Microsoft’s Xbox division faces severe crisis after massive spending
Despite a successful game showcase, Microsoft’s Xbox division is in turmoil, with reports of impending layoffs, studio closures, and game cancellations. New CEO Asha Sharma announced a “reset” after years of expensive acquisitions and a plateauing Game Pass subscription service.
Microsoft’s annual June showcase at Summer Game Fest was packed with exciting announcements, but just three days later, new Xbox CEO Asha Sharma warned of a “reset” requiring “hard choices.” The following weeks brought reports of impending layoffs, studio closures, and game cancellations, with Ninja Theory reportedly among the studios at risk despite having just revealed a new game.
Nearly 25 years after entering the console market, Microsoft’s gaming division is at its lowest point. Early successes with the original Xbox and Xbox Live were undermined by the flawed Xbox One launch in 2013, and the Xbox Series X/S generation only deepened the decline.
The core issue stems from massive investments in the Game Pass subscription service. Microsoft spent billions acquiring studios and publishers to build a content library, aiming to attract subscribers. However, Game Pass plateaued at around 30 million subscribers, far short of the 100 million target by 2030. According to a memo from Sharma and content chief Matt Booty, excluding Activision Blizzard King, Microsoft spent over $20 billion in five years on content, platform, and hardware subsidies, while annual revenue dropped by nearly half a billion. The Activision deal alone cost $68.7 billion.
After former Xbox head Phil Spencer retired and president Sarah Bond left, Sharma took over and made some positive changes, such as listening to fan feedback on backward compatibility and removing unpopular branding. However, deeper problems remain. Reports indicate Microsoft is considering closing at least five studios, including Arkane (known for Dishonored) and Double Fine Productions (Psychonauts). Layoffs are expected to start next week, though the full scope is unclear.
Xbox’s future looks drastically different, with its hardware and subscription businesses both faltering. Some studios may face closures, others may be spun off, but the overall impact is likely to reshape the division significantly.
