So, recently an Arkane founder put doubt on the profitability of Gamepass. That was based on nothing, just speculation. Still it got the reounds. Industry insider Christopher Dring looked for more reliable data and got back with the receipts:

https://x.com/Chris_Dring/status/1942469649423052857

https://www.vgchartz.com/article/465157/microsoft-says-game-pass-is-profitable-claims-does-not-include-first-party-costs/

I get that Xbox studio's will have their own Profit & Loss. That was to be expected. But the big question is if (part of) the revenue they are making is an intercompany sell/buy with Gamepass, that I assume will have its own P&L entry. And how that reflects on the P&L of Gamepass. The Twitter message doesn't address that. It only mentions potential loss of sale. 

All of this makes sense but people are not thinking very hard about the topic.

Based off old and approximate figures MS spends about 1billion on third party GP content. They make around a minimum of 3billion annually from subs. That would have to be 2billion they're spending a year on 1st party releases for it to eat all their GP revenue. That is like 4 COD size AAA games+ marketing campaigns with no alternative income (retail/Steam/xbox sales/playstation etc).

Outside of COD which makes all it's money back easily at retail and digital stores, the biggest budget games MS has had on gamepass has been the likes Doom, Indiana Jones and Awowed etc. And there's typically around 4 of these 1st party titles per year. Even assuming they don't have any alternative sales revenue, these games collective budgets are likely reaching 1billion, not 2...

It's safe to assume GP makes perfect financial sense for MS, but it's where it comes to the aquisitions they made with Activision and such that MS really has to depend on playstation and other platforms to get their return back.

Read the link in the OP. That is Chris Dring clarifying what he originally wrote which created that article in the first place. 

Where does the 3billion annually come from? Did MS comment on how much revenue Gamepass makes? I must have missed it.

If it's based on math, it's a monthly service, I don't think we could conclude that everyone is doing a yearly subscription. Take a month if there is a game you like, cancel the next one. Also the service cost money to run eventhough prop not 1 billion or something on overhead, but it's not zero. 

Also it's never a good idea to use US$ pricing as standard to look at the world. Regional pricing exists and can be very different. A quick Google search gave me this as example:

"In Japan, Xbox Game Pass Core costs ¥842.00 (approximately $5.76 USD) monthly, or ¥2,138.00 (approximately $14.63 USD) quarterly. Xbox Game Pass Ultimate is ¥1,450.00 (approximately $9.94 USD) monthly"

And these Japan prices for example include VAT, so not all revenue.

It's simple math based on the subscriber number.

But you are off here with the monthly subs. The number given is 34M subscribers, not 34M active in a year. If in January someone subscribe and cancels in February, someone else subscribes then is needed to keep the number at 34M. So it doesn't matter that people only subscribe monthly, because that is fluctuation that leads to the same number overall. And anyways, how much people do you think go the effort with monthly resubscribing? Some people claim that, but even with other services like Netflix it isn't actually that impactful. People are lazy, if they subscribe they stay until it has not enough value.

These are loose approximations from sub data which even when lowballed, give a sound foundation for some profit margins. Assigning the cost of 1st party games exclusively to gamepass as if they make no other revenue doesn't make sense but I did it anyway to reinforce how unlikely it is that gamepass makes a loss. We will never get straight numbers from Xbox so we have to use our powers of deduction. Chris Dring who is gave us the data that MS does not include 1st party loss in sales has clarified himself, that people who would know are suggesting to him that it is still profitable even when accounting for that.

I think we if we start to suggest otherwise we should have some sort of meaningful starting point for making that argument.

Microsoft can easily sustain GamePass with their current model (a platform holder that doubles as a 3rd party publisher supporting mobile phones, PC, Playstation, and soon Switch 2). But GamePass's net impact can't be determined/extrapolated without knowing the annual software sales on Xbox in revenue and units.

I am not suggesting Gamepass is not profitable, but I'd like to understand the accounting behind it more. Or in this case the logic deduction.

Xbox division has 20.000+ employees. Given the type of industry I could guess an easy average $100.000+ cost per FTE (not only salary, also other cost associated with employment). That alone would be $2B at the minimum. Not including any outsourcing or contracting work. Not including any additional cost like advertising or registration.

Obviously Gamepass is not the only means of revenue for Xbox, but still it would be interesting the breakdown how much will be associated to it. Clearly Gamepass alone would never be able to support Xbox.