Xbox reset begins as Microsoft rethinks Game Pass and studio strategy

MUMBAI: When the game plan stops scoring, even the console needs a reboot. Microsoft is pressing reset on Xbox, signalling one of the biggest strategic overhauls in the gaming business after admitting several of its biggest growth bets, including Xbox Game Pass, failed to deliver at the pace the company had expected.

In an internal memo announcing sweeping changes that include mass layoffs and the sale of studios, Xbox CEO Asha Sharma said the business had reached a point where a fundamental reset was unavoidable. While initiatives such as Xbox Game Pass, publishing games on rival platforms and expanding the company’s content portfolio created “meaningful value”, they did not generate the sustained growth Microsoft had anticipated.

“As that happened, our core business weakened, and we added more teams, more investment and more time, hoping for a better outcome. And now the industry is facing the most severe hardware crisis in its history. We must reset Xbox,” Sharma said.

The comments amount to Microsoft’s clearest acknowledgement yet that its long-term gaming strategy has fallen short of internal expectations.

Launched in 2017, Xbox Game Pass was positioned as gaming’s answer to Netflix, offering subscribers first-party Xbox releases alongside a growing catalogue of titles for a monthly fee. Although the service grew rapidly and peaked at more than 34 million subscribers, reports now suggest the subscriber base has fallen to around 30 million, a decline of roughly 4 million users.

The slowdown is particularly striking given Microsoft’s own projections during its Activision acquisition case, where it forecast 77 million Game Pass subscribers by 2026. That target now appears well out of reach.

The subscription service has also faced growing criticism over its long-term economics. Industry leaders, including Take-Two Interactive chief executive Strauss Zelnick, have previously questioned the viability of launching premium games into subscription platforms from day one.

Microsoft’s pricing strategy added further pressure. In 2025, the company increased the price of Xbox Game Pass Ultimate by 50 per cent to $30 a month, triggering a wave of subscriber cancellations before later reducing the price to $23 per month. The company also ended the practice of launching new Call of Duty titles on Game Pass from day one, a move that altered one of the service’s biggest selling points.

The company’s ambitions beyond subscriptions have also been tempered. Sharma indicated that investments across a broader portfolio of content had not delivered the expected returns, prompting Microsoft to redirect resources towards “higher-priority projects” with stronger commercial potential. However, she confirmed that no previously announced first-party Xbox titles have been cancelled as part of the restructuring.

Microsoft has also begun shifting its platform strategy. After embracing multi-platform publishing for several titles, the company has recently returned to selective exclusivity with upcoming releases such as Gears of War: E-Day and Clockwork Revolution, signalling a more measured approach to platform expansion.

The restructuring comes as the wider gaming industry grapples with slowing console sales, rising development costs and growing uncertainty around subscription-led business models. For Microsoft, the reset marks an attempt to streamline Xbox’s operations while refocusing investment on projects it believes can drive sustainable growth in an increasingly competitive gaming market.