Microsoft has spent 25 years willing to lose money on Xbox. That era is ending. The company's new gaming chief, Asha Sharma, told staff in a memo that the division "cannot continue" as it is, after spending more than $20 billion over five years only to watch core revenue fall by nearly half a billion dollars, all for a wafer-thin 3% profit margin. The immediate consequence is jobs: thousands of Microsoft layoffs are expected imminently, with Xbox likely to be among the hardest hit.
How the maths turned against Xbox
The problem isn't a lack of investment. Microsoft paid $7.5 billion for Bethesda in 2021 and $69 billion for Activision Blizzard in 2023, the biggest acquisition in its history. Yet even with those blockbuster franchises folded in, Xbox earns only about 3 cents of profit on every dollar, against the 17 to 22 cents typical in the industry. Gaming revenue actually slipped about 6% to $16.8 billion in the nine months to March. And it has lost the console war outright: Sony's PlayStation 5 has outsold the Xbox Series X and S more than two to one. There's also the question of where Microsoft would rather put its money: it is pouring more than $100 billion a year into the data centres and chips behind its AI push, and against that, a gaming business that barely breaks even looks like yesterday's bet.
What the reset looks like
Chief executive Satya Nadella has been blunt, saying Microsoft has to "turn this into a sustainable business." In practice that means deep cuts: possible studio closures — Hellblade maker Ninja Theory among those reportedly on the block — plus steeper hardware prices, with consoles already going up $100 to $150 on rising component costs. Sharma has even flagged a "hardware component crisis" and called for "a new business model and partnerships" for Xbox's machines.
How far the reset goes is still an open question — one report suggests Microsoft has weighed spinning Xbox off entirely. What's clear is that the company that once spent whatever it took to stay in gaming is finally counting the cost.
