Microsoft is firing on all cyclinders for next-gen console launch
Microsoft Xbox Series X will launch on November 10th at a price point of $499/£450 and will be available for pre-order from 22nd September. It will also be available in 12 markets in conjunction with local partners through Microsoft's finance/credit program for $34.99 a month spread over 24 months. Xbox Series S, its cheaper sibling, is priced at $299/£250 and will be available through All Access at $24.99/£20.99 a month for 24 months.
Microsoft is also extending the value of Xbox Game Pass Ultimate, its bundled content and Xbox Live Gold subscription service, currently priced at $15/£10.99 a month. Through a commercial arrangement with EA, Xbox Game Pass Ultimate subscribers will get access to EA Play (formerly EA Access) on both Xbox consoles and PC for no additional cost starting during holiday 2020. Some EA titles will also be able to be streamed to Android devices as part of Xbox Game Pass Ultimate, again at no extra cost. We believe this is the first time that EA Play users will be able to access the console and PC versions of the service from a single account.
Hardware price points + All Access financing cover all bases
Microsoft arrives at the launch of the new generation of consoles with a three tier hardware pricing model in play - Xbox Series X at $499, Xbox Series S at $299 and Xbox One S expected at sub $199. Note: Xbox One consoles will play a vast majority of Xbox console games released over the next 18 months-2 years. These multiple entry points allow Microsoft strong audience coverage, but with the backdrop of a COVID-19 world economy, reducing the barriers to entry are more important than ever. The company's Xbox All Access finance program, delivered in conjunction with in-country finance and retail partners, comes into play here. All Access has been operating for a couple of years, but has only been available in select markets. Microsoft will be extending the program to 12 countries in time for the next-generation launch. Countries covered are: USA, Canada, UK, France, Denmark, Finland, Sweden, Norway, Poland, Australia, New Zealand and South Korea.
Significantly, Xbox All Access includes a 24 month subscription to Xbox Game Pass Ultimate, giving buyers immediate access to a portfolio of games. In fact, signing up for a 24 month contract is actually cheaper than buying the products outright individually. As part of Xbox Game Pass Ultimate, subscribers will now get access to EA Play and be able to stream selected games to Android devices for no extra charge.
Xbox Game Pass Ultimate is the platform not Xbox Live
Xbox Game Pass includes day-and-date new releases from Microsoft studios and the company has committed to release a new first-party game to the service every quarter. The inclusion of new releases is distinct from Sony’s own PlayStation Now subscription service and a key competitive differentiator. Xbox Game Pass has become increasingly important to Microsoft’s competitive positioning and will play an expanded role next-gen including alongside a shift into cloud gaming through Game Pass Ultimate. Sony does not currently have an adequate competitive response to Xbox Game Pass so it makes sense for Microsoft to lead with this offering.
With the bundled inclusion of EA Play, Microsoft reveals Xbox Game Pass Ultimate as a platform in its own right. This strategy has echoes of pay TV platforms that increasingly do deals with SVoD services. In the past the assumption was that eventually Microsoft would move beyond its hardware with a more horizontal online product offering in the form of Xbox Live, but it seems now that Xbox Game Pass Ultimate (built on Xbox Live) is a natural fit for this role. This makes sense for a strategy which aims to reach gamers on other devices and that needs competitive differentiation, in the form of content, to drive adoption. Xbox Game Pass Ultimate compresses the conversion process for Xbox Live Gold and Game Pass into a single step. Ideally, Microsoft would like all its users as subscribers so they can be monetised as effectively as possible.
The inclusion of EA Play will further eat into Microsoft's potential margin for Xbox Game Pass Ultimate. However, it is likely that a good chunk of Game Pass Ultimate subscribers will already have access to EA Play. Even so, it is clear that Microsoft is aggressively scaling its service and is happy to financial support this growth across a number of initiatives.
Microsoft's commercially aggressive approach is all about delivering momentum
Microsoft is loading all its competitive edge into its products/services at launch of the new generation of consoles. The console business is all about momentum - once established it is hard to dislodge. As such it makes sense for it to go big at launch. Note, while there is a lot of talk about cloud gaming and reaching more audiences, the Xbox console business and its associated services will be the cornerstone of Microsoft's games business for at least the next five years. It needs the console business to be strong to give it a base to expand from into new markets and audiences.
There is no doubt that Microsoft is better positioned to compete with Sony at the upcoming launch of the latest consoles compared to the Xbox One and PS4 generation. The company is more laser focused on the console gamer, will launch Xbox Series X and Xbox Series S at tiered price points to reach different types of console gamer, is expected to launch Xbox Series X at a similar price point to PS5, has invested a lot in its first-party studio capability and has been successful in building Xbox Game Pass into the biggest games content subscription service globally at more than 10 million users.
While we wait for Sony to announce its PS5 pricing - we predict a $499 price point for the disc-based PS5 - it does not have the deep financial pockets of Microsoft, which has built a commanding lead in the games subscription battle by putting its new releases straight into Xbox Game Pass. As such, even though Microsoft has gone first with its pricing, while Sony can position its messaging with a clear idea of what the competition is doing, its ability to shift around its price points will be relatively constrained.