FTC Slams Microsoft’s Xbox Game Pass Price Hike and New "Degraded" Tier
The Federal Trade Commission (FTC) has expressed serious concerns about Microsoft Corp.’s MSFT recent decision to raise prices for Xbox Game Pass and introduce a new "degraded" standard tier. The FTC argues that these moves, coupled with the company’s $68.7 billion acquisition of Activision Blizzard, are indicative of Microsoft exercising market power after gaining control over a significant portion of the gaming industry.
Key Takeaways:
- Price Increases and Product Degradation: Microsoft has raised prices for both PC Game Pass and Xbox Game Pass Ultimate while simultaneously launching a new, cheaper standard tier. This tier, however, lacks access to day-one releases of first-party Xbox games, a feature that is included in the $10.99 Game Pass for Console.
- FTC’s Argument: The FTC considers the new standard tier a "degraded product" and believes that Microsoft’s price increases and product degradation are evidence of the company abusing its market power post-merger with Activision Blizzard.
- Ongoing Antitrust Battle: The FTC’s criticism is part of its ongoing appeal against a district court’s decision not to block Microsoft’s acquisition of Activision Blizzard. The $68.7 billion deal was completed in October 2023, but the Ninth Circuit Court of Appeals is still to decide on the FTC’s appeal.
- Implications for Gamers: The changes to Xbox Game Pass could significantly impact gamers, particularly those who rely on the service for access to new releases. The removal of day-one access from the standard tier could force players to pay a significantly higher subscription fee for the Ultimate tier or miss out on new games entirely.
Microsoft’s Justification and Background:
Microsoft’s decision to raise Xbox Game Pass prices was not entirely unexpected. In September 2023, Phil Spencer, the head of Xbox, hinted at an "inevitable" price hike, citing inflation and economic factors as contributing factors.
However, the specific changes to the Game Pass tiers, particularly the introduction of the standard tier and its limitations, have raised significant concerns. These moves come after Microsoft’s acquisition of Activision Blizzard, a deal that has been met with scrutiny from antitrust regulators worldwide.
The Activision Blizzard Acquisition and Regulatory Scrutiny:
Microsoft completed its $69 billion acquisition of Activision Blizzard in October 2023. This deal granted Microsoft control over iconic franchises such as Call of Duty, World of Warcraft, and Candy Crush Saga, giving it an even stronger foothold in the gaming industry.
The acquisition was widely contested by antitrust regulators, including the FTC. Concerns centered around potential anti-competitive practices, with worries that Microsoft could use its newfound power to stifle rival gaming platforms and developers.
While the deal was ultimately approved by antitrust authorities in the UK, after Microsoft agreed to sell Activision’s game streaming rights to Ubisoft Entertainment, the FTC remains steadfast in its opposition and continues to fight its legality in court.
The FTC’s Position and Potential Implications:
The FTC’s criticism of Microsoft’s Xbox Game Pass price hike and the introduction of a "degraded" standard tier underscores its concern over the company’s potential anti-competitive behavior. The FTC believes that the price increase and product degradation are evidence of Microsoft exercising its market power post-merger with Activision Blizzard, potentially harming competition and consumers in the gaming industry.
If the FTC succeeds in its appeal against the district court’s decision, it could force Microsoft to divest Activision Blizzard, potentially reversing the acquisition and its implications for the gaming landscape.
However, even if the FTC’s appeal is unsuccessful, the company’s public criticism of Microsoft’s Xbox Game Pass changes could pressure the company to reconsider its pricing strategy and product offerings.
Looking Ahead:
The FTC’s stance on Microsoft’s Xbox Game Pass changes highlights the ongoing scrutiny facing tech giants as they acquire large portions of the gaming industry. This battle could set a precedent for how antitrust regulators approach future acquisitions and mergers in the tech sector, with potential implications for the future of game development and distribution.
The outcome of the FTC’s appeal in the Ninth Circuit Court of Appeals will be closely watched by industry stakeholders, gamers, and regulators alike. It remains to be seen whether Microsoft’s strategic moves will ultimately be deemed advantageous or will lead to significant changes in its business model.
