The FTC Says Microsoft’s Game Pass Price Hikes Hurt Subscribers

The Federal Trade Commission isn’t happy with Microsoft, the $3.2-trillion computer giant that also happens to be a global gaming industry titan. In a new letter filed as part of its ongoing case appealing Microsoft’s buyout of gaming brand Activision Blizzard, the FTC calls out some recent moves by the company as “exactly” the type of “consumer harm” the agency worried about as a consequence of the merger. The news comes as Netflix, fresh off the back of its password sharing crackdown, reports soaring revenues, even as it’s set to axe its cheapest subscription plan that lets users watch movies and TV shows without being subjected to ads.

Is Microsoft playing games with subscription prices?

Gaming news site Kotaku explains the FTC lost a lawsuit trying to bar Microsoft from buying Activision Blizzard in 2023. The FTC argued the merger would lead to less competition in the gaming market, but Microsoft — and ultimately a judge — disagreed. Frustrated at the decision, the FTC appealed the ruling with the U.S. Court of Appeals for the Ninth Circuit.

Its new letter, sent Wednesday, reflects the agency’s effort to gather more evidence for its appeal. The letter is very direct. It mentions that Microsoft is raising the price of its Game Pass Ultimate subscription service, which lets gamers pay a flat rate for access to popular games, from “$16.99/month to $19.99/month– a 17% year-over-year increase.” It also points out that a $11-per-month Game Pass product is being discontinued, forcing users to “pay 81 percent more to switch” to a new plan, and it alleges that a newly introduced $15 tier is actually a “degraded product” that harms consumer choice. It also notes that Microsoft has laid off staff and reduced investments, hurting “output and product quality” in a manner bearing all the “hallmarks of a firm exercising market power post-merger.”

Companies do juggle their portfolio of products sometimes to lower costs, push up revenues, and increase profitability. But in this case, the FTC is pointing at Microsoft’s maneuvers as an example of anti-competitive behavior. And it’s easy to see the point: Due to a blunt decision by Microsoft, gaming fans have to either pay much more for a service or move to a product that, the FTC says, offers them fewer benefits. And it’s all happening after a merger that many critics questioned.

Is Netflix nixing cheap subs to bump ad numbers?

Meanwhile, Ars Technica reports that streaming giant Netflix is trying a very similar juggling act with its subscription offerings.

In a shareholder letter, Netflix said it was making good on a previously stated plan to phase out its “Basic” ad-free plan in the U.S. and France. The plan was basic indeed, but cheaper than the newest ad-free tier which offers better video resolution and supports more devices for each account and costs $15.49 per month, nearly 30 percent more than the discontinued $12 Basic plan did.

Netflix’s letter boldly states its long-term plans: It’s all about achieving a “critical ad subscriber scale for advertisers in our ad countries in 2025,” from which it will “further increase our ad membership in 2026 and beyond.” The secret here is that the company’s ad-supported $7 tier now makes up nearly half of new subscriber sign-ups in areas where it’s available, and, as Ars Technica points out, ad-supported subscribers generate more revenue, on average, for the company.

Arguably an ad-free Netflix experience was one of the platform’s big attractions — it’s what set Netflix and other streaming services apart from traditional ad-supported cable or satellite TV channels. By forcing consumers to pay more or watch more ads, it risks alienating them to the point where they might cancel the service. Maybe this subscription juggling is contributing to Netflix chalking up fewer new “customer additions,” which are expected “to be lower in the current quarter than the same period last year,” per the Wall Street Journal. Nevertheless, Netflix’s cavalier attitude to its users is making it lots of money: It raised its annual revenue growth forecast up from 13 to 14 percent to 14 to 15 percent.

The customer is always right? Not when it comes to maximizing profits, perhaps.