Game Pass is Profitable Because Microsoft Doesn’t Count Costs For First-Party Games on the Service

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Despite the somber environment at Microsoft due to numerous layoffs, project terminations, and studio closures, their subscription service, Xbox Game Pass, continues to be viewed as a financially successful venture. As per multiple posts on the social media platform X by The Game Business’s co-founder and editor-in-chief Christopher Dring, Microsoft considers the subscription service profitable in terms of fees paid to third-parties for business operations, marketing expenses, and service costs.

It’s worth mentioning that Dring highlights a significant aspect: Microsoft doesn’t include revenue lost due to first-party games being made available on Game Pass on their release day in its earnings. If first-party studios are compensated equivalently to third-party publishers and studios for releasing their games on Game Pass, the service might not appear as profitable under this calculation method.

In simpler terms, Dring stated that the Game Pass business generates profits from fees paid to third parties, marketing costs, and operational expenses. However, they didn’t consider the potential lost revenue for Xbox’s in-house studios due to the service. If these studios were compensated similarly, the profitability claim might not hold true.

In the conversation we had later, Dring shared an interesting point – he learned from Microsoft directly that the expenses related to first-party game launches on their subscription service aren’t factored into their calculations for the financial success or profitability of Game Pass as a whole. As a dedicated fan, I found this insight intriguing and thought it was worth sharing here.

Although Microsoft views the service as profitable and considers it worth investing in, especially for adding third-party games, some former employees question its long-term sustainability. Last week, Raphael Colantonio, founder of Arkane Studios, highlighted this, noting that even Microsoft doesn’t have unlimited funds to maintain the service without seeking a return on investment.

In response to Michael Douse, Baldur’s Gate 3 director of publishing, discussing the concept of “infinite money” not being logical, Colantonio posted, “I completely agree and I’m growing tired of all the misleading information they give us initially like ‘Don’t worry, it won’t affect sales’, only to later acknowledge that it indeed does. ‘Well, isn’t that obvious!’

In April, Phil Spencer, CEO of Microsoft’s Gaming division, discussed the service, stating that while it may not suit every gamer, it indeed provides a “balanced choice” for some. He explained that if you typically play just one or two games per year, Game Pass might not seem enticing. On the other hand, if you enjoy experimenting with various new gaming experiences, this service could be an attractive prospect.

Spencer mentioned that Game Pass is a suitable choice for some individuals, not everyone. If you only play one or two games annually, it might be more practical for you to purchase those specific games instead of subscribing to Game Pass. However, he emphasizes that the decision should be yours to make, giving you the freedom to choose what works best for your gaming habits.

Spencer had previously mentioned in February that Microsoft has no intention of abandoning the concept of video game ownership in favor of subscription services such as Game Pass.

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2025-07-07 23:41