Opinion: Game Pass tier with first-party games won't fix the subscription's biggest problem

The Game Pass model has issues, and Microsoft is trying to fix the service...unfortunately, some of these plans may not actually work.

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Xbox's new CEO Asha Sharma wants to lower the price of Game Pass. The service is too expensive in the short term, Sharma says, and too rigid and inflexible for the long term. She's right; the service's myriad problems have seemingly compounded over time, facilitating the knee-jerk price hike response, what appears to be a dead-end for the service. Regardless of how much value is offered, if Game Pass gets too expensive, people will simply stop paying.

New reports say that Microsoft could introduce a lower-cost Game Pass tier that only has first-party games. A dataminer believes they have uncovered evidence of this tier, which could be codenamed Triton, named after the Greek god of the sea (possibly purely coincidental). It's a great bet for gamers, but for Microsoft, this tier won't actually do much to solve the subscription's biggest issue: Immediate frontline devaluation of video game software.

By launching $70 games in a $30 service, Microsoft has effectively reduced the price of its games by 57%, simultaneously, on two platforms: Xbox, which represents the highest potential for profit, and PC, an arena where Microsoft is woefully behind competitors like Valve. Launching big, high-profile AAA games onto Game Pass means that users can simply pay for a month of subscription rather than buying the game outright.

Sure, you don't get to keep the game, but in today's fast-moving industry, there are now plenty of opportunities for quick game experiences. Game Pass attempts to capitalize on this quick access through its own combination of value propositions and Xbox Cloud Gaming access.

This makes the subscription a long-term bet. Game Pass devalues software on a front-line basis, meaning gamers will pay less to immediately access the games than they would if they bought them. This devaluation is actually quite substantial, because as it stands, gamers can buy two months of Xbox Game Pass Ultimate for $60 and play a game for 60 days at a cheaper rate than they could by actually purchasing the game.

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These business dynamics have skewed Microsoft's model for gaming, which has affected all facets of Xbox, simply because software and services are the only way that Xbox makes any profit.

Devaluing software in this way has led to a devaluation of hardware and consoles in general simply by generating less theoretical upfront money and betting on longer-term revenues to help fill in the gap. If that bet doesn't work out, Microsoft has invested in a kind of cyclic downturn of its software value, sending mixed messages to both consumers and the people that are actually making the games.

The value skew was in favor of consumers from the start. For years, gamers could spend $15 (now $30) to access hundreds of games, many of which were singleplayer titles. That makes sense for catalog games; treating Game Pass as a side repository seems to be the best bet because those games have already come and gone.

But for new games, Game Pass immediately impacts the front-line value on Microsoft's most-monetized platforms (Xbox and PC). Launching a game into a lower-cost subscription creates a value skew that users have benefitted from, likely at the cost of Microsoft's own business.

Microsoft is no stranger in subsidizing parts of its business, and Xbox in particular has had subsidized hardware from the start; that is to say that no Xbox console has ever been sold at a profit, and the hardware was produced at a loss, with software and services making up the difference.

But Xbox wasn't growing enough for Microsoft's liking, and the higher-margin Game Pass subscription was created; it's technically higher-margin because there's no distribution or shipping costs associated with the software, and it all launches directly into Microsoft's own carefully-curated frameworks and storefront.

That profitability has been stressed over recent years, leading to multiple price hikes. Microsoft even tried to start selling its new games at $80 to help improve these margins, leading to a quick reversal when fans revolted against the decision.

This indicates that Microsoft is no longer willing to keep subsidizing Game Pass, or taking a such a steep front-end loss on the entertainment products that release into the service. Raising prices will deter users, but Microsoft has telegraphed that it can't keep operating like this either.

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Multiple first-hand accounts from people close to Xbox have criticized the Game Pass business model, including Arkane's Raphael Colantonio, who said that Game Pass is "unsustainable and damages the industry," as well as Bethesda's Pete Hines, who said that the service is worthless if Microsoft can't reduce the frictional tension that it's creating.

The latter example is particularly interesting because it's possible that Xbox's chosen business model has actually significantly affected Starfield's upfront sales value potential by 1) launching it into Xbox Game Pass, which has been shown to "cannibalize" sales, and 2) withholding a PlayStation launch to years after release.

It also didn't help that the game launched to middling reception--a sentiment that has carried forward with the PlayStation release. So it's not all the responsibility of the platform-holder, and developers still have to make quality games in order to sell many copies.

Analysts estimate that Starfield could have made just $300 million combined on all platforms since launching in 2023, and we have to wonder how much the game could have made if it had launched as a full-priced $70 game instead of a Game Pass Ultimate title. Bethesda's most successful game of all time, Skyrim, managed to make $650 million in its first 30 days on the market...and that's just with the first initial launch. Skyrim has been re-released 9 times on various platforms.

This may not be the only game that the day and date Game Pass model has affected. It's possible that other games have underperformed as a result of this volatile mix of sales-reducing impacts that the service creates, possibly including Obsidian's The Outer Worlds 2.

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In Q2, CFO Amy Hood said that Microsoft recorded an impairment charge at Xbox due to the underperformance of games content and services.

According to Hood, Xbox's holiday 2025 content and services results were "well below expectations," with Xbox making ~$5.96 billion in revenue, down over $600 million from last year.

The write-down impairment charge was believed to be the result of multiple cancelled games, including a new MMORPG project from Elder Scrolls Online developer ZeniMax Online, however there were reports from Bloomberg's Jason Schreier that said that one of Xbox's seasonal holiday games, The Outer Worlds 2, did not meet the company's expectations.

The day and date model is responsible for this sales impact adjustment, which effectively sees games being converted from upfront hits into more long-term engagement generators that, hopefully, will sustain the service.

Launching new AAA singleplayer software into Xbox Game Pass day and date is great for consumers, but it may not be great for Xbox or the people actually making the games. That value skew in favor of consumers now seems to be penduluming the other way as Microsoft staves off rising costs, facilitating heavily-disruptive layoffs that often rip apart tightly-knit creative and specialized teams who are working on heavily sophisticated software.

All while Microsoft is experimenting with this business model, competition is heating up, and gaming is moving faster than it ever has.

The rest of the video games market is still playing by the status quo rules, where success can be dictated in part by big sales numbers instead of raw subscriptions.

Microsoft's mistake seems to be willfully converting its treasure trove of billion-dollar IPs (the company owns 20x franchises that have made over $1 billion, with Call of Duty alone making 35x that) into value bets for a long-term subscription that could end up failing even if Microsoft did everything just right.

More than halving the entry price to its games undoubtedly has had an effect on the business. It was estimated that Call of Duty made $300 million less in sales throughout 2025 than it previously had, showing that game sales revenues are indeed being eaten up by the service. Microsoft hopes that these losses are temporary, or that they represent a conversion ratio that sees users trading long-term permanence for short-term, cheaper access, which is ironic and somewhat antithetical to the habits that the company is trying to teach the consumer in the first place.

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The rest of the industry hasn't slowed down, nor will it; if anything, third-party developers are squeezing out more returns from Game Pass with strategic deals, tacking on tens of millions of dollars in supplemental revenues to their business.

CD Projekt, who has used Game Pass effectively enough to help extract a 60% profit margin, has said that titles included on subscription services will sell less copies.

The reality is that Game Pass may now be too slow for Microsoft, at least in its current iteration, and loading up more frontline value for consumers is beneficial but not necessarily the right move for the company. Treating Game Pass as a kind of catalog for already-released games may be a better move because Xbox can still extract value from games long after launch while preserving the value of their marquee games.

As we know, big marquee games typically live or die based on launch sales.

That's why the entire stock value of video game companies can either rise, as Nintendo's did with its megaton launch of Pokopia, or fall, as Pearl Abyss's stock has following sales metrics that could disappoint investors.

Microsoft has attempted to avoid the pressure of this window by trying to adapt its business to its own individualized market, eg its own self-sustained storefront system driven by a carefully-adjusted business model. The idea is to avoid this kind of risk on its own store by launching games into Game Pass, making it a kind of no-brainer solution for anyone who owns an Xbox console, but meanwhile all the other games will play by the status quo rules where these narrow launch windows can make or break a company.

Microsoft also attempted to kind of offsource this risk by breaking exclusivity for good and all, and launching some products simultaneously on other platforms in a bid to squeeze out sales while also monetizing its userbase in a more profit-friendly, but overall reduced, rate.

So...what should Microsoft do? How can they "fix" Game Pass?

Based on everything we've outlined here, the basic and most immediate change would be two-fold:

1) No longer release big first-party AAA games into Game Pass at launch, instead opting for a catalog approach, and/or;

2) Stop releasing singleplayer games into Game Pass so that Microsoft can better maximize the value of games that typically don't have any other kind of meaningful monetization outside of full game sales

Microsoft needs to align Game Pass to reflect the strengths of its studios and content first and foremost, and reduce any and all friction that comes with doing business on a first-party level.

Developers should not have to worry about their game being kneecapped, sales-wise, before it's even out on the market, especially on platforms that Microsoft owns and operates.

As it stands, Game Pass has created another unique competitive playground in which Microsoft's own first-party studios are competing on uneven footing; in an online subscription service, games like Call of Duty, for example, have a significant advantage over static singleplayer games like The Outer Worlds.

All of this has not been a total loss for Microsoft--the opposite is true. We've known that Game Pass is a billion-dollar subscription for some time now, ever since I found that Game Pass made $2.9 billion in annual revenue via Brazilian regulatory filings.

Those earnings have jumped significantly thanks to the inclusion of Call of Duty and other Activision games; Microsoft CEO Satya Nadella says that Game Pass made nearly $5 billion in revenue throughout FY25, and former Xbox president Sarah Bond had also previously reiterated that Game Pass is a profitable service.

But these high revenues and profits may be short-lived if these operations continue producing these downturn effects on the business, and it's possible that the frontline devaluation of games software that Game Pass current promotes could lead to more layoffs, project cancellations, and perhaps even studio closures as game-makers are forced to think about another dimension of unpredictability at Xbox.

The dynamics of Game Pass are even somewhat confusing to potential big business partners like Netflix, with co-CEO Greg Peters recently saying that Microsoft is "still figuring out how to make Game Pass work for Xbox."

The market is already volatile and unpredictable enough, and as it stands, it seems like Microsoft may be inviting more risk into its business with the current Game Pass model.

In the past, Microsoft seemed to be doing what's best for Game Pass. Now with a new CEO at the helm, Microsoft seems to want to change that by doing what's best for Xbox.

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There's another potential fix, one that could help keep things going as they are and maybe buy more time for Microsoft to figure out something new.

That fix is indirect monetization, as discussed by games expert Joost van Dreunen. This effectively means some sort of advertising within Xbox, and Microsoft themselves have all the tools and tech available, having purchased remnants of Xandr ad tech as well as King's lucrative ad tech platform as part of the ABK buyout.

It's likely that we'll see this employed in a free, ad-supported version of Xbox Cloud Gaming, however it remains unclear how ads, or other forms of indirect monetization, could appear in the wider Xbox ecosystem.

Following a CES 2025 presentation, I had also discovered that Microsoft believes advertisements are the "key to reaching every gamer on the planet."

In the current state, ads within dedicated gaming are usually relegated to either in-game ads in sports games or on-screen ads in console startup UI screens, but these dynamics are likely to change over time, especially as consumers become more tolerant to digital ads at the behest of lower-cost content streaming subscriptions.