The Xbox Game Pass business model has hit its limits, and those limits are defined by Call of Duty.

Last year, Xbox Game Pass Ultimate got a wildly unpopular 50% price hike. Although not officially so, the cause was largely attributed to Call of Duty's day-one inclusion in the service. Call of Duty is a huge franchise and has a similarly huge budget. The entire game's business model revolves around its massive retail sales operation.

In a blog post on Xbox Wire, Microsoft announced that Xbox Game Pass Ultimate will no longer receive this year's Call of Duty. Previous games, including last year's Black Ops 7, will remain.

"Beginning this year, future Call of Duty titles won’t join Game Pass Ultimate or PC Game Pass at launch. New Call of Duty games will be added to Game Pass Ultimate and PC Game Pass during the following holiday season (about a year later), while existing Call of Duty titles already in the library will continue to be available."

Furthermore, Fortnite Crew and Ubisoft+ Classics, which were attributed to the price hike last year, will also remain in Xbox Game Pass Ultimate, and likely account for the extra couple of dollars over the previous $19.99 price point. Those inclusions are likely the result of lengthy contracts with Epic Games and Ubisoft alike.

"Our players cover a wide breadth of geographies, preferences, and tastes, so while there isn’t a single model that’s best for everyone, this change responds to a lot of feedback we’ve gotten so far," Microsoft said. "We’ll continue to listen and learn."

Analysis: Xbox Game Pass found its limit, but will new flexibility improve things?

It might seem odd from the outset that other big service games like Forza Horizon, for example, will remain in the Xbox Game Pass Ultimate service. Ultimately (pun), Game Pass was designed with these franchises and studios in mind initially. When Microsoft acquired Activision-Blizzard, including Call of Duty in Xbox Game Pass was always going to be a risk — the business model for Call of Duty is more fragile than you might think. Despite the fact that Call of Duty makes absolutely enormous amounts of cash, it also costs an enormous amount of money to run.

Microsoft hasn't included services like World of Warcraft, Fallout First, or Minecraft Realms in Xbox Game Pass Ultimate for these exact reasons. It would cannibalize them, rather than help them.

Sources tell me that when Xbox Game Pass cannibalizes retail sales of first-party games, Microsoft uses a weighted formula to "charge" Xbox Game Pass profits back to the affected studio's budget. Microsoft needs a flywheel of content in Xbox Game Pass to prevent and offset subscription churn (i.e., people unsubscribing). So, if Call of Duty vacuums up a disproportionate amount of Xbox Game Pass' budget due to cannibalization, then there's less money on the table for new games month-over-month.

To offset this, Microsoft threw a "Hail Mary" in essence, and slapped a 50% price hike on Xbox Game Pass to offset Call of Duty's cannibalized $70+ retail sales. Microsoft hoped that Call of Duty's inclusion would lead to user growth, owing to the franchise's legendary popularity. Today's restructure is effectively an admission that the move effectively broke the business model.

I imagine that as users began allowing their subscriptions to expire, and Call of Duty is no longer the "new hotness" it was two, three, or six months in, the $30 subscription fee began making little to no sense. Amazon and other retailers have now sold through their stock of old $20 Xbox Game Pass Ultimate time cards, meaning that Microsoft was likely looking at a cliff edge for the Game Pass Ultimate user base.

Call of Duty players are creatures of habit, and I suspect the influx of Xbox Game Pass users didn't really lead to meaningful growth for the game. Microsoft admitted that a decline in revenue in its gaming division was largely attributable to Call of Duty: Black Ops 7 — you have to wonder how much of that was potentially due to Xbox Game Pass cannibalization.

I put up a poll on X a few weeks ago asking users if they'd prefer Xbox Game Pass to get a price cut in exchange for the removal of future Call of Duty titles. Almost 75% said they would prefer the lower price, with less than 10% saying they like things the way they are now.

Xbox Game Pass was previously described as the "best deal in gaming" by many, but since the price hike, Microsoft's socials are perpetually flooded with people asking for the price to be lowered. Incoming Xbox CEO Asha Sharma has effectively said "we hear you," here.

I think most Call of Duty players are simply happy to pay the $70 annualized retail price (providing the game is actually good), whereas Xbox Game Pass users are pretty much by definition more interested in variety. The previous price was already funding a solid cadence of variety ... so at $30, you effectively end up paying for somebody else's fun.

To that end, Microsoft sources tell me that the longer-term goal for Xbox Game Pass is to make it more flexible. A sort of "pick your own plan" formula for Xbox Game Pass is on the cards, essentially, where users can effectively decide what packages of content they want to see as part of their plan. Microsoft has leaked "Duet" and "Triton" codenames for Xbox Game Pass via its back-end APIs recently, suggesting that packages of services are in the plan's future. Don't want Xbox Cloud Gaming? Remove it and lower the price. No need for Fortnite Crew? Ditch it and add day one Xbox games. Perhaps you can roll in World of Warcraft or Minecraft Realms subscriptions instead, or even other benefits like Netflix, per rumors, or the long-awaited Xbox Game Pass Family Plan.

The real question is, can Xbox Game Pass find new growth, or indeed, drive interest in the Xbox platform altogether? In a universe where Xbox hardware no longer has exclusive games, the exclusive services and features have to be world-class. At $30, Xbox Game Pass Ultimate quite simply was no longer world-class.

Xbox CEO Asha Sharma has a huge mountain to climb to get Xbox where it needs to be ahead of Xbox Helix's next-gen launch. The rapidity with which Asha has been sorting through these issues is quite encouraging, in my view.

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Jez Corden is the Executive Editor at Windows Central, focusing primarily on all things Xbox and gaming. Jez is known for breaking exclusive news and analysis as relates to the Microsoft ecosystem — while being powered by tea. Follow on X.com/JezCorden and tune in to the XB2 Podcast, all about, you guessed it, Xbox!