Thing is, they don’t need to sell consoles anymore. They’re in the gamepass business now.

They need to sell consoles to sell GamePass to people. Nobody is going to play games on a Firestick. Same reason why nobody bought the mobile ports of Resident Evil. Those who play games, buy the hardware for it. Some go overboard with the high-end PC and some prefer to buy a cheaper console, but nobody is like “yeah I’ll play Elden Ring on my phone”. Gamers want the hardware, and casuals don’t buy gaming subscriptions. It’s a lost cause.

“MS doesn’t care about selling Xbox console” is a lie they have been pushing for a while now because their console sales have been tanking for that many years. They would LOVE to sell more consoles, they just can’t, so they attempt to spin the story a different way so that the shareholders are still happy. What, you want to know about sales? But who cares about sales, it’s all about engagement! Look at those big, happy numbers we are showing you!
Nobody enters a business with the idea that “whatever, even if we don’t sell enough, it’s fine, we still had a great time”. MS didn’t became the world’s biggest corporation by being lazy.

They currently have roughly 34 million subscribers (as of February, I’m guessing Activision Blizzard King is going to bump this number up further), let’s assume an average of $12 a month. That’s over $400 million coming in every month or 1.2 billion every quarter on the books. They don’t have to rely on a big game to have a good month.

That’s great until you consider the fact that GamePass doesn’t operate in a vacuum. To put games on their service, they have to pay developers. They then need to please shareholders who want subscribers and revenue to increase. The fact that they increased the price twice in a row and effectively doubled the price of GamePass overnight suggests that they are not pleased with the current revenue.
Heck, we don’t even know how many of those 34m subscribers are paying customers, and how many just got into GP by paying $1 or benefitting from some other deal. I was one of those 34m back in February, because I got a year for free with the Rewards program (back when it was still worth something; they axed that one as well, because of course). When they asked me to pay to renew it, I cancelled the subscription. I’m pretty sure I’m not the only one.

You’re more valuable to them having the gamepass subscription and just playing on your phone over someone who buys a console and purchases 7 or 8 games a year.

Sure, but that’s the same as Don Mattrick asking customers to “stick to their X360”. The choice is not between buying games on XOne or subscribing to GamePass on your phone. The choice is between an Xbox, a PS5, a Switch or a PC. Two of those choices means that they have lost a customer (you can’t subscribe to GP on PS or Nintendo consoles), and I’d be curious to know how many people are subscribing for GP on PC instead of just buying games on Steam. You don’t need GP to play online on PC as you do on console, and the prices are cheap enough that you are probably saving money just buying those games instead of renting them.
And let’s not talk about how terrible the user experience is on their PC storefront compared to literally any other competing storefront - I’d rather buy a game on Epic than use their Xbox store, and that says a lot. I had a game on PC thanks to the Play Anywhere program (bought it on Xbox, got the PC version as well), but I had to buy it again on GoG to mod it because MS considers their game files more precious than the holy grail itself and wouldn’t let me go anywhere close to them, let alone touch them.