more subs, more engagement. The latter being more critical than the former.PS+ is really nothing like GamePass and the ease with which PS+ subscribers can lose access to PS+ endowed titles will be reflected in what Sony pay for game's inclusion. If you want to liken Game Pass to a Sony service, then its closer to PS Now where has offered downloading for native/compatible games for a while. ¯\_(ツ)_/¯
But in regard to your comments, maybe depending what the dev/publisher opts for. What I've been saying for the past few posts is that whenever I see devs anonymously (obviously) talking about their GamePass contact, they're all opting for the mild bang-up front and the larger revenue if its popular. Now this is to a degree a bit of a gamble. You might expect your game to be popular and it may not be but devs can market their games when they are in Game Pass and help their chances.
What do you think Microsoft needs to do to make Game Pass profitable?
MS seems to be banking on subscribers spending more money than they normally would because they play more. Which I think may be true. It doesn't need to be a strong split in favour of spending more, it just needs to be biased slightly more towards spending more than less. Or slightly biased towards people playing less than they get value for (the all you can eat buffet model / workout gym model)
I look at it like a roulette table, red and black is not 50/50, the house wins because there's 3 spots that the house wins. Over a very long period of time, statically the house will come out on top. I think Game Pass will be like that. They are banking that in a split of people spending less vs people spending more being in favour of being more. And over a very long period of time, the larger the subscriber base, the quicker that becomes true.
So a good example are a bunch of games that people don't typically play or would buy, now they might be interested in the micro transactions, or the DLC content. Something along the lines of that. It's hard to say without the data MS has, but I wouldn't be surprised if the profits are in favour over the long run and they are just banking on increasing the subscriber base to churn more profit. Eventually this moves to cloud, and I can only imagine them seeing that as being an additional market there for them to profit off.
Its entirely possible that they cannot bring down the costs enough for subscribers alone to pay for the service ( I really don't know what model MS went with in terms of licensing costs). But they also sell games, DLC, microtransactions, controllers, accessories and other things too -- and expenditures in this area go up with engagement goes up.
As Apple said during their court case, they are in direct competition with Xbox, because they are fighting for screen time. More engagement = more profit. Somewhere down the line this must be true.