A report in Insider, citing sources, claimed the ads would not disrupt gameplay and would instead appear on a billboard in a racing game.
Microsoft is also concerned that the ads could “irritate” gamers and plans to create a “private marketplace” to let only certain brands into the new program.
According to the report, Microsoft will not use the data it collects from the Bing search engine and other services for targeted ads on the Xbox gaming service.
“We are always looking for ways to improve the experience for players and developers, but have nothing more to share,” a Microsoft spokesperson told Insider.
Console game users have also witnessed in-game ads in the past, such as EA Games allowing ads in the Madden NFL, Skate, NHL and NASCAR franchises, as well as Burnout Paradise.
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Meanwhile, Microsoft recently released a major update for the Xbox Series X and Series S consoles that would make it capable of downloading system as well as game updates in power saving mode.
Microsoft also plans to introduce an Xbox Game Pass family plan this year.
The family plan option would provide Xbox Game Pass access for five players and would be cheaper than the cost of separate accounts.
Microsoft would integrate its family account system, which the company also uses for its Microsoft 365 Family subscriptions, reports The Verge.
Microsoft currently offers Xbox Game Pass or PC Game Pass for $9.99 per month.