In context: A devastating round of layoffs has heightened scrutiny of Microsoft’s gaming business, particularly Game Pass. While some suspect the subscription service is too good to be true, Microsoft asserts that it is profitable, although the claim may depend on how the company calculates its numbers.

Sources have told The Game Business and Windows Central over the past few months that Microsoft’s Game Pass subscription service remains in the black. The information counters claims from developers like Arkane that the business model is unsustainable.

After Microsoft laid off 9,000 employees across Xbox and other divisions, Raphaël Colantonio, founder of subsidiary Arkane Studios, directed most of the blame toward Game Pass. He alleged that Microsoft is currently subsidizing an unsustainable subscription model, hoping that subscriber growth will eventually pay off.

Ok, I need to correct/clarify something. First, 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.

Over 18 months ago, I checked with Xbox about what’s included in the Game Pass P&L. Basically, I…

– Christopher Dring (@Chris_Dring) July 8, 2025

Colantonio believes that the model is incompatible with traditional game sales, and Baldur’s Gate 3 developer Larian previously claimed that Game Pass cannibalizes sales. However, informed parties have recently said that the subscription service remains profitable even after accounting for potential lost sales.

Microsoft calculates Game Pass’s profitability based on fees to third-party developers, marketing costs, service costs, and potential revenue from customers who might have purchased the included games up front. Controversially, however, the company does not include the development costs of first-party titles.

Although Microsoft-published games like Forza, Avowed, Doom, Diablo, and Call of Duty are available on Game Pass from launch, they aren’t developed exclusively for the service. As these titles also receive revenue from traditional sales, DLC, and microtransactions, calculating their profitability separately makes more sense.

May 2025 Top 20 Best-Selling Premium Games – U.S. (Dollar Sales, Physical and Digital from digital data sharing publishers, excludes add-on content)

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– Mat Piscatella (@matpiscatella.bsky.social) July 9, 2025 at 9:00 AM

Ultimately, fiscal performance might not explain the layoffs, as the Xbox sector has posted continued profits and growing revenue in recent quarters. Game Pass subscriptions also rose substantially in early 2025.

Moreover, Microsoft-published titles ranked among the top sellers in the United States in May 2025. Circana lists Call of Duty: Black Ops 6, The Elder Scrolls IV: Oblivion Remastered, Forza Horizon 5, and Doom: The Dark Ages in fifth through second place. Only Bandai Namco’s Elden Ring: Nightreign outsold them.

Many have connected the layoffs to Microsoft’s early promise to invest $80 billion in AI data centers throughout the fiscal year, eclipsing the Xbox division’s profits and even the company’s earlier $69 billion acquisition of Call of Duty developer Activision Blizzard. Colantonio disputes this, warning that Microsoft might degrade the quality of Game Pass and increase prices if it dominates the market.