In the case of Microsoft’s Game Pass subscription service, it seems as if the company doesn’t take the costs of its own studios into account…

Ever since Microsoft launched Game Pass in June 2017, the service’s profitability has been debated in the gaming industry. Many saw the Redmond tech giant’s deep pockets propping up the service for a while, but not forever. At some point, Game Pass would need to become self-sustaining. Over the years, Microsoft has consistently claimed that Game Pass is both profitable and sustainable. In December 2019, Xbox boss Phil Spencer said the following about the service:

“The only concern I ever see is people asking, ‘Is it sustainable? Can you continue this?’ Xbox Game Pass is doing very well for us right now, and for its subscribers. It’s going to be interesting when Xbox launches next year and people realize that they already have a library of games on this platform. We’ve never had a console launch with a library of games available day one,” Spencer said.

However, slow subscriber growth and recent studio closures and layoffs have put Game Pass back in the crosshairs of analysts and developers, many of whom claim that Microsoft may have backed the wrong horse and that Game Pass may not be sustainable in the long run. Chris Dring (former editor-in-chief of GamesIndustry.biz and co-founder of The Game Business) took to Twitter to share some important details about how Microsoft reportedly calculates the profitability of its subscription service:

So costs associated with the Game Pass business is fees paid to third-parties, marketing, service costs… and by that measure, it’s profitable.

What they don’t count is the lost revenue that Xbox’s first-party studios are seeing as a result of the service. I have to imagine if…

— Christopher Dring (@Chris_Dring) July 6, 2025

“The costs associated with the Game Pass business include fees paid to third parties, marketing costs, and service costs. By that measure, it’s profitable. What they don’t count is the lost revenue that Xbox’s first-party studios are experiencing because of the service. I imagine that if first-party studios received similar compensation, the service might not be profitable,” Dring wrote.

He later clarified that he specifically asked for confirmation, and was told that first-party costs were not included. These studios now include not just The Coalition or Halo Studios (formerly 343 Industries), but also Bethesda and Activision Blizzard—major publishers with major IP. There will certainly be lost revenue if Call of Duty, Diablo, and DOOM are all available on Game Pass day one. How long Microsoft can afford this strategy remains to be seen.

Source: WCCFTech