Update | Microsoft accused of misrepresenting Xbox Game Pass profits by ignoring game development costs

Christopher Dring has received word from another source claiming that Xbox Game Pass is indeed profitable. According to a new social media post, this is the case "even when you factor in the lost sales for its first-party teams". Microsoft does not include first-party development costs in its profit/loss calculations. However, according to the company, this expense is negated by income from DLC, micro-transactions, and premium sales on the Xbox Store and other platforms.

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Critics often wonder how Xbox Game Pass can be profitable, with all the expenses involved. Microsoft Gaming CEO Phil Spencer has claimed that the service provides sustainable profits. Christoper Dring of The Game Business may have exposed Microsoft's creative accounting. Apparently, the company doesn't consider the lost revenue that its studios suffer from putting Xbox games on Game Pass.

Dring explains that Microsoft includes expenses involved with third-party titles, marketing, and service charges. However, he suspects that after factoring in first-party development costs, Xbox Game Pass may be losing money.

Gamers are now accusing Phil Spencer of presenting a misleading picture of Game Pass financials. In October 2022, Spencer revealed that it's responsible for 15% of the company's total gaming revenue. While he expected Game Pass to remain profitable, those statements seem questionable.

In recent years, Microsoft has acquired a series of studios tasked with producing day-one Xbox Game Pass games. Unfortunately, many of those developers are recent victims of eliminated Microsoft jobs. Game-makers like The Initiative and its anticipated Perfect Dark are among the casualties. That prompted Raphael Colantonio, founder of the also shuttered Arcane Studios, to call Game Pass damaging to the industry.

There remain unknowns about the fiscal impacts of the Game Pass subscription model. Certain titles may benefit, while other Xbox games would generate more revenue by charging a standard fixed price. Regardless, critics believe Dring's revelation is evidence that the company made poor investments. Microsoft jobs at Xbox Game Studios may have been lost due to those choices, resulting in less selection for gamers.

Microsoft has not issued an official response to Dring's report. Even so, with the latest evidence, many followers anticipate even higher Game Pass subscription rates. Microsoft may also decide that spending its vast resources on the service is no longer worthwhile.