Microsoft Says 'Game Pass is Profitable' Claims Does Not Include First-Party Costs - News
by William D'Angelo , posted on 07 July 2025 / 14,609 Views
Microsoft has told Christopher Dring that the "Game Pass is profitable" claims it has stated in the past does not include first-party costs.
"I asked for clarification on the 'Game Pass is profitable' claim, and was told no first-party costs are included," said Dring.
The costs from Game Pass includes fees paid to third-parties, marketing, and service costs. With those metrics alone the service is profitable.
"So costs associated with the Game Pass business is fees paid to third-parties, marketing, service costs… and by that measure, it’s profitable," said Dring. "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."
The last update on the number of Game Pass subscribers was 34 million as of February 2024. This would be before Activision Blizzard games, including Call of Duty, started to release on the service.
The founder and former president of Arkane Studios Raphaël Colantonio over the weekend said he thinks "Gamepass is an unsustainable model that has been increasingly damaging the industry for a decade, subsidized by MS’s 'infinite money', but at some point reality has to hit. I don’t think GP can co-exist with other models, they’ll either kill everyone else, or give up."
A life-long and avid gamer, William D'Angelo was first introduced to VGChartz in 2007. After years of supporting the site, he was brought on in 2010 as a junior analyst, working his way up to lead analyst in 2012 and taking over the hardware estimates in 2017. He has expanded his involvement in the gaming community by producing content on his own YouTube channel and Twitch channel. You can follow the author on Bluesky.
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If you have to exclude certain things to claim it's profitable then it clearly is not profitable. Stop with the fluffing.
Gamepass is profitable*
Does not include costs to run server farms.
Does not include first party costs.
Does not include Phil Spencer's pay on the third saturday of the month or his holiday pay.
Does not include lost revenue from lack of game sales.
Does not include logic.
Xbox still the undisputed champion of slamming their dicks in the door.
Funny. One of the gaming podcast I listen to said they have to be doing some funny accounting to make statements like Phil does true. The guy was proven exactly right. He literally said they probably aren't counting the cost of first party games and he was 100% right. I heard him saying this like over a year ago now.
Well, one defender has appeared, lol.
Lying ass company
That seems a given from the start. There is no way the system could break even considering the amount of money required to get those games. The cost to buy, make, and the money you lose when giving it away for so insanely cheap.
It was just cheap PR gotcha crap. Where they carve out a situation where it "works" and then never explain that when ever you are referencing it you are mentioning this one exact situation.
Would enough people subscribe to gamepass to keep it profitable if they didn't include day one first party? Probably not.
Concord is the best selling game ever
not including any other game ever released.
I'd like to know how Microsoft is actually feeling about the business performance of Game Pass. Are they happy with it? Do they believe it has a long-term future? Of course, there's no way to get this information from them, because there is zero chance that they would say no to either of those questions. So, we'll just have to wait to see if it's still here in a decade.
Gamers mostly like it, as it has done nothing but help us. But, Microsoft is in business to create shareholder value, not to make video game players happy.
Sick, going to try this trick on my income taxes.
I think MS knows the Gamepass idea has failed. I could tell when Phil spencer said "Gamepass isn't for everyone". Why would you say that if you had full faith in the success of Gamepass?
If you don't include 1st party cost? Why wouldn't you do that though?
Then how do first parties earn their money back then? Besides CoD, Xbox games are usually not doing blockbuster selling numbers.
Their first party sales crashed out which prompted the creation of GamePass. GamePass was supposed to save Xbox. They still weren't gonna reach their goals so they made a last ditch effort by purchasing 2 of the highest profile publishers out there and are still not breaking so they started firing everyone.
I read your comment in the discussion thread on the topic, and I think that would make sense: First party games could be invoiced internally for being in Gamepass, similar to how Third Party games are being paid for being on the service. Probably at a much lower price for the First Party though. Like that, it would make sense not to include any first party studio- and game development costs in the Gamepass accounting, because Gamepass is paying for getting the finished product. And if those "internal fees" are included in the P&L just like the third party fees, then the statement that the service is profitable I would say is "common sense legit" and not just some fancy accounting brain gymnastics. That this model in return then puts a lot of stress on the first party studios' profitability is another story.
....then why are you even bothering with Gamepass? Like genuinely curious what "the plan" is at Xbox hq.
So when Xbox make their P&L statement they assume that all the XGS games are appearing in Gamepass free of cost? "We were gonna make those bloody games anyway, so you cannot factor them in as a cost for Gamepass". Sounds like a slightly creative perspective. Granted, I am not an accountant, what do I know.
But it was not free to make the game- why allocate that cost only to the copies sold traditionally, not to gamepass? You could also choose to do it the other way round and say “our main business model is gamepass, so the studio and game development cost is associated to gamepass alone; every game we on top of that sell traditionally is just a bonus, so it is cost free, 100% profit”. But that would also not make (common) sense. There was cost for creating that product, whether you afterwards rent it out or sell it.
Intercompany transfers are normally supposed to be valued correctly. For example:
Service Transfers
Service transfers occur when one entity within a corporate group provides services to another, such as administrative support, research and development, or IT services. These transactions require careful allocation of costs to ensure that the service provider is adequately compensated and that the recipient entity is charged a fair price. Transfer pricing methods, such as the cost-plus method, are often used to determine the appropriate charge for these services
Asset Transfers
Asset transfers involve the movement of tangible or intangible assets between entities within the same corporate group. These can include machinery, real estate, intellectual property, or even entire business units. Proper valuation of these assets is critical to ensure that the transfer price reflects fair market value, thereby avoiding potential tax disputes. Companies must also consider the impact of asset transfers on their financial statements, as these transactions can affect depreciation schedules and capital gains.
For a market like video games it would be quite complicated but the fair market cost would probably be determined by the Replacement Cost, the cost of getting an alternative product with a similar profile onto gamepass day one.
"They'll either kill everyone else or give up". There's a name for that business model. It's called predatory pricing. It works like this...
Predatory pricing is split into a two-stage strategy.
The first stage of predatory pricing (predation) involves the dominant firm offering goods and services at below-cost rate which, in turn, leads to a reduction in the firm's immediate short-term profits. This drop in price forces the market price for those goods or services to readjust to this lower price, putting smaller firms and industry entrants at risk of exiting the industry. The principle behind this strategy is that, unlike new entrants and current players, the dominant firm has the size and capital to sustain short-term loss in profits, thus forcing a game of survival that the dominant firm is likely to win.[5]
The second stage is the recoupment, during which the dominant firm readjusts its product and service prices to approach monopoly prices (or a monopoly price, depending on remaining industry players and the dominant firm's market share) to recover their losses in the long-term. This price adjustment can put consumers under pressure, as they are now forced to accept the higher price without any fair-priced competition, thus resulting in consumer harm.
You can read more about it here: https://www.investopedia.com/terms/p/predatory-pricing.asp
It's funny reading from some here trying their best to give reason, and for jumping onto MS defence.
Those first party titles go onto gamepass for free. So its part of its business model.
To say GP is profitable for 3rd party games. Tells me that if gamepass only included 3rd party games, what they spend on bringing 3rd party titles means the subscription fees are paying for those games and they make a profit out of it. But MS stick their first party titles on their also, so how can they not include the cost for bringing those titles on GP. The cost of development should be included.
This would be like Netflix saying. That their platform is profitable, but we are not including the money we spend on creating our own content. Why?
Regardless of how you feel about Xbox or Gamepass, I think people really need to kill this topic until actual data comes in to suggest that gamepass is "NOT" profitable. There is really no indication of that at the moment. Even them excluding 1st party titles is simply accounting for the fact that 1st party development is not a gamepass exclusive cost, they still sell 1st party games at retail/steam/xboxstore and now playstation. Actual gamepass specific costs are the costs of running the services and the deals they strike with publishers.
Chris Dring updated his tweets on the topic.
https://x.com/Chris_Dring/status/1942469649423052857
"I was told that first-party games have their own P&L separate to Game Pass as they make money via other means. I felt this piece of internal accountancy might mean Game Pass is profitable, but it sure does put pressure on the margins for its internal games and POSSIBLY means some studios don’t make as much profit (or any profit at all).
But regardless to all that. sources have reached out to tell me that even when you include lost revenue associated with first-party party games (not just unit sales, but microtransactions), Game Pass is still profitable. So… that’s great!
(This was before Xbox started publishing fully on PS5. Studios can now make stronger margins on premium sales as a result of that move)!"
This doesn't help the discussion in his/GPs favour, if GP's profitability is dependent on costs of running the services and striking deals with publishers for games, is Dring saying that Game Pass strikes deals with MS own owned studios for the games too?
Let's say they paid Sandfall 500k for E33 for a year (no idea on real amounts), how much for Doom Dark Ages? Did they pay id or is MS internal accounting just writing the loss of sales off as loss of sales not Game Pass paying id Software some income?
If you are going to argue that the money spend on Studios is separate from the money spend on Game Pass, it should be shown that way, else all GP is doing is benefitting from another companies loss to make itself look better. It might be profitable but at the expense of id and other studios.
He's saying what ever cost is associated with the first party games doesn't negate the revenue it generates, this is from his sources. We do not how that cost is calculated, it could be an estimation of premium sales lost, it could a proportionate of development or a fee paid to the developer etc but in such a case we don't really have a starting argument for claiming GP to be unsustainable. Again, this conversation should be driven around the evidence, not what people want to believe.
When the evidence is before us that it's loosing money, lets discuss it.
