Except it is. You literally got that information straight from Phil Spencer and he said it directly. First time he said it was sustainable and people asked again what did he mean by that and he repeated that he meant that Game Pass is profitable. But it is hilarious that people still don't believe that (because probably it does not fit the narrative). But then believe all those smoke and mirrors by Sony, because it fits their narrative. That was literally dismantled with the leaks, where even Sony said that Sony's model was outdated and they needed to push more towards PC and streaming.
It isn't narrative, it's just maths. Sony's subs has twice the subs and they pay less for games because they put there older games. So their service must be more profitable.
Regarding GP we saw in the court docs that MS shown 'operative margin' for GP. Which can be mentioned as profit but really isn't, because it doesn't consider its costs that are accounted in other divisions, as is the case of the server costs put on Azure (cloud gaming, store, cloud storage, online MP, shop etc).
Essentially aside the cost of the workforce, nothing has changed much. If the game cost 2x times more despite looking the same it means that the workforce is more expensive now. I would not be surprised (and we see it already) that some games can be made with less people, be cheaper and look not worse than the games made by 300+ people.
Not only the dev budgets highly increase every generation, marketing budgets also do. Because since the game is more expensive, they want to make extra sure it sells enough. On top of that, every generation there are more publishers, developers and game released as competition, plus there's inflation, so the pricing of the digital ads keep increasing.
As of today, AAA games need he work of over 2000-3000+ people, being only 200-300+ the dev team of its lead gamedev studio. In this case Insomniac. Every generation the games get more expensive because they become way bigger and way more detailed, which means there's way more work required to be done.
As of now the only way to cut the costs is to make smaller and shorter games, as they did with Ratchet, Morales or Lost Legacy. Or the remasters and remakes or PC ports. Projects that despite being smaller and cheaper, also are profitable and since their budget is way lower, their risk involved is way smaller.