Microsoft reportedly doesn't include lost first-party game sales when calculating Xbox Game Pass profits, but the subscription service is apparently earning money regardless

For a number of years now, it's been claimed that Xbox Game Pass is profitable for Microsoft, but it turns out that there's an interesting caveat to this, as Xbox isn't counting revenue lost from first-party games. However, even when you do account for this, the Game Pass subscription service is reportedly still earning money.

This first claim on the subject surfaced a couple of days ago, when The Game Business co-founder Christopher Dring took to Twitter explaining that costs for Game Pass include "fees paid to third-parties, marketing, [and] service costs." However, apparently, "what they don't count is the lost revenue that Xbox's first-party studios are seeing as a result of the service."

Furthermore, he noted: "I asked for clarification on the 'Game Pass is profitable' claim, and was told no first-party costs are included."

While this initially appeared to throw into question the idea that Game Pass could still be profitable at all with hefty first-party costs accounted for, Dring now clarifies that, according to his sources, this isn't a concern. "Xbox Game Pass is profitable, even when you factor in the lost sales for its first-party teams, sources who would know have told me," he says.

Furthermore, he explains that "over 18 months ago, I checked with Xbox about what’s included in the Game Pass [profits and losses]. Basically, I was looking to see if Game Pass' costs factor in the impact to unit sales of their internal studios."

At this point, Dring says, he was informed that "first-party games have their own [profits and losses] separate to Game Pass as they make money via other means," such as DLC and microtransactions. He points out that this "sure does put pressure on the margins for its internal games," and given this impact, he "wanted to check if the full impact of the service was being considered in their 'Game Pass is profitable' line."

However, he claims, he's now been informed by sources that "even when you include lost revenue associated with first-party party games (not just unit sales, but microtransactions), Game Pass is still profitable. So… that's great!"

Dring also points out that when he asked Xbox about this, it was before the company began "publishing fully on PS5" – something he argues can help studios out when it comes to premium sales. After all, certain Xbox games might be on PS5, but PS5 users can't subscribe to Game Pass to play them – they have to buy those games individually.

Dishonored and Prey studio founder thinks Xbox Game Pass "is an unsustainable model" that's been "damaging the industry for a decade."