're 5
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years into the generation. Maybe this is
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Xbox actually wanting to increase prices
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because, you know, global economy,
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inflation, maybe they want to set
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expectations for next time round so
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people don't get sticker shock at, I
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don't know, the Xbox Series X2 or
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whatever the hell they call it. But uh
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no, the tariffs are almost certainly
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part of it. As an example, analysts like
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Daniel Ahmad point out that under the
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current tariff rules, the Xbox consoles
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would be facing a 145% tariff cost after
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being imported from China. And then the
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physical discs for games, which are
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imported from Mexico, well, those are
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still going to face a 10% tariff. All
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that adds up. And as for why
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everyone else in the world would have to
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go up as well, well, it's fairly
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obvious. It's to cushion the American
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changes because they're probably not
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going to pass on literally all of the
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price increase. So, they'll, you know,
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increase everyone else as well. And, uh,
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basically to avoid backlash, which is to
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say, if they were going to retain their
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margin on what they sell in America and
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they weren't do price increases
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elsewhere, the American price would have
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to go up more than it is. So, basically,
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everyone gets a price rise in order to
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subsidize the American one. So, it's not
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as high as it would otherwise be.
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Obviously, some of that's directly
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because of tariffs. I think we could
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also say maybe, right, maybe Microsoft
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don't expect the 145% tariffs to
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increase, but they're basically saying,
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listen, there's uncertainty, there's
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chaos, and we don't want to waste that
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chaos. We should increase our RRP.
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That'll defend our margins long into the
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future. And look over there, Nintendo is
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obviously doing it. PlayStation is
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obviously doing it. If as a whole
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industry we just increase those numbers,
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then we all defend our margin. I think
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that's basically what's going on. But
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here's the thing with this generation of
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consoles, stuff's actually kind of
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different. So in the past, we had uh
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well, let's just say less things
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competing for our silicon waivers. And
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that ultimately meant that with your
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Xbox One and your PS4, they were able to
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slice the prices of them down year after
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year after year. That has not happened
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this time around. It's widely reported
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that margins on the modern consoles are
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extremely thin. And you'll actually
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notice we are seeing less discounts and
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less deep discounts this time around
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than we did last time. Now, some of
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that's because, let's be real, there's
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not much of a competition. If you're
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Sony, why would you do a massive price
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gouge? It's not like Microsoft are
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really nipping at your heels. But even
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taking incentives like that into
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account, it absolutely does seem the
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case that no, the margins are genuinely
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thinner. That's rough for profitability.
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It's why we see these price hikes. But
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it's also in line with Microsoft's
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thinking. You see, the consoles they
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just price hiked weren't selling well at
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all. And to get an understanding of how
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badly, well, rather fortunately, all of
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this news directly followed Microsoft's
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discussion of their financial results.
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So, we can dig into their finances and
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see just how badly hardware has been
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going. All of this happened hours after
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Microsoft briefed their investors in
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their Q3 reporting. Basically, that's
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where they reported that hardware in
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particular was just having a battering.
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And according to the reporting in the
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earnings call from Windows Central,
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their sales for hardware decreased by
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6%. And the sad news for them, right, is
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that this is actually a slower decrease
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than previous quarters. So, uh, you
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know, uh, silver linings and all. And
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basically, that is the definition of,
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um, damning by faint price. I would say
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it's like, "Hey, we're bleeding out, but
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we're bleeding out ever so slightly
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slower." Obviously, if those sales were
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declining, I have a feeling the price
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increases will just make them decline
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even more. But elsewhere, PC Game Pass
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users grew 45% yearonear. That's pretty
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goddamn substantial. Their cloud gaming
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reached new record usage counts with 150
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million hours streamed and that all
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contributed to a wider 8% growth for the
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content and services element of Xbox and
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that really is the big one. In
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particular, this was likely driven by
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Xbox becoming quote the biggest
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publisher in PlayStation, which is
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absolutely true with say Call of Duty
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alongside the ports for Indiana Jones
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and Forza driving loads of growth there
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and that basically means that their
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non-exclusive model for games is
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actually working and that's with them
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barely digging into their library. So in
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this context, the pricing changes
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actually make even more sense. So
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basically, I'll put it this way. If
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hardware is underperforming and it's
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only selling to the most hardcore
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audience, then that's maybe the group of
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people who would be able to stomach the
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price increases. Perhaps the most price
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and value sensitive customers have
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already made the call not to go Xbox.
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Like everybody, they probably just saw
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that PS5 is going to be dominant, so
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they backed the winner, right? Which
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would make sense. Now, there's no point
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in producing a machine that you're going
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to be selling at a loss if you're not
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selling it in the first place. the whole
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business model with consoles, selling at
00:09:55
a loss, being a loss leader is you grow
00:09:57
your store, right? And then you get the
00:09:59
30% of everything you sell on that
00:10:00
store. With Xbox being small, there's
00:10:03
just less of an incentive there for
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Microsoft. I mean, you could even say
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there's a justification for increasing
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the price of the Series S after games
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like EA College Football in fact drove
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sales for it massively. There could be
00:10:14
that. Then with the release of the
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Switch 2 at $450, it does actually mean
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that the cheapest way to plays those
00:10:20
games is still on a Series S, but it's
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only by 20 bucks. Let's be real, it's a
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Series S. Anyway, the growth of the
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platform in PlayStation, though, that
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justifies price increases for the likes
00:10:31
of your Call of Duties. Even with
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PlayStation's 30% cut of sales, think
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about it this way. 56 bucks out of an 80
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buck game is a lot better than 49 bucks
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from a $70 game. And if it's something
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that you know is going to sell like
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crazy, like Call of Duty, then hey, it's
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really easy. And the thing with Call of
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Duty is, yeah, people buy that. They buy
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it for full price. They do so regularly.
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And even when other companies try to
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compete with Call of Duty by going free,
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guess what happens? People don't go to
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the free thing. They sample it and they
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pretty much immediately go back to Call
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of Duty. So, of course, they think
00:11:06
they'll be able to get an extra $10
00:11:08
there. But for Microsoft, it's not just
00:11:10
that. The knock-on effects of all of
00:11:12
this play straight into another part of
00:11:13
their strategy. So PC Game Pass and
00:11:16
Ultimate subscriptions are still a major
00:11:18
earner for Microsoft. And since the
00:11:20
PlayStation audience doesn't have access
00:11:21
to that service, it's either pay full
00:11:24
price for Xbox's desirable games or move
00:11:27
off Sony's platform to get them on the
00:11:30
subscription service. So in a way,
00:11:32
Microsoft are setting it up so that
00:11:34
either one of their business models will
00:11:36
win. That's the entire way they've
00:11:38
architected everything. Whereas for
00:11:40
Sony, well, exclusives are their moat.
00:11:44
The whole point of Sony making
00:11:45
exclusives be their moat. The thing that
00:11:47
is completely unique was that you had to
00:11:49
get a PlayStation console. And that's
00:11:51
how Sony would basically continually be
00:11:53
ahead. What Microsoft has done is in a
00:11:56
way called their bluff by appealing to
00:11:59
some of their own incentives. So to be
00:12:01
fair to Microsoft, as much as they've
00:12:02
done so much damage, they've actually
00:12:04
been fairly smart in rearchitecting
00:12:06
their business. And that's what gets me
00:12:08
to our final topic today, which is the
00:12:10
future and how all this is going to
00:12:12
shake out. Because let's be real, gaming
00:12:14
in the next 5 years is going to be very
00:12:15
different to say gaming of 10 years ago.
00:12:18
At this point, if someone working for
00:12:19
Xbox marketing isn't working on a plan
00:12:21
to get Game Pass deals out across every
00:12:23
available platform to offer, you know,
00:12:25
the affordable new way to play games,
00:12:28
then they're basically failing at their
00:12:29
jobs. If stuff's going up in price, Game
00:12:32
Pass just looks even even better. If
00:12:34
times are tough and you position
00:12:36
yourself as the value king, that's
00:12:37
pretty good. Even if it means that
00:12:39
you're positioning yourself as the value
00:12:41
king by hiking your prices and then
00:12:44
offering a solution to the problem you
00:12:46
just caused by hiking your prices in the
00:12:48
form of Game Pass. But even Game Pass is
00:12:50
likely to see a price rise in the
00:12:52
future. We've all seen the patterns and
00:12:54
there have already been price increases.
00:12:57
Last summer, Xbox rebuilt all their
00:12:59
offerings for console players to
00:13:00
encourage upgrading to the higher value
00:13:03
tier. Uh $20 a month for Ultimate and
00:13:06
access to day one games is still a
00:13:07
fairly good deal compared to an $80
00:13:10
upfront cost, but will we see another
00:13:12
price increase this summer? If Game
00:13:14
Pass's own history and other
00:13:16
subscription services are anything to go
00:13:17
by, yeah, we absolutely should expect a
00:13:19
price increase. And even with your
00:13:21
additional benefits like your Xbox, Play
00:13:23
Anywhere, and all those other things, I
00:13:25
think it still would be a steep ask for
00:13:27
customers in the coming months, right,
00:13:29
as these games filter out. at least they
00:13:31
do have quite a lot of games coming. But
00:13:33
for me, after going through their data,
00:13:35
the main thing that stands out is the
00:13:36
45% growth for PC Game Pass. That's real
00:13:39
strong growth. So, they basically have a
00:13:42
decision to make. Do they in line with
00:13:44
what they did over on console
00:13:46
rearchitect that towards profitability
00:13:48
and margin or do they keep PC Game Pass
00:13:51
as something that is still a
00:13:52
ridiculously good value as compared to
00:13:55
its console counterpart? I'd say right
00:13:57
now they know how far behind they are
00:14:00
over on PC. So, they're probably going
00:14:02
to keep PC Game Pass, relatively
00:14:04
speaking, the better deal. But no matter
00:14:07
what way you slice it across all of
00:14:09
this, it comes back to their change
00:14:12
business model that it is all about
00:14:14
games and lots of games. They just need
00:14:16
their pipeline of games to come out like
00:14:19
clockwork. And speaking of Clockwork,
00:14:20
there's Clockwork Revolution. You've got
00:14:22
State of Decay, Perfect Dark. Keep all
00:14:25
of that going while still looking for
00:14:27
your Game Pass titles like your Blue
00:14:28
Princes and your Expedition 33s. All to
00:14:30
make Game Pass look like a deal so good
00:14:32
you would be stupid stupid not to buy
00:14:36
it. But if you don't, well, they control
00:14:39
the games that are really good and you
00:14:41
will buy them on your PlayStation. So
00:14:43
yeah, who cares about selling Xboxes
00:14:45
when um they're caring about selling the
00:14:47
thing that actually makes them money? At
00:14:49
least that's their plan. In many ways,
00:14:51
it's smart, but let's be real. People
00:14:53
are anxious about price, life's actually
00:14:55
pretty damn hard, markets are changing,
00:14:57
etc., etc., etc. And that's why this
00:14:59
next story stood out to me, because
00:15:02
there's a sort of new business model
00:15:05
that an ex Blizzard Entertainment, in
00:15:07
fact, a game that is published by the
00:15:09
Moheims that it's trying out. It's not
00:15:12
sharewware, but it is free to share.
00:15:14
It's a little different. It's not the
00:15:15
norm, but even within 2025, it's already
00:15:18
a model that shifted millions of copies.
00:15:21
You can find out more about that in the
00:15:23
next video.
