The devaluation scenario you're proferring is not the one I'm talking about (nor is it true - see Nintendo titles which maintain their value over time because the customer base isn't conditioned to wait for sales). I'm not concerned with tracking the price of a game over time, but of the perceived value of games, from a marginal $70 to a marginal $0 - 'free on Game Pass because I already pay for the $15 sub' or negligibly small number ($15 times however many months I'll play this game divided over however many hundred titles are offered).
The offering of substitutes to full price titles for next to nothing drags down the demand for different full price titles - you see this phenomenon happening to Xbox in the UK already where the sales split ranges from 5:1 to 9:1 between PS5 and Xbox for titles that aren't on GP. The install base is quite similar there, and while there are some audience taste differences to account for, the gap should not be quite so pronounced. While this is somewhat tolerable while the GP release slate remains low quality or time bound, it's less tolerable when the top selling AAA titles start getting released on the service, the force of this effect will be magnified, where titles that aren't available on the sub get fewer and fewer sales.
Okay, now I understand what you mean. First, is digital sales included in the range of sales for those games being 9 to 1 in favor of PlayStation? Xbox does have a higher digital percentage than Sony has for whatever reason when it comes multi-platform games. Second, the concern you have while understandable is invalid because you're mainly looking at major AAA titles which aren't going to be on Game Pass day one anyway because the publisher doesn't need to accept that payday when they can get a lot of sales and go to Microsoft when sales die out and still get a Game Pass deal two years after release. If you're argument is that people will wait for the game to go on Game Pass instead of buying it, that's also invalid because if it's a big game especially if it's good or great, it's going to sell regardless. Dead Space did well, Hogwarts Legacy has dominated, REmake4 has done great and many more are to come. One aspect that you're missing is that there's hundreds of games released every year that barely sell because either A) no one knows they even exist, B) they're not any good or C) they get released around a big major title which is going to drown out the smaller game.
Let's look at Forspoken. Game flopped period. It's an above average game and since it's PlayStation 5 exclusive for a minimum of two years, Game Pass doesn't apply. Even if you wanted to include PlayStation Plus, is any PlayStation fan truly expecting it to go on Plus any time soon? Probably not. It didn't sell but why? First, it's an above average game at best for various reasons. Second, when compared to say Dead Space or Hogwarts Legacy, the $70 price tag along with it being above average simply isn't enticing. Third, it's release date was horrible. Four days after Monster Hunter Rise hit PS4/PS5 (and Xbox One/Series) which while a Switch port has a huge fan base, three days before Dead Space which was highly anticipated and two weeks before Hogwarts Legacy which is an open world game like Forspoken and has their combat system revolving around "magic attacks". Plus of course, it's a massive licensed property.
Point being is that a subscription service isn't going to affect games that are actually worth the $70 price tag that people want to play. I'm a Game Pass guy but guess what, I still bought Dead Space for $70 day one physically, bought the $80 deluxe edition of Hogwarts Legacy digitally and just recently bought Resident Evil 4 physically for $60 plus an extra $4 on the treasure map micro-transaction. But guess which game I didn't buy and have no interest in doing so? That's right, Forspoken because it's not worth my $70 and more importantly, not worth my time.
So again, while I understand your concern, as of right now, it simply doesn't exist. The great games will sell period. With or without Game Pass existing. What won't sell are above average mediocre games with a full $70 price tag that the vast majority of people are going to pass on especially if it's release close to all these other superior bigger titles. What Game Pass is truly for outside of Microsoft's first party games are the Indies and AA titles that let's be honest, outside of one here and there, they usually end up being forgotten.
Then there's the live service/co-op games like Outriders, Back 4 Blood, etc. These games aren't based on sales at all. They're based on player counts and having them be on a subscription service allowed them to do far better than they would have if they weren't on Game Pass day one. These types of games aren't going to replace Destiny, COD, Fortnite and others but they can still be successful in their own right if they can get a big enough player base and being available on Game Pass which had around 20m or so subscribers when they launched gave those games a far greater chance at success than the only option being that of which to buy the game for $60 outright.
TL;DR #1: My fav games are so cheap! That other game is too expensive. Less revenue for the other game's devs.
To compensate for the loss of one full priced title sale in terms of total revenue to the gaming industry, you would need 4.66 subscribers at current prices - $15 (or one subscriber to subscribe for 5 months). The dynamic changes based on whether the subscription revenue goes directly to the developer/publisher of, and platform holder for, that title. What actually happens is you have hundreds of titles whose presence on the service needs to be financially compensated for. Your $15 sub goes directly to Microsoft, who then figures out how to make the P&L work by paying some of that to game companies in a roundabout way. Microsoft makes payments to companies to get those titles on the service for a period of time, and with good modelling this payment would be less than what companies would earn by selling it full price to a smaller userbase for that period of time - that's fine for companies because it's guaranteed revenue upfront vs the uncertainty of selling to the market. But this alone represents less revenue for game makers - they may make it up on DLC but they might not. However, this is then compounded by the devaluation effect, where games are perceived to be worth less, so fewer customers are willing to pay full price, or they have to drop in price sooner. The former is great for Microsoft, whose payments I'm sure in part factor in potential full price sales volumes. Fewer sales = lower prices to put something on GP. Both are bad for game makers because they will either eventually earn less revenue per sale while sales volumes remain the same or less compensatory revenue if GP is allowed to grow through consolidation. If it's a fixed fee they're paid, and not engagement-based, the revenue is capped - breakout hits can't maximise their earning potential.
All of that aside, we're faced with the simple fact that while a game's production costs, especially first party, might be able to be subsidised by a subscription model, the economics of needing to replace 1 full price customer with 4-5 paying subscribers PER TITLE leads to significantly less revenue for the industry when looking at one month in isolation. Per title is a key distinction here, because a customer paying for 3 full price titles will spend $210 at today's prices, most of which goes to devs, who will reinvest it in game development. A customer who can play those same three titles for the price of a subscription will pay 15-45, which can be an order of magnitude less. This compounds over hundreds of titles. And who retains the upside from subscription fees? Microsoft. This is unsustainable or at the very least not beneficial for developers in the long run. Developers who, unlike Microsoft, do not have a PC OS monopoly or aggressively and anticompetitively bundled cloud computing business units with which to mint money. They don't care if gaming as a whole earns less revenue if they get the biggest portion of it.
Okay.....first, when a game sells for $60, they don't get the entire $60. You have to eliminate the cost for manufacturing the disc, case, insert, shipping, distribution and retailers cuts. This is before the game hits the actual shelf and when it is sold, 30% of the $60 which is $18 per copy sold goes to the hardware manufacturer. Second, if the developer is owned by a publisher like for example Motive Studio which is owned by EA, the money that they get from the game sale after all the fees goes to the publisher, NOT the developer. The development studios all work on salaries with some perhaps having bonuses tied to MC scores which makes no sense at all because good or bad, they still did the work and it's the publisher who's literally funding the game, the shipping, the marketing, advertising, etc. The only time a development studio actually gets any money from sales is if it's like Techland with Dying Light 2 where they self published their game but they still had to pay all those expenses and fees.
When a game goes on Game Pass day one, the publisher (NOT the developer unless it's a Techland situation) will get an upfront payment of varying amounts based on what game it is. They use several metrics and analytics. One that is known to be used is pre-order numbers. This usually tells you if a game is going to be big, medium, small or dead on arrival. If it's a game that has low pre-orders and yes, they know the amount of pre-orders from retailers due to the publisher they're negotiating with giving them that info, a Game Pass day one deal will more than likely save that game from completely flopping and even if the publisher doesn't make a profit, if they can at least break even in total, that's still far better than losing money. Besides the upfront payment, publishers can also get extra money based on downloads, hours played, user counts, etc. Depends on the contract that is signed by the publisher but they all get an upfront payment.
With all that said, your analysis of needing one subscriber at $15 per month to stay subscribed for 5 months or even 4 months is simply invalid because for whatever reason you think that when a game sells they get the entire $60/$70. They don't. And again, you also believe that developers are getting all the money from sales which unless they're independent and self publish like Techland, they don't. The publisher gets the revenue from game sales.
If you're talking about Indies/AA titles, the budgets are much smaller and chances are, a day one Game Pass deal will pretty much cover the cost of that game that they're getting ready to release. Now, if you're talking digital only and cutting out the physical portion, a $60 game is technically only selling for $42 on each sale due to the 30% cut by Microsoft. Of course, vast majority of these games aren't overly expensive and they can easily turn a profit if they know what they're doing. As for AAA titles, Game Pass simply isn't going to affect anything because the big games are going to sell regardless and those like me who want to play them aren't going to wait to see if/when those games go on Game Pass.
TL;DR #2: Devs have less earning potential on GP. Revenue for devs, if not for the industry, will decline.
Microsoft is not expanding the player base for games - they are 'selling' the exact same games at a lower price, thereby increasing the number of players per game. The sole upside of a broader player base in this scenario is the ability to sell them on microtransactions. This model already exists as freemium, free to play, or GAAS, so is likewise not something new Microsoft is bringing to the table. What they are doing is accelerating game development in this direction and away from single player or unfettered MP experiences, decreasing diversity in gaming.
The only way the dev would see anywhere close to revenue they would've achieved by selling at retail is if Microsoft subsides their service. And the only way subscription scams for entertainment media work when they're not subsidised is by finding the suckers who don't cancel when they're not getting enough value out of the subscription each month and/or by jacking up the prices.
I completely disagree in regards to decreasing diversity in gaming. Game Pass has already proven to increase diversity including from Microsoft's own first party studios. You think another publisher who's reliant and dependent on game sales would actually green light, fund and release games like Grounded, Pentiment and Hi Fi Rush? No freaking way. Microtransactions sell regardless of if a game is in Game Pass or not.
You believing that Microsoft due to Game Pass is accelerating game development in a certain direction for publishers and developers they don't own is simply non-existent. The vast majority of games that go into Game Pass day one like A Plague Tale Requiem, Atomic Heart, Monster Hunter Rise, Outriders, etc. are already set in stone. Game Pass isn't changing the development of games that are designed and developed long before the publisher even thinks about a Game Pass day one deal.
Please clarify what you mean by developers. Because not every situation is the same. If it's a development studio that's owned by a publisher, it's the publisher that makes the decisions, not the development studio. If you're talking Indies/AA studios that aren't owned by a publisher, again, chances are, their games won't sell enough anyway because they're either not up to par, release at a shitty time or are completely overshadowed by other bigger major titles. And if anything, a day one Game Pass deal is going to completely fund that small budgeted Indie/AA title before it even releases.