Microsoft Admits Its Game Pass Bet Didn't Pay Off — And 3,200 Xbox Jobs Are Paying the Price

Microsoft built its entire Xbox strategy this generation around a bet: that a Netflix-style subscription service stuffed with day-one blockbusters would out-muscle Sony and Nintendo's console dominance. That bet hasn't paid off, and now Xbox's own CEO is saying so out loud.

Asha Sharma told staff in an internal email that Microsoft's gaming business is "not healthy," with Xbox operating at profit margins three to ten times lower than comparable platform and publishing businesses, according to reporting cited by IGN. The admission lands alongside a brutal number gap: the Wall Street Journal reports Microsoft expected Game Pass to reach roughly 77 million subscribers by now. The actual figure is around 30 million.

That shortfall traces back to testimony from the 2023 FTC v. Microsoft trial, where the company revealed internal hopes of hitting 100 million Game Pass subscribers by 2030. Given where the numbers stand today, that target looks close to unreachable.

The cost of the miss

The fallout arrived this week in the form of layoffs. Microsoft confirmed 3,200 Xbox employees will lose their jobs this financial year, with 1,600 cuts happening immediately and the rest to be phased in later, leaving a large chunk of the workforce facing a months-long wait to learn their fate.

The cuts extend beyond headcount. Microsoft has cut loose four studios that were folded into the Xbox family specifically to feed Game Pass with new content during Phil Spencer's tenure as Xbox chief — Double Fine, Compulsion Games, Ninja Theory, and Undead Labs. A fifth studio is reportedly in negotiations to be sold or shut down entirely. None of those four studios are now obligated to release their future games on Game Pass, which puts titles like State of Decay 3 and Ninja Theory's Senua projects, along with whatever Double Fine and Compulsion are working on, in uncertain territory as far as the subscription service is concerned.

In her email, Sharma laid out the thinking that got Xbox here: "We entered Gen 9 with a smaller install base and a higher cost structure. To grow, we bet on Game Pass, multi-platform, and a broader portfolio of content. While those businesses have created meaningful value, they did not grow at the pace we expected. 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."

Why the bet didn't land

The theory behind Game Pass was straightforward: give subscribers a deep, constantly refreshed library and let blockbuster day-one launches from Xbox's own studios pull in new members. Microsoft backed that theory with staggering money, most notably the $69 billion acquisition of Activision Blizzard. Spencer's plan leaned heavily on putting new Call of Duty games into Game Pass on release day as a subscriber magnet.

It didn't work the way Microsoft hoped. Subscriber growth stalled, and console-based sign-ups in particular hit a wall, per IGN's reporting. Compounding the problem, Spencer raised Game Pass prices by 50% in October of last year — a decision that, according to current Xbox chief strategy officer Matthew Ball, caused the service to shed millions of subscribers within just a few months.

The exact subscriber count going into early 2026 isn't public, but Game Pass had at least 34 million members as of February 2024, and by July 2025 its revenue had reportedly climbed to nearly $5 billion for the first time. Revenue growing while subscriber growth stalls suggests Microsoft has been squeezing more out of existing members rather than adding meaningfully new ones — not the trajectory a service betting on scale needs.

The course correction

Sharma, who took over from Spencer, moved quickly on two fronts: cutting the price of Game Pass and pulling Call of Duty from its day-one slot on the service. She told Bloomberg that Xbox has "been able to reset Game Pass after an eight-month decline," adding that it has "now returned to growth and expanding retention," and that the priority is "getting back to being closer to our players and our community."

That still leaves open questions about what Game Pass looks like going forward. With four studios no longer bound to the service and a fifth possibly on its way out, Microsoft has fewer guaranteed sources of exclusive day-one content to lean on. If pulling Call of Duty out was necessary to stabilize subscriber losses, it raises the question of whether other major Xbox releases — a future Halo, or Bethesda's The Elder Scrolls 6 — will follow the same path rather than launching directly into the subscription library.

That would mark a real philosophical shift, pushing Game Pass closer to something like Sony's PlayStation Plus model, where first-party blockbusters sell at full price first and join the subscription tier later, if at all.

Microsoft spent years and tens of billions of dollars betting that subscriptions, not console sales, were the future of its gaming business. The layoffs, the studio divestitures, and Sharma's own words make clear that bet came up short of where Microsoft wanted to be. What replaces it is still taking shape.