They don't need to.

Gamepass is MS's bandaid for crashing software and hardware sales. They can no longer compete with Sony on both and so this is their answer. Ironically, Gamepass as a strategy results in further declining hardware and software sales and so in a sense this is MS's last effort.

I largely see Gamepass as unsustainable for the AAA gaming industry for 2 reasons:

Whereas once the market decides on the revenue a game makes and its future budget, now the platform holder (MS) has all the power to decide how much to pay devs, which may entirely miss the market's price. This is a similar issue that Netflix faced: content creators realised they were being undervalued and so either pulled their content from Netflix and started their own streaming service. The market will always be far more efficient in directing revenue than any platform holder, as said paltform holder always has a margin to make profit or incur costs.

People often quote other streaming services, as a way to justify Gamepass, but fail to realise that the budget for a game are far far greater than TV, subscription service movies and music tracks. Its easy to have the model work when a relatively low amount of subs allows you to have enough revenue to pay the lower costs of production. AAA games have budgets comparable to Hollywood movies, and despite Netflix's 100 million subs, they do not have the money to buy Hollywood blockbusters onto their service. Same with gaming. Gamepass can't support AAA games that have budgets of $100-200 million.

There is also the issue of the platform holder wanting continuous content, which could compromise game design of SP games, turning them into a GaaS like Anthem, Destiny, and the upcoming Halo.

MS's plan is taking a loss till they get enough suscribers that it does become sustainable, however for third parties to place their biggest games on the service day 1, MS would need to pay $x0-100 million per game which would require a very large number of subs. Add to this that Gamepass is stuck on Xbox hardware which is declining, unable to be on Nintendo or Playstation and MS have a slow ticking time bomb: they need to reach their sub count before it becomes impossible to reach said sub count.

Playstation already brings in twice the revenue of MS's gaming division, and far bigger profits, all while getting the lionshare of third party sales and deals and having a model that allows them to carve out their own brandname in software. So that sub count MS needs to be sustainable will be twice as high in the case of Sony.

To top it all off, its a renting service. You never own the game.

They won't do day 1 exclusives for the foreseeable future, but I think they might implent a policy of adding all Sony published titles temporarily/permanently to PS Now within a set timespan from release. Like for example, that all must appear temporarily within 18months and be added permanently within 36months after release. The lower budget/less popular ones could appear much earlier on the service, while the AAA stuff ofcourse would take longer/max time.

Obviously that won't be 'good enough' for many people, including yourself, but I think this is a realistic way for Sony to handle this and a nice reassurence to the users of PS Now.

I would just be pleased to have PSnow expanded to where I live (New Zealand). Before improving the quality, maybe they could focus on rolling it out to all the countries where Playstation is popular. I am sure they would get a significant increase in numbers by doing just that.

I'm still unconvinced on the business value of gamepass. Sony only has to sell me two 1st party games over a 28 months period and they've made more profit from me than MS has from me getting gamepass.

At the very least the insane firesale Microsoft did must have completely scuppered their profits. I paid £76 for 28 months of Gamepass Ultimate. And remember that not all of that £76 is going to microsoft, it's going to third parties too. Now they're going to add cloud gaming on top of that?

Maybe at full price gamepass is an earner, but their bottom-line must be really hurting for everyone that took the insane offer of upgrading from gold to gamepass ultimate for free.

What should have cost me £307 (at £10.99/month) cost me just £76. Gamepass is directly hurting their profits from individuals like me.

You are missing the point tho. Subscribers to GamePass don't own the titles, so MS isn't exactly losing a game, you are renting it, and they will be renting their games to a lot of people that aren't normally interested into the games either.

GamePass is free marketing for the games. With the full retail versions, people can pay for it than return it a week later getting a full refund on the game. With GamePass, MS has already made their money. It also promotes their store front which is more profitable than paying for it at retail level.

GamePass also grants discounts to the full digital games as well. So if you enjoy playing Grounded, and wish to purchase the full game, sometimes they take 10% to 20% off the price if you are a member. 

MS's direction with GP is quite simple, instead of having 30% of your audience subscribing to Live, they are aiming to have most if not all members subscribe to GP. Now lets do the maths..

Example: $10 by 1 year is $120, times that by 20m Subscribers = 240m in just 1 year of service and that's only at 20m subs. 240m now times that by 3 years = 720m. That's how they make there money and that's not including digital purchases, there Live members and their retail sales. GamePass is a long term investment not a short term investment. It not only cuts out the middle men in Retail but it is a service that will continue to grow and with 14+ gaming studios placing all their games on the service, its not rocket science that it will be driven well.

They're losing a potential sale. I bought Forza Horizon 3 launch day, I bought Forza 7 launch day. That's already more money than I spent on getting gamepass ultimate till April 2022. Money that microsoft has to share with third parties.

At full price yeah it's a deal, with the insane free upgrade from gold they did, that's their bottom line hurt for a while from consumers who took advantage of it such as me.

But looking at the general £10.99/month price, I can see that it will probably be beneficial for microsoft from most consumers, me however? I will likely pay £10.99 and play through a game rather than the £39.99+ I would have paid for a digital copy before and cancel my sub until the next.

So it depends on the individual consumer, some gamepass might make MS more money than it would otherwise, but some consumers gamepass will actually result in less profit from those individuals.

I do agree that it depends on the customer. The thing for Xbox is they also offer great multiplayer options. Majority of their big hitter games like Halo and Gears etc offer long term replay-ability. Those games have massive followings with online so a rental service will either end up making those customers pay more in the long run or end up having them buy the game via the store and that's where the money is. If you solely just play single player games and are not a huge fan of owning your copies and online isn't a thing for you than that's where MS lose, but i feel that will be a minority of people. Remember you have new gamer's entering the industry, fresh going to college and massive debts to pay.. for them, paying for full price retail games isn't an option so a service where its a tiny chunk out of the wallet compared to a lofty $100 for just 2 games is expensive.

We don't know how much cut 3rd party devs take from the service, for all we know, it could be free as its free marketing, like playing a demo. Lets not forget, the service also rotates its games (Aside from 1st party games) so its only for like a few months one game will be their than the next it isn't, so it isn't as big of a deal than it sounds, however we don't know for sure, i wouldn't put it out of the realms of possibilities.

There's some really shoddy maths going on this thread. If you guys want to calculate the business I suggest you look at the financial reports and actually see the business model first.

Hopefully with amazing new games, that are also on disc

While I'm very happy with my PS4 Pro and the many great games that Sony has published and developed during this generation, I am starting to feel like they're gotten complacent in some ways. Not countering Gamepass and possibly XCloud are the most obvious. These are undeniably good offerings (Gamepass for sure, XCloud in theory) from XB that Sony hasn't even tried to compete with. The reality is that for most people, there's more value to be found in the XB ecosystem right now. Sony certainly has the best first party lineup, by a mile. Their VR offering is solid. But, those things have been the case for several years now. They've not done anything new. Their subscription service is not even in the same ballpark as GP, and they don't seem to have any interest in the play anywhere-type streaming. And that would be fine, if they were offering something else to excite me. But, they just don't seem to be doing anything new.

I think the best scenario for everyone is that XB is more competitive with Sony this gen, and that GP and XC are big successes. That'll push Sony forward, just as Sony's success has pushed XB forward over the last few years.