Xbox hits the reset button

The Xbox booth during the Gamescom video games trade fair at the Trade Fair Center in Cologne, Germany, Aug. 20, 2025. — (Image credit: Ina Fassbender/AFP via Getty Images)

Over the past decade, Microsoft has spent nearly $80 billion on a bet that gamers would “flock to its Netflix-like subscription service,” said Cecilia D’Anastasio in Bloomberg. But that costly strategy “hasn’t worked out.” Last week, the company said it was laying off 3,200 employees at Xbox, its video-game division, and divesting from five game studios in an industry-rattling about-face. In an unusually candid letter, Xbox’s new CEO, Asha Sharma, said Xbox was struggling to manage “the most severe hardware crisis in its history,” and admitted that its videogame business was “not healthy.” This mess is partly due to “a central flaw” in its streaming strategy. “While consumers might be willing to pay a monthly fee to Netflix to stream thousands of TV shows and movies,” research from Circana shows that the majority of U.S. gamers buy at most two games a year and play them on repeat—not enough to warrant them signing up for a $23-a-month Xbox GamePass subscription.

There has been a “steady drumbeat of layoffs” in the gaming industry since the stay-at-home pandemic boom faded, said Sarah E. Needleman in Business Insider. Consumers want familiarity and comfort and are “spending more hours inside a small number of long-running” titles, which has left little room for breakthrough new releases from younger studios. Microsoft’s $69 billion acquisition of Call of Duty maker Activision Blizzard in 2023 has also failed to deliver “the subscriber surge Microsoft hoped for.” In the “heady days of 2018’s Fortnite mania, or after the pandemic-fueled fast-forward in 2020,” it was easy to believe that “scale was the answer,” said Oli Welsh in Polygon. But that has backfired. As a result, the world’s biggest game publisher rests “on a weak foundation without a clear mission statement.”

Sharma has a new strategy, said The Economist, and it is just as bold. She wants to win back console customers, whom she considers the core of the business, and launch a new device, code-named Project Helix, in 2028. But this means navigating an industry-wide supply-chain crisis driven by AI demand for memory chips. Component costs rose 50% during her first 50 days as CEO. And Microsoft needs more consoles to accommodate the “eagerly awaited release” of the new Grand Theft Auto VI, which reportedly cost billions to develop. The best move for Microsoft may be just to sell Xbox, said Jay Peters in The Verge. The question is who would buy it. Few companies are large enough to afford “an entire interactive-entertainment conglomerate” with slowing revenue. Meta is exiting the industry following its metaverse venture, and Amazon is focused on its own cloud-gaming service. Netflix is favoring smartphone-controlled TV games. Sharma hasn’t even been in her role for six months. But the changes at Xbox are “far from over.”

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