I think if Xbox has a lot of franchises capable of selling 30M+ copies per game, then gamepass would be less profitable for them than the traditional model of selling games. But the reality is they don't have such games, and their AAA games like Indiana Jones would likely sell about 1M copies, which means they don't have any posibilities to follow any other model than Gamepass for their games.

Hardly anyone has 30m+ franchises without relying on bundles / heavy discounts. Cod, GTA, Sports games are pretty much it unless we count F2P games.

Nintendo has tons of games that sell 30M at full price, Mario Kart, Super Mario, Zelda, Smash, Animal Crossing. Had Xbox had those kind of sales, gamepass would just be throwing money away. But the reality is gamepass is their only option now. If you don't make big budget games that tens of millions of people are willing to pay full price for, the best other option you have is to get them to subscribe instead.

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.