Pricing Strategy Example: Can ‘Call of Duty’ Jump-Start Microsoft Video Game Subscriptions?

Microsoft’s Xbox Game Pass Attempts to Follow Netflix Success as an Entertainment Subscription Service

It’s a dynamic time for pricing strategy examples in media and entertainment with the proven financial value of subscription services and recurring revenue.

We recently explored the Netflix pricing strategy example – how Netflix changed its pricing strategy in 2023 from the one-option approach of $9.99-per-month, no-ad plan for a single household (often with password-sharing freeriding issues) to a new, three-option approach that addresses multiple households, devices with ad or ad-free options. 

Netflix current pricing plan options are:

• $6.99/month “standard” with ads
• $15.49/month “standard” without ads, watch on two devices simultaneously and can add another household for $7.99/month
• $22.99/month “premium” without ads, watch on four devices simultaneously and can add two additional households for $7.99/month each

With top-rated shows such as Bridgerton, Netflix attracts viewers to its subscription pricing plans and is posting good initial results with the new pricing strategy.

Netflix is estimated to have US subscription revenue of $14.5 billion in 2024 and $0.95 billion in US ad revenue.   While a relatively small piece today for Netflix, Netflix’s US ad revenues for ad-supported viewers are estimated at $70.44 per viewer in March 2024, compared to $45.87 for Hulu or $35.83 for Disney+.

Call of Duty: Can it Anchor Microsoft’s Gaming Subscription Service?

Looking at the video game industry, the highly-popular Call of Duty brand recently celebrated its 20^th birthday, on October 20, 2023. 

Historically, the Call of Duty brand is known for a loyal fanbase, and releasing new editions annually.  Historically, it’s been a premium pricing strategy example. Each year, gamers purchase the new release, and then make in-game purchases. 

For example, on Steam,  I can pre-purchase Call of Duty: Black Ops 6 for $69.99 (releasing October 24, 2024) or step up to the Vault Edition for $99.99.

Alternatively, if I’d like to play the “older” Call of Duty: Warzone battle royale game (released 2020), I can play for free, and then choose to buy Call of Duty Points (known as CP) for in-game purchases, e.g.,

• 200 CP $1.99
• 500 CP $4.99
• 1,000 CP $9.99
• 2,000 CP $19.99
• 4,000 CP $39.99
• 7,500 CP $74.99

Microsoft bought Activision Blizzard, which owned Call of Duty along with several other large brand franchises, for $69 billion on October 13, 2023, shortly after the Call of Duty brand’s 20^th birthday.  Note that other sources have reported a $75 billion figure for the acquisition.

Microsoft is bolstering its pricing strategy for its Xbox Game Pass subscription service, by announcing that it will add the upcoming Call of Duty release to the Game Pass from day one. The plan is that must-play game franchises like Call of Duty will anchor the subscription service and give it value (similar to Bridgerton for Netflix—for one monthly fee, users get access to must-watch shows, along with many other options).

Current pricing options from Xbox Game Pass include:

• $9.99 per month: “Xbox Game Pass Core” (online console multiplayer, 25 high-quality games on console) 
• $9.99 per month, first 14 days for $1: “PC Game Pass”  (hundreds of quality games on PC, new games on day one, etc.)
• $16.99 per month, first 14 days for $1: “Xbox Game Pass Ultimate” (hundreds of quality games on console, PC, and cloud, new games on day one, online console multiplayer)

It’s interesting to note the promotional “first 14 days for $1” part of Microsoft’s offer in the subscription pricing strategy.

Microsoft has a declared focus to increase Xbox Game Pass revenues. As Microsoft Gaming CEO Phil Spencer said,

“Our intent is the full portfolio of games from ZeniMax, Activision Blizzard and XGS — Xbox Game Studios — will be on Game Pass, day one” 

The Call of Duty brand has demonstrated considerable staying power, with over 425 million copies sold as of June 2022 and over a billion downloads. 

In explaining Microsoft’s pricing strategy move for Call of Duty, McGregor McCance writes,

“Microsoft’s decision is a strategic move aimed at bolstering the growth of Game Pass and establishing it as a dominant platform in the gaming industry. 

By making one of the most popular and lucrative gaming franchises available through Game Pass on launch day, Microsoft is leveraging the immense appeal of “Call of Duty” to attract more subscribers to its service, and to move further toward being platform agnostic (meaning you can play the game on your laptop, PC, television or other related devices with just a Microsoft controller)….

There are also analytics to consider here.  It is far easier to measure how consumers play a video game through a streaming service than through a physical disc…Finally, there are cost-saving measures here in not needing to split fees with video game stores, distributors and several other channel partners.” 

Reportedly, former owner Activision:

“was reluctant to embrace subscription-based models for a game (like Call of Duty) that still attracts a premium price.”

Call of Duty is a top-selling brand, with several strong sub-brands underneath it, such as Modern Warfare, Black Ops and Warzone. 

As we can see in the chart below, in the early years (2003 to 2006), Call of Duty sold an estimated five to seven million copies each year. Thereafter, each year from 2007 to 2020, the Call of Duty brand sold between 14 to 30 million units.  At an average price of $50, that translates to $700 million to $1.5 million per release, not including microtransaction revenue.  Different from the unit sales model, in 2019, Call of Duty: Mobile had 500 million downloads and over $1 billion in revenue. And, in 2022, Call of Duty: Modern Warfare sold over $1 billion in its first 10 days.

Hopes are Sky-High for Xbox Game Pass Subscriptions, but Microsoft Has More to Learn from Netflix Pricing Strategy Example

Microsoft has a stated goal of 100 million Xbox Game Pass subscribers by 2030, up from the 34 million Xbox Game Pass subscribers that they have today.  Still, Xbox Game Pass subscribers make up only 10 to 15% of the current content and services revenue.   This is a very different situation from Netflix, where subscription revenues are its lifeblood. Tech giant Microsoft may have dominance in business-based subscription services, but may need to look to Netflix for a pricing strategy example in entertainment.  Or, continue to accept that subscription revenue is small for its gaming business.

Says Microsoft Gaming CEO Phil Spencer,

“I’ve said many times that maybe 10-15 percent of our content and services revenue is subscriber revenue. It’s a good business for us today, Game Pass, but in no way is there a plan that says ‘Okay, everybody needs to become a Game Pass subscriber.’”

Microsoft is seeing growth on its Xbox Game Pass PC subscription plan, rather than Xbox for consoles.   As reported in The Verge,

“Xbox Series S / X consoles haven’t been selling as well as PS5 hardware, and that consumers aren’t flocking to Game Pass for Xbox Cloud Gaming on mobile devices. Microsoft also started converting Xbox Live Gold subscribers over to Xbox Game Pass Core last year”.

Microsoft’s Spencer commented on this challenge in 2022,

“On console, I’ve seen growth slow down, mainly because at some point you’ve reached everybody on console that wants to subscribe”

Most recently, Microsoft 3rd quarter revenue for fiscal 2024 (3 months ending 3/31/24)  came in at $61.9 billion, with net income of $21.9 billion.  The largest contributors are Intelligent Cloud ($26.7 billion), Productivity and Business Processes ($19.6 billion), followed by More Personal Computing at $15.6 billion.  In the 2^nd  quarter of 2024, Microsoft Gaming  accounted for $7.1 billion in this quarter (11% of that quarter’s total). 

Microtransactions: In Addition to the Xbox Game Pass Pricing Strategy Example

Microtransactions are an important revenue contributor to the pricing strategy example in video games, accounting for as much as 60% of total revenue in the industry, and the Call of Duty brand is no stranger to this revenue source.

All in all, Microsoft’s Xbox Game Pass provides a very interesting and dynamic pricing strategy example. There are also numerous branding and sub-branding challenges and opportunities that present themselves from this example.  For instance, how much value does the brand Xbox bring to the PC Game Pass user?

A Different Perspective on Pricing Strategy Examples

Gaming payments industry executive, author and Xsolla CEO Shurick Agapitov recently released the book, Once Upon Tomorrow: Harnessing the New Opportunities the Metaverse Creates.   Agapitov is an expert in the gaming industry, the metaverse and the future of payments.  It’s interesting to note that he provides a perspective that aligns with my own experience that super users or “whales” are the keys to revenue in the gaming industry.  

Author and Xsolla CEO Shurick Agapitov writes:

“I estimate that roughly 80 percent of revenue comes from only 20 percent of the users.  The largest fraction of the revenue derives from a group of players I call whales….Today, 80 percent of revenue in video games comes from the top 20 percent of customers.  However, Netflix, Apple, and Microsoft don’t embrace this principle. Currently, Netflix, Apple and Microsoft aim to create various video game streaming services that set a fixed amount of money per month for all users.  

Some superusers might be willing to pay $120 per month, but these streaming services cost just $15 per month.  Again, this might be good for the average consumer, but it would only commoditize the video gaming sector and push developers into a work-for-hire situation.

In addition, this is not a sustainable model for Microsoft and Apple for certain games.”

Focusing on super users or heavy users is a proven model in many industries, not just video games, in my experience at the Cambridge Group and Booz & Co. My former partner, Eddie Yoon has written a book on the topic along with HBR articles.  The Microsoft Xbox Game Pass pricing strategy example does not address the super users, nor do the Netflix pricing plans.

From all this, more pricing strategy examples will emerge, and it remains to be seen which will be the success stories.  For more examples, visit our resources page, or join us at an upcoming office hours.