Recently, Xbox CEO Asha Sharma reviewed the company's current situation in an all-hands internal meeting. Xbox is undergoing a rare large-scale business restructuring in the industry, with nearly 2,000 employees affected by layoffs. Sharma attributed a significant part of the crisis to the overly aggressive expansion strategy for Game Pass subscriptions in the past.
Sharma admitted that the old Game Pass strategy dragged Xbox's financial situation into a "free fall." After Microsoft spent $69 billion to complete the acquisition of Activision Blizzard and included "Call of Duty" in the subscription library, the contradictions were further amplified: on one hand, subscription operating costs skyrocketed, while on the other, sales of games priced at $70 were squeezed by the subscription model, causing losses on both ends of the business.
Subscriber growth fell far short of internal expectations: the target for this year was set at 77 million subscribers, but the actual Game Pass subscription base is only around 30 million, leaving a huge gap. The previous strategy of prioritizing subscriptions and expanding across multiple platforms failed to deliver the expected growth and also lowered Xbox's overall profit margin, which is significantly below industry peers, forcing the team to initiate a comprehensive business reset.
Sharma also provided positive signals: after layoffs and adjusting the business structure, the business has emerged from its low point. Growth in some sectors has reached 2-3 times that of the trough period, Game Pass has ended eight consecutive months of user decline, subscriptions have returned to positive growth, and retention data has improved.
However, the future direction of Game Pass remains full of uncertainties. Market rumors suggest that Microsoft is evaluating several adjustment plans, including launching a lower-priced subscription tier with ads and modifying the rules for first-party major titles joining the library on day one. Currently, there is no official confirmation on whether heavyweight IPs like "The Elder Scrolls VI" and new "Halo" titles will maintain their day-one addition to XGP, so there is no definite answer yet.