So MS will make money from battlepasses to make up for the development cost of the multiplayer being free? I am confused, do people really spend that much money on cosmetics?
Yes. Activision is making crazy money off COD on microtransactions.
Many of us simply don't care what our character looks like beyond what we can earn for free, but enough people do, and the prices are high enough that those people generate a lot of revenue.
Imagine these $5, 10 and sometimes more cosmetic items. The overhead on them is nearly zero.
The trick is to get a massive active player base. Even if a small % of COD players buy a lot of stuff, that's still a lot of money.