- Xbox leadership has stated on multiple occasions that the Game Pass service is profitable.
- However, recent comments from an industry expert suggest that Xbox Game Pass calculations exclude key first-party development costs.
- Without transparent data on first-party expenses, the financial viability of Game Pass remains uncertain.
The business model behind Xbox Game Pass has consistently drawn scrutiny, as players and analysts have long questioned its financial feasibility. Xbox leadership has repeatedly shot down these concerns, offering reassurances and stating that the subscription service is indeed profitable. However, amid growing uncertainty around the platform, coupled with recent layoffs, Game Pass’s profitability is under the lens once again.
During a sit-down with the Wall Street Journal in 2022, Xbox head Phil Spencer mentioned in plain terms that the service is profitable. This sentiment has been echoed numerous times, though never meaningfully elaborated upon. And we now have a better understanding of the calculations behind this ‘profitability,’ courtesy of The Game Business’ editor-in-chief, Christopher Dring.
Contributing to an X thread on XGP’s financials, here’s what Dring had to say: “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 first-party studios received similar compensation, that profitability might not be correct.”
“I asked for clarification on the ‘Game Pass is profitable’ claim, and was told no first-party costs are included,” he added.
What this essentially means is that Microsoft only accounts for fees paid to third-party studios and publishers, the marketing costs to promote the subscription, and the service costs to keep it operational, while assessing Game Pass’s profitability.
They reportedly leave out the costs associated with developing first-party titles such as Starfield and Avowed, and the money left on the table (in terms of pure sales) by adding those games to the Xbox Game Pass on day one. So, the service is profitable when applying that limited measure, but it likely bleeds money if you factor in first-party costs.
With that being said, there are no confirmed figures on the costs behind Xbox’s first-party lineup. So, it’s unclear just how much Game Pass might be operating in the red. Still, Dring’s comments cast a dubious light on the service’s feasibility, and it remains to be seen how much longer Microsoft is willing to bankroll it.
What do you make of Game Pass’s business model? Be sure to let us know in the comments.
