I bet digital sales are high on Xbox not because digital is dominate on Xbox, but Gamepass games have like a 20% discount if you want to buy it. So in the U.K. with their outrageous prices might just be buying digital.

I think the hate is entertaining and it's been interesting to watch it evolve over the last couple years.

First it was that we would never see any big third party games on it, but then those came.
Then all the MS games would be episodic, but that is yet to happen. Only thing episodic was Tell Me Why and that developer was already doing episodic before GamePass.
Then it was MS would only do small A/AA games, yet we got stuff like Gears 5 and Horizon.
Then it was MS would stop caring about quality and only release trash on it. Yet it's full of amazing games.
Then it was that MS would jack the price way up, and yet it's stayed $10/15 even with EA Play added. They've also started adding some big third party games day one (Outriders, Show 21).

Now the goal posts have shifted again and it's bad for retailers, everyone please think of the GameStop's and Walmart's of the world.

Even without GamePass, digital are overtaking physical anyway. it was in 2019 or 2020, can't remember which, that Sony confirmed that digital sales had reached 50% and was continuing to grow.

The cheaper 400$ PS5 all-digital will likely outsell the 500$ regular PS5 by the end of the gen. The casuals will flock to the digital. Right now, the hardcore are preferring the disc one, but by the end of the gen, it will be the opposite. I will not be surprised at all, if Sony reports physical game sales to be around 20% or less.

Retail sales aren't the #1 metric that is used anymore. It's all about the active number of users/subscribers. In the US, Marvel's Avengers was the best-selling game in September 2020, and 11th overall in 2020. Yet today, just a few months into 2021, it is a ghost town and considered a massive financial flop for Square Enix. Outriders being in GamePass ensures that there will always be steady stream of new users to flock into the game, and a healthy playerbase, which is what matters. I see more people talking about Outriders than Marvel's Avengers at launch, despite one being a new IP and the other one of the biggest IP in entertainment right now, and I think GamePass is definitively helping.

Maybe its not even gamepass....

Resident Evil Village UK sales split:
"49% of its sales were on PS5, 31% on PS4 and 20% on Xbox." - gamesindustry.biz

https://www.gamesindustry.biz/articles/2021-05-10-resident-evil-village-is-the-third-biggest-ps5-launch-so-far-uk-boxed-charts

Hmmm it seems like the majority of the Xbox fanbase in the UK doesn't seem to care for physical boxed games anymore, regardless of Gamepass or not. 

Or the Xbox users, just dont buy as many games? it makes sense, why bother when you get free games to play from gamepass?

thats low sales all round for xbox sure many will just play on gamepass but in no way is that an equalizer for the publisher. 

Exactly right. I've heard this argument about retail not selling products which will come to compete with themselves far too often. Not only - as you point out - is it contradicted by their current practices, but it also presumes a level of strategic power that retailers simply don't have.

Even if they believed they could actually influence the install base (which given how many routes there are to buy a console, is highly dubitable), it would have to be by enough for it to be worth sacrificing the margin on the console, and the margin on all the extras you could have sold the guy coming in buying one, (a charger, a headset, an extra controller etc.), and explicitly send him to another retailer who does sell the cheaper console he wants. 

So yeah. NO. 

That's exactly my situation. I didn't buy a single game since I subscribed to play Gears 5 on 2019. I would've bought Cyberpunk if it didn't have bugs. Still waiting for next gen update now.

I went from buying 1-2 games per month to 1-2 games per year due to Gamepass. 

Its supports the backlog problem as well. We seen the stories here all to often. "I got such a big backlog i can wait to get this game when its discounted". Thanks to gamepass they can indefinitely wait as different games keep getting added and they know after a certain time the game will just end up in gamepass with whatever extra content launches later.

Xbox users are in fact desincentivized to buy games. Third party publishers and devs will take notice. Just look at square enix. No wonder they are trying to buy so many studios.