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