I think such business model ultimately doesn't scale well for games (several million-dollars production budgets sharing minuscule pieces of a ~$20 all-you-can-eat subscription pie).

Microsoft always knew this, they didn't try to win the market, they tried to subvert the business model, probably expecting the industry as a whole moving towards it -- which didn't happen at all, at least not yet.

Simple math would prove this. There's no way acquiring half the good studios in the world and make them release flop after flop was a break-even operation. It's several orders of magnitude behind.