They didn't need to make an exclusivity counter offer, but rather a Gamepass offer on all 3 of those FF games. If the combined money Square would have made from day one multiplatform Xbox + PS + PC sales + late Switch 2 port sales + Xbox day one Gamepass money on all 3 games, exceeded the amount Sony would have made from the PS timed exclusivity deal payout and PS sales + late PC port sales (and possibly later Xbox/Switch 2 port sales), they obviously would have went the multiplat + day one Gamepass route over taking Sony's 3 game exclusivity deal money.

Sadly Xbox just seemed to let Square go after paying for that like 8 game Final Fantasy deal on the older FF titles. Maybe they weren't happy with the performance of those older FF titles on Gamepass, and indeed they didn't see huge download numbers on Gamepass, but they were old titles, obviously brand new FF games like FF7R and FF16 would do much better numbers of downloads on Gamepass than old games would.

The constant bitching about Japanese games skipping Xbox is getting old. I'm not sure what you guys expect. If anything, Xbox has surprisingly gotten better support from Japanese devs than they probably should. I mean, we are getting to the point we are complaining about Rise of Ronin, a game published by Sony, is skipping Xbox 🙄. We are really scrapping the bottom of the barrel on this one.

I mean, Team Ninja was once deep in Xbox's deck of cards, games like DoA 3 and 4, DoA Xtreme 1 and 2, Ninja Gaiden 1 and 2 were all either full Xbox exclusives or timed Xbox exclusives. Between Mattrick and Spencer, Xbox has managed to not only lose Team Ninja as a maker of Xbox exclusives, but have now allowed 3 Team Ninja games to not release on Xbox at all, Nioh 1, Nioh 2, and Rise of the Ronin. Make of that what you will.

The fact is Xbox has managed to systematically lose almost all of the progress that they once made in Japan on OG Xbox and 360. We used to regularly see JP exclusives and timed exclusives on Xbox, we haven't had one in years, except for HiFi Rush which is now timed exclusive instead of full exclusive. Phil made a bit of headway in getting more JP multiplat releases for a few years, mostly after Gamepass released in 2017, but even that is now slipping, just yesterday we lost Bandai's Gundam series on Xbox which had previously released 2 games on Xbox, and it isn't the first JP series which had seen Xbox releases at some point between 2017-2022 that is now once again skipping Xbox.

Empire in shambles RIP. FF 7 REbirth looks amazing though. Glad I got me a PS5

I want FF7R to come to Xbox just to see nobody buy it, bunch of fraudsters smh.

The past is the past but even still, Team Ninja today is not Team Ninja from the past.  Sony have worked hard to secure their homeland and squeeze MS out and as you even Stated, Phil is just tired of spending a huge sum of money trying to get support for little gain.  Every time you spend they want you to spend even more to the point where all you are doing is spending just to get junk on your system.  So I am sure Phil figured out that investing in Japan that way is a no win situation.  I rather MS go to new markets and build relationships and tell every Japanese developer who do not want to publish on Xbox to F themselves.  Personally, I really feel that games coming from Japan is getting stagnate.  They all feel and play the same.

While we have lost FF which is a massive blow. We have gained PS exclusives like Yakuza and Persona. As well as Neptunia and smaller games as well. And more recently have gotten SMT. Still feel like more positive than negative. Minus exclusives, Xbox probably in its best position with Japanese games, despite the big FF skips and misc ones. 

Tales of is back as well. 

There is definitive progress being just with Square Enix. Just this year alone, Xbox fans have got FFXIV and Visions of Mana for the first time in the franchises history and even featured in the Developer Direct with Octopath Traveler 2 releasing on Xbox soon. There is still plenty of Japanese games to play. You just have to PLAY THEM!

Hell, throw in Xbox fans getting their first ever Vanillaware game in just a couple of weeks! I don't see anyone here talking about it.