The Numbers Show Xbox’s Current Plan Isn’t Working

It’s time for Xbox to eat some humble pie and perform some real soul-searching. Microsoft released its latest quarterly earnings report and proved the worst of our fears about its gaming brand. Not only are Xbox hardware sales down significantly, but the brand itself is barely treading water. Gamers are voicing their displeasure with their wallets, but Microsoft’s top brass is still only thinking about the margins.

Microsoft was more keen to promote the scale of its cloud and AI services revenue—which was up 28% year over year—than talk about its beleaguered gaming brand. The company’s overall gaming revenue fell by 2% compared to the same time last year. This was precipitated by a “decline in Xbox hardware,” which was down by 22% following a steady decline quarter after quarter. Its first-party games and its Game Pass subscription were doing better, though the overall growth was only up by 1%, and even that was driven by the “better-than-expected performance” of third-party games. You can give credit to titles like Clair Obscur: Expedition 33 for why Xbox isn’t in an even deeper hole than it is now.

The tech giant has no expectation that its Xbox brand will start making more money anytime soon. In its earnings call with investors, Microsoft Chief Financial Officer Amy Hood said the company expects Xbox will continue to decline “in the low to mid-single digits” for the following quarter. That’s mostly due to the lack of landmark first-party titles. Just this month, Xbox released Ninja Gaiden 4, The Outer Worlds 2, and Double Fine’s The Keeper. Xbox also made a huge marketing push for its first handheld, made in partnership with Asus, the ROG Xbox Ally and Ally X. In any other year, this would be a big month for any gaming company.

The cost of Xbox certainly isn’t helping

The dour outlook comes after months of bad news. After two subsequent price hikes, Xbox Series S and Series X consoles now cost between $100 to $150 more than they did at launch five years ago. Microsoft also pushed prices of its Game Pass Ultimate subscription tier from $20 to $30 per month. A full-year’s subscription would now demand $360.

These price hikes were predicated by what Microsoft called “changes in the macroeconomic environment,” which is just a longer way to say Trump tariffs. However, a recent report suggested that Xbox may have its own mandate that is exacerbating its woes. Microsoft has reportedly set a 30% profit expectation across the entire Xbox brand. Leaks show that in previous years, as recently as 2022, Xbox was barely able to hit a 12% profit margin during some months.

Xbox has tried to rely on growth of its Game Pass subscriptions, but it’s clear from Microsoft’s latest numbers that the company cannot depend on a “Netflix for games” service to make up for declining hardware. Xbox President Sarah Bond has repeatedly mentioned the company is working on a next-gen Xbox. The latest leaks of the supposed Xbox codename “Magnus” chip and Bond’s comments on the console suggest it could be more PC-like than any previous Xbox. The size of the chip also suggests Magnus could be a powerful, though expensive beast, perhaps twice as costly as the $650 Xbox Series X.

Xbox gaming vs… short-form video?

In a recent interview, Microsoft CEO Satya Nadella suggested that the brand is sticking to its “Xbox everywhere” even though it’s still working on a console/PC hybrid. But then the CEO made an odd claim, that “gaming’s competition is not other gaming. Gaming’s competition is short-form video.” Nadella seems to think the kids are watching mindless TikToks all day instead of sitting with a controller in their hands.

The consoles wars are now over. What does that mean for Microsoft’s gaming business model?

“We just want to make sure the games are being enjoyed by gamers everywhere; consoles, PC, mobile, cloud, or TV.” – @satyanadella pic.twitter.com/AOGf3mj0Kf

— TBPN (@tbpn) October 28, 2025

Nadella added, “The best way to innovate is to have good margins. Because that’s the way you can fund.” If gamers can no longer afford your products, how can your business possibly have good margins? If players can buy once-exclusive games—whether it’s Gears of War or even Halo—on any other, cheaper platform, why would they bother with the costlier system? Xbox likely won’t have a new console until at least 2027. It will need to come up with some strategy in the meantime, because what it’s doing now clearly isn’t working.