Phil Spencer Explains How Developers Get Paid From Xbox Game Pass

Microsoft's subscription service Xbox Game Pass offers a tremendous value with more than 100 games in the catalog and first-party titles, including Halo Infinite in 2021, launching into the program at no extra cost. But one of the biggest questions surrounding the platform is how developers make money from it.

Speaking to The Verge, Xbox boss Phil Spencer said Microsoft makes all different types of deals with developers, depending on their unique situations.

"Our deals are, I'll say, all over the place. That sounds unmanaged, but it's really based on the developer's need," Spencer explained. "One of the things that's been cool to see is a developer, usually a smaller to mid-sized developer, might be starting a game and say, 'Hey, we're willing to put this in Game Pass on our launch day if you guys will give us X dollars now.' What we can go do is, we'll create a floor for them in terms of the success of their game. They know they're going to get this return."

In some other cases, Microsoft will completely fund the production cost of a game. In this situation, the developer can make money from retail sales, while Microsoft may also allow these games to release on PlayStation, Switch, and PC, with the developers taking in that revenue, too. Microsoft uniquely benefits in these types of situations by having a game launch day-and-date on Xbox Game Pass.

"For them, they've protected themselves from any downside risk. The game is going to get made. Then they have all the retail upside, we have the opportunity for day and date," Spencer said. "That would be a flat fee payment to a developer. Sometimes the developer's more done with the game and it's more just a transaction of, 'Hey, we'll put it in Game Pass if you'll pay us this amount of money."

Other agreements are different. Developers have come to Microsoft asking for deals based on "usage and monetization."

"We're open [to] experimenting with many different partners, because we don't think we have it figured out," Spencer said. "When we started, we had a model that was all based on usage. Most of the partners said, 'Yeah, yeah, we understand that, but we don't believe it, so just give us the money upfront.'"

Also in the interview, Spencer said he's been heartened to see more and different types of games come to light thanks to Game Pass.

"When the team, if they're just out there pitching the publishers on a retail game, if it doesn't fit into some Excel spreadsheet that tells you what the retail outcome will be, then it doesn't get green-lit," Spencer said. "You see this in things like Netflix. There are clearly shows on Netflix that would have never been greenlit by NBC or CBS, or ABC in the old model, and frankly, can have real success. And my hope is that Game Pass can get to that same level."

Xbox Game Pass is not without its critics, as some people say subscription services like Xbox Game Pass and Apple Arcade further devalue games and condition people to think games should be free or cheap.

Xbox Game Pass is off to a very strong start, with 15 million subscribers so far. Around 70 percent of the Xbox Series X|S consoles sold at launch were attached to a new or existing subscription, which bodes well for the service going forward.

Xbox Game Pass as a platform does not make any money, at least not yet, and this may be due in part to the $1 sign-up promos that remain available today. It's also commonly understood that subscription services do not make much money at the start.

Just recently, EA Play--the subscription service formerly known as EA Access--was rolled into Xbox Game Pass, bringing titles like Star Wars Jedi: Fallen Order and more into the fold.