Is Game Pass hurting Xbox Studios? Profit debate heats up after major job cuts

Since Xbox decided to ax thousands of jobs under its Xbox Game Studios umbrella, a debate has emerged online regarding the profitability of Xbox Game Pass and whether or not it's beneficial to companies and studios that support it.

In the past, Xbox has claimed that Game Pass has remained a profitable aspect of the Xbox business, but that would depend on how that profitability was measured. According to Chris Dring, The Game Business Editor-in-Chief, who responded to our own Derek Strickland on X, Xbox considers Game Pass profitable because it doesn't take into account the costs associated with developing first-party games, such as Starfield.

Dring suggests that if those development costs were taken into account, the profitability of Game Pass could be very different. In the social media post, Dring writes, "Costs associated with the Game Pass business is fees paid to third-parties, marketing, service costs... and by that measure, it's profitable." Adding, "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 Game Business Editor goes on to say that he has heard this information directly from Xbox, but didn't provide any factual numbers or statements from the company regarding the profitability of Game Pass. Despite the lack of evidence, the claims may, at the very least, be true on a surface level, as the development costs for a first-party title, such as Starfield, would be as much as $400 million.

Starfield, being Bethesda's most recently released RPG, released on Game Pass day one and following the launch, Bethesda touted the game attracted as many as 15 million players. What is interesting here is the wording Bethesda used, "15 million players," and not copies sold. The question is how many of those 15 million players actually bought Starfield versus paying $10 and playing it via Game Pass. Moreover, if Starfield released and wasn't available on Game Pass day one, would Bethesda be able to tout the same number of players?

Dring has since taken to his personal X account to further clarify the conversation around this topic and some of his past statements, with The Game Business editor in chief writing, "Ok, I need to correct/clarify something. First, Xbox Game Pass is profitable, even when you factor in the lost sales for its first-party teams, sources who would know have told me."

"Over 18 months ago, I checked with Xbox about what's included in the Game Pass P&L. Basically, I was looking to see if Game Pass's costs factor in the impact to unit sales of their internal studios. 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).

That doesn't actually matter in real terms, but seeing the impact Game Pass was having on first-party games, and the amount of money Xbox was spending on studios, I wanted to check if the full impact of the service was being considered in their 'Game Pass is profitable' line.

(This was before Xbox started publishing fully on PS5. Studios can now make stronger margins on premium sales as a result of that move)

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!" - wrote Dring