Xbox LIVE Price Increase Coming Next Year?

Next month Microsoft is planning to release a major update to the Xbox LIVE service for Xbox 360 owners with the Xbox LIVE Gold membership.

The new update is set to add new social networking features such as Facebook and Twitter as well as other media applications such as the music streaming service Last.fm and a news channel called "News and more" via content from cable news outlet MSNBC as well as NBC.

The update will also allow Xbox 360 owners to rent full 1080p television shows and movies and share them with their Zune or Windows-based PC.

Much of this update was officially announced and touted at E3 in June, however what does the future hold for the service come 2010 and beyond?

Matt Peckham, video game blogger for "PC World," recently published a post where he spoke with industry analyst Michael Pachter who is predicting the annual Xbox LIVE Gold membership cost may increase from a $50 per year subscription to $100 within the next one to two years.

In the interview, Pachter describes the tension between $50/year Xbox 360 subscribers who play their favorite games online via Xbox Live whereas PC gamers can use that same service (called Windows Live) at no cost.

However, the number of Windows Live enabled PC titles is quickly diminishing.

You can't hook a guy into Xbox LIVE Gold if he's playing on a PC. That's the other problem. You really want to hook every gamer who has a 360, you want them to buy all their games on 360, play everything multiplayer, pay $50 a year, so that in a couple of years, it's $100 a year. That's going up, we all know that.

It would make sense to phase out PC gaming if Microsoft can cohorse gamers to purchase a $300 console, a yearly $50 membership, and $60 games. But why maintain or even increase the price of the Xbox LIVE Gold membership service when competitors Nintendo and Sony offer online services for free?

Xbox LIVE Gold members make a huge profit and Xbox 360 owners will happily pay for the service.

Peckhan makes an excellent point in his post:

Xbox LIVE is a money machine for Microsoft. In May 2009, the company claimed it had 20 million Xbox LIVE subscribers. Do the math. If that were 20 million active Gold accounts (they're not, but a majority are) you're looking at as much as $1 billion in annual revenue. Bump the subscription fee to $100 and you're talking upwards of $2 billion. With that on the line, there's a roughly zero percent chance Microsoft's going to eliminate the fee entirely...

There has been no conclusive evidence that gamers have switched from the Xbox 360 to a competing console because competitors offer a free online service, but Microsoft is toeing a thin line.

The annual $50 cost may be the tipping point for Xbox LIVE players although it is a shame that Microsoft is still enforcing "gamer dues" to its consumers every year. Raise the fee to $100 per year and 360 owners may reconsider their Gold membership.