How Xbox’s Game Pass policies is signalling the doom for the AAA industry

Microsoft Xbox Game Pass provides gamers with unprecedented access to hundreds of titles for a very minimal monthly fee. Yet beneath its player-friendly model, as suggested and warned by industry leaders, there’s a gathering storm.

This storm as per them, threatens blockbuster game development’s very foundation.Be it unsustainable developer payout or cannibalising sales, Xbox Game Pass, as per reports, is setting a dangerous precedent. The subscription giant and its strategy, as argued, are quietly undermining the AAA ecosystem’s economic pillars, forcing a reckoning that the industry might not survive without being unscathed.

Game Pass policies have an unsustainable core

At the heart of this entire crisis is Game Pass’s fundamental economics.

As argued by Industry veterans, Microsoft leverages vast resources for subsidizing services. It creates an artificially lower price point. The model, as contended by critics, distorts market value—artificial market conditions created with traditional sales struggling to compete.

Ex-founder of Arkane Studios, Raphael Colantonio, bluntly labelled Game Pass as unsustainable. As per his assertions, it “progressively harmed” the gaming industry for over a decade now, and it survives on corporate subsidies instead of genuine value.

He further added that it’s propped by Microsoft's “infinite money”. It is feared that Microsoft will persist until all alternative business models are crushed.

It will leave all developers with a very limited choice.

Xbox Game Pass for Developers Acts as Double-Edged Sword

Microsoft's subscription model promises guaranteed payouts and exposure for developers. But as revealed, Game Pass instead devalues games, conditioning players to expect content for just “free” under their subscription.

Probably this was the reason why some major AAA titles, including Monster Hunter Wilds, Kingdom Come: Deliverance II, and Civilisation VII, avoided Xbox Play Anywhere, which is meant to unify the platform.Even Towerborne, the Xbox-published game, chose to launch its early access on Steam and not Xbox. That’s a sign of some internal doubts about the health of the Xbox platform.While smaller studios benefit from all upfront payments, AAA developers face a huge dilemma.

If some major titles launch on Game Pass, the standalone sales of the game plummet. Despite Microsoft compensating them, in the long term, this model discourages purchases made at full price. It shrinks revenue streams while funding big-budget games. It even fails to attract Indies or AAA developers.

Cannibalized sales create a devastating impact

To understand the above-said better, when a game makes its debut on Game Pass, players do not need to buy it outright.

While Microsoft does pay off developers for offsetting losses, it doesn’t replace the traditional sales value that could have been otherwise generated. As said, or rather warned by Michael Douse, Larian Studios’ publishing director, ‘infinite money doesn’t make sense forever.’

With evidence suggesting that Game Pass cannibalizes traditional sales, particularly on the Xbox platform, there are many who are now raising their voices against it.

As per Industry journalist Christopher Dring, games that are launched on Game Pass can easily be expected to lose around 80% of the expected Xbox premium sales.Taking an example of Starfield, its inclusion within Game Pass boosted subscriber members. However, it likely slashed its direct sales. Even Hellblade 2 and Indiana Jones and the Great Circle underperformed in their full-priced Xbox sales. While Microsoft might not have directly blamed it on Game Pass, the correlation here is just undeniable.Even players start to gravitate to “free” access through subscription and bypass outright purchases. Such correlation is not coincidental, but it is structural. When any major release lands on the Xbox Game Pass, buying it becomes redundant. Now, if this starts to become a new norm, studios, especially AAA studios, might struggle to justify massive budgets. This will lead to a few AAA risks and a high reliance on Microsoft's funding.

Xbox Game Pass offers a false lifeline to smaller studios

Proponents quite often highlight that Game Pass does act as a boon to smaller developers and all the risky new IPs. Douse acknowledges this potential. As noted by him, it could derisk those smaller teams' launch, which face uncertain markets, but what exactly would happen when all the money runs out?

The current model is reliant on continuous and massive investments made by Microsoft to secure content. However, if funding shifts or slows down, the safety net for smaller studios would vanish overnight.

It would leave them exposed, without any security for the creative risks.

But wait, there’s more beyond money running out. Game Pass, which initially was praised to help Indie games reach a wide audience, isn’t the same anymore. With growing services, smaller titles are at higher risk of getting buried within an oversaturated catalogue. Unlike Steam, where the games remain purchasable quite indefinitely, Game Pass keeps rotating titles in and out.

It leaves developers scrambling for needed visibility.Even some successful indies are now facing a catch-22—Microsoft’s short-term payouts vs. Long-term sustainability. If the players do not buy outside the subscriptions, Indies would lose leverage over pricing and discoverability at the same time.

Player Advantage vs Developer Disadvantage

For the players, Game Pass is quite an undeniably phenomenal deal. It gives instant access to a vast library that includes all major releases.

With day-one access to the content, there’s an incredible value for players. It democratizes gaming. It makes AAA experiences affordable for those who might not otherwise participate in them. But what about AAA studios? They get forced to profit outside the subscriptions, and for it, they would either cut budgets or shift to live-service models, to sustain revenue.

For developers, especially those who are behind those large-budgeted AAA games, the entire picture is more grim.

Xbox Game Pass subscription model devalues individual titles. Players who are accustomed to the lower monthly fee just become resistant to paying $70 for a purchase. This creates a shift in revenue stream from direct sales to those opaque subscription payouts as per engagement metrics. It creates huge financial uncertainty that is lethal for the AAA industry, especially for studios that invest $200M+ in projects.It is due to this that Colantonio has suggested Game Pass to keep its focus on back-catalogue titles and not day-one releases. It will help preserve sales for the newer games while still continuing to offer value. But will Game Pass do so? Only time can tell about it.

Escalating situation seeks balance before the bubble bursts

The industry is not calling for the demise of Game Pass, but it wishes for a critical reassessment. Colantonio and many others have already suggested a sustainable path for it—Game Pass must primarily function as the back-catalogue service and not the day-one AAA release platform.

It will help preserve the value proposition for the players. It will also protect the economic model, which is required to fund ambitious and new projects.The current trajectory that’s been fueled by deep pockets of Microsoft risks creating a market where only subscription giants could survive. Without bringing in an urgent policy adjustment or a fundamental shift within the Game Pass model, the ability to fund next-generation, groundbreaking AAA experiences faces existential peril.

So, in short, the time for a balance is right now.

What will the AAA industry be without this balance?

The gaming industry today is at a crossroads. If the Game Pass continues to dominate, the world will see fewer big-budget single-player games, which will also be riskier without a direct sales line. There will also be more live-service and microtransactions models for offsetting lost revenue. Additionally, with increased consolidations of studios under Microsoft, competition will be reduced.The solution is therefore simple. There’s a need for a balanced approach. Subscriptions must complement, instead of replacing, the traditional sales. Otherwise, Xbox Game Pass might accelerate the decline of AAA games, on which it relies.