Behind Xbox’s Big Layoffs, a Streaming Strategy That Failed

Behind Xbox’s Big Layoffs, a Streaming Strategy That Failed

Cecilia D’Anastasio
Tue, July 7, 2026 at 12:16 PM EDT
6 min read

(Bloomberg) — Microsoft Corp.’s Xbox spent nearly $80 billion in the last decade on deals that would give it popular video game titles like Call of Duty and Skyrim, betting that gamers would flock to its Netflix-like subscription service offering hundreds of options for endless play

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On Monday, the company acknowledged that strategy hasn’t worked out. Xbox said it would lay off 3,200 employees, 20% of its staff, and let go of five game studios in an effort to reset

What started as an attempt to boost Xbox’s last-place position among console makers, after Sony Group Corp.’s PlayStation and Nintendo Co.’s Switch, ended in a glut of overspending, leaving Xbox bloated with studios, staff and too many games people didn’t want to play

In a letter to employees, Xbox’s new chief executive officer, Asha Sharma, said the video-game business is “not healthy.” She recognized that Xbox lost the plot by not focusing on its core strategy and said it’s now facing the “most severe hardware crisis in its history.”

When Xbox launched its Game Pass subscription service in 2017, executives set a goal of reaching 77 million subscribers by fiscal year 2026, which ended last month, according to a document published during a lawsuit contesting Microsoft’s 2023 purchase of Activision Blizzard. Today, the platform has just 30 million subscribers, according to a person familiar with the matter, 4 million fewer than it did when the company last publicly shared data in 2024. The Wall Street Journal reported earlier on the subscriber numbers.

Employees had been growing concerned that the number of Game Pass subscribers had peaked, according to two former employees. Later, millions of customers canceled their subscriptions after Game Pass announced last October it was raising prices by 50%

Underlying Game Pass’s problem was a central flaw, according to the people. While consumers might be willing to pay a monthly fee to Netflix Inc. to stream thousands of TV shows and movies, most gamers don’t take the same approach, preferring to stick with a handful of favorite games they play on repeat. Research from Circana shows that the majority of US gamers buy two games at most per year and a third of the market doesn’t even purchase one