As a follow-up to his previous social media posts about the profitability of Microsoft’s Game Pass subscription service, The Game Business co-founder and editor-in-chief Christopher Dring has provided some clarification on the matter. In a new post, Dring has stated that, according to sources from Xbox, Game Pass is profitable even when “lost” sales from first-party studios’ games being on the service are accounted for.
Microsoft reportedly has separate P&Ls (profit and loss statement) for its first-party releases than for Game Pass since these games tend to have other means of making revenue. For example, aside from game sales, several modern releases feature microtransactions, expansion packs, and battle passes through which they would make money.
“Over 18 months ago, I checked with Xbox about what’s included in the Game Pass P&L,” explained Dring. “Basically, I was looking to see if Game Pass’s costs factor in the impact on unit sales of their internal studios. I was told that first-party games have their own P&L separate from 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).”
It is worth noting that these P&Ls also didn’t take into account the fact that Microsoft has started selling its games on other platforms, like PS5. With separate sales from releases on other platforms, first-party studios make even more money for Microsoft, which, once again, is kept track of separately from the money spent on and made from Game Pass.
“But regardless of 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,” wrote Dring. “So… that’s great!”
Dring’s statement was a follow-up to previously confirming that Microsoft doesn’t usually consider the “lost” revenue when taking Game Pass financials into account.
“So costs associated with the Game Pass business is fees paid to third-parties, marketing, service costs… and by that measure, it’s profitable,” posted 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.”
In this previous statement, Dring noted that first-party games are likely not paid to bring their titles to Game Pass in the same way that third-party publishers often are. This would likely otherwise play a big role in making the service unprofitable since first-party Xbox titles are released on day one for Game Pass.
Earlier this year, Microsoft Gaming CEO Phil Spencer had spoken about how Game Pass as a service makes more sense for the type of gamer that tends to play several titles, rather than those that only play one or two games a year.
