Xbox Game Pass: From Dream Deal to Business Model Disaster

The Xbox brand is nearly 24 years old, and honestly, this generation has been rough. Last gen was a 50/50 brawl with Sony. This time, it’s closer to 70/30 in PlayStation’s favour. We’ve seen layoffs, studio closures, and cancelled projects all year. Microsoft even tried to push $80 games. You’d think after spending a fortune buying studios and hyping the Series X and Series S, those consoles would be flying off shelves. They aren’t. Hardware sales are miles behind.

So Microsoft pivoted. If the box won’t sell, stick the games on your rival’s box. That’s why Xbox exclusives are creeping onto PlayStation. Game Pass was supposed to be the big weapon — a bet on streaming and subscriptions as the future. Now it’s costing a fortune. Not just for us, but for Microsoft itself. The shift is obvious in hindsight: they’re slowly becoming a game publisher that wants Game Pass on everyone else’s hardware. A long-term shift most of us, including me, didn’t notice until now.

Microsoft likes to brag about making billions in revenue and turning a profit, but traditionally, the console model is simple: sell hardware at a loss and make it back on software sales and cuts of third-party games. Looking at those figures now, that pie is clearly shrinking. Xbox has basically given up fighting the hardware war. Compare this to Sony’s PS3 era mistakes — they took hits but still pushed back. Different time, but at least there was some fight.

And every game you sell on your rival’s platform? They get a cut. Game Pass, the so-called “Netflix for games,” was supposed to replace that lost revenue. The promise was simple: day-one exclusives for a monthly fee. But running a service like that bleeds money. It’s not just servers — you need ownership rights, licensing, and incentives for third parties. It was meant to be the equaliser. It wasn’t.

Microsoft’s long-term bet was subscriptions. And hey, people subscribe to razors and toilet roll now, so the logic isn’t insane. But Xbox subscriptions didn’t grow fast enough to cover the costs. The gamble to stick Call of Duty on Game Pass blew up in their face. One of the highest-margin franchises in gaming, and they torched revenue on it. Expectations didn’t meet reality. The promise smashed into spreadsheets. Short-term panic beat long-term vision.

Call of Duty: Black Ops 6 is the perfect example of how bad it is. The Game Pass business model doesn’t work when you throw a mega-franchise like that into it.

The $300 Million Gamble That Backfired

Microsoft took a massive swing putting Call of Duty on Game Pass day one. And it failed. For gamers, it was a no-brainer — if you buy CoD every year, Game Pass saves you money instantly.

A recent report claims Microsoft lost over $300 million in potential Black Ops 6 sales because people just played it on Game Pass instead of buying. That figure came from Microsoft internally, so they know exactly how bad the cannibalisation was.

The real insult? 82% of the full-price copies sold were on PlayStation. Sony takes a cut from every copy and every microtransaction. That eats into Microsoft’s margins even more. And this is exactly why Game Pass isn’t on PlayStation — Sony’s 30% platform fee would nuke the already thin margins.

Think about that: Xbox owns the franchise, but Sony is making bank from selling it while Xbox undermines itself.

Here’s what makes the numbers terrifying. If the missing $300 million represents the 18% of players who would’ve bought on Xbox/PC, total retail sales for Black Ops 6 were roughly $1.2 to $1.3 billion. That’s me assuming a few things, but it gives scale. The game likely cost $450–700 million to develop and market. You can see how badly Game Pass chewed into revenue. They swapped a pile of premium sales for a slower, lower-margin subscription trickle.

Somebody higher up thought that was a clever play. If I were in charge, I wouldn’t be raising prices — I’d be firing whoever pitched that plan. And to be clear, I still think subscriptions are part of gaming’s future, but not like this. An obvious solution cut call of duty game day one games. Instead, we got price hikes and tier changes. 

The Fallout: Price Hikes and Tier Shenanigans

The writing was on the wall. Game Pass has always had a giant question mark hanging over its profitability, because you’re asking studios to give up sales and Microsoft to take hits on its own games. They claim it is now making a profit, but I’m not so sure about that. 

Some people are screaming corporate greed, but this isn’t that. It’s a failed pricing model crashing into reality. They had to raise prices and change things because the day-one promise was bleeding them dry.

Here are the new tiers:

And notice: no more yearly discount. You either pay monthly or get lost.

Also, Call of Duty is now excluded from Ultimate on day one. Maybe older titles remain, but the big new CoD games? Gone. My guess is that most people were on Premium, so Microsoft decided Ultimate could take the hit. Also a hint how gamers view the service, libary of games. Not really playing day one games. They’ve added a bit more value, but nowhere near enough to justify that price leap. Comes on the back of another price hike just 14 months ago. Now have a 50% hike in price. 

So why the hike? Because you have to pay developers to skip sales and join the service. And you have to pay back your own balance sheet. You lose $300 million on one game? You claw it back by charging loyal subscribers more. And clearly they expected cancellations — the Game Pass support site crashed when people started bailing.

This is a colossal sign that the Xbox model failed. Sony and Nintendo stuck to the old-fashioned, high-margin strategy: sell your big games outright. Xbox tried to out-innovate them and burned cash doing it. Game Pass is no longer the “best deal in gaming” because the cost of their ambition finally hit the wall.

Now Xbox is clearly pivoting to software-first, hardware-second. But even that looks shaky. We might see them slowly crawl back to traditional pricing and painful old habits.

Yes, Sony and Nintendo have subscription systems too — but their streaming and back catalog services focus on older games, stuff you can’t play otherwise. Xbox went all-in on a risky model. Innovation, sure, but the gamble failed.

And now? They’re teaming up with third-party hardware makers to sell handhelds with Xbox stores and Game Pass support. Premium products, outsourced hardware costs. The industry is shifting — handhelds are creeping back, Nintendo led the way, and now PC handhelds are everywhere. Sony’s got the Portal for in-home streaming. Everyone is adjusting, but Xbox looks like it’s reacting, not leading.

The “Best Deal in Gaming” Is Basically Gone

Game Pass used to be the best deal in gaming. That era’s pretty much over. It’s still decent if you play a bit of everything, but it’s not the killer value it was sold as. The hubris of throwing Call of Duty into the service and expecting impossible growth honestly makes me laugh. Whoever thought that would pay for itself was living in fantasy land.

The bigger point is this: Microsoft went all-in on the subscription model. I always suspected something had to give — either Call of Duty would get pulled, or the day-one promise would get shoved behind a price hike. And here we are. Clearly someone at Xbox still thinks it’ll work long-term. Maybe they know something we don’t.

I genuinely hope Xbox pulls through. As a customer, it’s been a rough few years. Competition is good — I don’t want to see them leave the market. But the Xbox brand hasn’t felt the same in a long time. Maybe they can bounce back, but the industry has shifted.

Gaming as a hobby is getting more expensive, and publishers are reaching deeper and deeper into people’s wallets. My generation plays and spends differently than younger gamers, and that’s part of the clash. For now, people like us still make up the bulk of the audience — but the industry is clearly pivoting to chase the next wave. And that wave is subscription-based gaming, in whatever form it ends up taking.