Across various industries, companies are increasingly adopting subscription-based pricing models. Although subscriptions are not a new concept—dating back to the 12th century with membership in craft guilds—the pace of this shift has recently accelerated. Companies are drawn to the recurring and predictable revenue streams subscriptions offer, which allow them to focus on enhancing customer experience and reducing the cost of acquiring new customers.
However, this shift is not always well-received by customers. While traditional purchases give customers outright ownership of a product or service, subscriptions merely provide access for as long as payments are made. Yet, subscriptions can offer customers certain benefits: they spread out the cost over time and often include updates and improvements at no additional charge. Nevertheless, companies that successfully manage this customer transition enjoy some significant benefits.
The Microsoft Case Study: Activision Blizzard Acquisition
A notable example of this transition is Microsoft’s recent $69 billion acquisition of video game company Activision Blizzard. This high-profile deal, finalized in June after nearly two years of navigating global antitrust scrutiny, raised concerns among various stakeholders. Regulatory bodies feared a potential monopoly in the gaming industry, and customers worried about the implications for non-Microsoft platforms like PlayStation.
Activision Blizzard’s flagship game, “Call of Duty,” highlights the stakes involved. In 2022, the latest version generated over $1 billion in sales within its first ten days. By October 2023, “Call of Duty” held the Guinness World Record for the best-selling first-person shooter series, with over 425 million copies sold and more than 100 million active players monthly across all platforms.
The Shift to Game Pass
To reassure the gaming community, Microsoft announced it would continue producing “Call of Duty” for all platforms. However, for Xbox users, future distributions of the game will be exclusively via Microsoft’s Game Pass subscription, eliminating the option to purchase single installments.
This move has significant implications. Previously, each “Call of Duty” title cost between $50 and $70. In contrast, a Game Pass subscription has plans of $9.99 and $16.99 per month. Assuming Call of Duty will be included in the higher tier, the cost would add up to roughly $200 annually—a substantial increase. While Game Pass offers a wide array of games, it is unclear if “Call of Duty” fans will find this attractive if their primary interest is in just one game.
On the cost side, Microsoft may not see significant savings. Traditional distribution methods will still be required for other platforms, meaning the shift to Game Pass will not necessarily reduce marketing or distribution expenses. Additionally, some loyal customers fear that bundling “Call of Duty” into Game Pass could undermine future investments in the franchise, losing focus and resources to other internal projects.
Microsoft’s Bet on Loyalty and Subscription Revenue
Microsoft is betting on the strong loyalty of “Call of Duty” fans to drive subscriptions to Game Pass, thereby increasing its subscription revenue. However, this strategy faces a potential obstacle: subscription fatigue. With consumers already overwhelmed by numerous subscriptions, there is a risk that fewer customers will sign up for Game Pass, even if they are long-time “Call of Duty” enthusiasts.
If Microsoft’s gamble pays off, it could pave the way for other companies to adopt similar subscription-based models. Netflix and Amazon have already shown interest in the video game industry and are planning to introduce their own games, of course as part of a subscription. Alas, for the consumer this will probably mean that their future video game entertainment needs will require yet another subscription.
Would transitioning to subscriptions be the right model for your business? Please reach out to discuss together.
