I assume that studios get a kick back percentage of revenue for installs, play hours, etc.
I don’t think so. I bet Microsoft pays publishers/developers a lump sum for a title to appear on their service for a specified period of time, and if the title is popular then they offer the publisher/developer more for the title to appear on Game Pass for longer. The amount they pay probably depends on the popularity of the publisher/developer, the game’s anticipation in the media, and any other metrics they can use to gauge the game’s ability to draw in subscribers.
Having said that, game subscription services will surely influence what kind of games are more likely to be developed, just as platforms like Steam and retailers like Humble Bundle have, but greatness is highly subjective. And as far as Game Pass specifically goes, I think Microsoft’s plan is for Microsoft itself to be the primary source of AAA gaming on the service, with the majority of their third-party games being from indie developers, which could arguably be beneficial for indie developers at least.
Everyone should use electric beard and mustache trimmers, not this garbage.