Microsoft insists that Xbox Game Pass is profitable, but avoids mentioning a much more significant truth: their calculations ignore losses from their own first-party games. While the subscription service makes money on paper, the company only counts costs directly related to operations, not the impact of releasing its own games on day one.

July has been anything but smooth for Microsoft. The month began with the layoff of 9,000 employees, followed by the cancellation of Perfect Dark and the shutdown of The Initiative studio. Attempting to soothe growing concerns, Microsoft was quick to stress that Game Pass isn’t to blame for the company’s current troubles and emphasized that the subscription is actually profitable. But as always, the devil is in the details.

Christopher Dring, co-founder of The Game Business, shared info obtained directly from Microsoft sources. According to Dring, Microsoft proudly states that Game Pass is profitable—but only when considering third-party merchant fees, marketing, and operational costs. The catch is that Microsoft only measures profitability by looking at these expenses, not the costs of developing its own games. This paints a rosy picture but crucially ignores how much revenue the company may be losing by dropping its first-party titles on Game Pass at launch.

As Dring puts it: “What they’re not counting is the loss of revenue that internal studios are experiencing due to the service. If they received compensation similar to what Microsoft pays third parties, the profitability of the model could be called into question.” He later confirmed that Microsoft told him costs associated with first-party games are not included in Game Pass’s profit metrics.

Game Pass’s Profits and Industry Impact Under Scrutiny

This creative accounting has fueled doubts about whether the model is truly sustainable. Multiple industry insiders remain skeptical. Raphael Colantonio, founder of Arkane Studios, has openly criticized the narrative that Game Pass doesn’t hurt game sales. Responding to the publishing director of Baldur’s Gate 3, Colantonio remarked: “I’m sick of being told it doesn’t affect sales … and then admitting it does. Of course it does!”

Phil Spencer, CEO of Microsoft Gaming, has addressed Game Pass’s strategy several times. In April, he admitted that the subscription isn’t ideal for everyone—especially those who buy just one or two games a year. Even so, he defended the model as a healthy alternative for gamers who like to sample new titles frequently. Back in February, he insisted Microsoft isn’t trying to replace traditional game ownership with subscriptions. Still, the debate persists: while Microsoft treats Game Pass as a strategic pillar, the lack of transparency around internal costs and mounting industry tension fuel the sense that this business model is far murkier than it looks.

Source: 3djuegos, Underl3veled