Microsoft bet $69 billion on Game Pass becoming the Netflix of gaming. The math didn't work.
New Xbox CEO Asha Sharma has admitted the subscription service "did not grow at the pace we expected," after The Wall Street Journal reported Game Pass has roughly 30 million subscribers. That's 4 million fewer than the 34 million Microsoft reported in February 2024 and a staggering 47 million short of the 77 million the company predicted for this year in internal documents from the Activision Blizzard acquisition trial.
"Those businesses have created meaningful value. They did not grow at the pace we expected," Sharma wrote in a memo to staff. "We must reset Xbox."
The reset is brutal. 3,200 Xbox employees are losing their jobs this financial year, with 1,600 cuts taking effect now.
Four studios once acquired to feed Game Pass with exclusive day-one releases are being sold off: Compulsion Games, Double Fine Productions, Ninja Theory, and Undead Labs. A fifth studio, Arkane, is under review.
Sharma's admission marks a sharp break from her predecessor Phil Spencer's decade-long bet that a Netflix-style subscription could transform console gaming. Microsoft spent $69 billion on Activision Blizzard largely to supercharge Game Pass with Call of Duty. Instead, the strategy is being walked back.
One of Sharma's first moves was pulling new Call of Duty releases from day-one Game Pass access. This year's Modern Warfare 4 won't hit the service until roughly a year after launch.
Only the most expensive Game Pass tier now offers day-one games, at $22.99 per month down from $29.99 after a price hike last year backfired. That price increase to $30 a month for Game Pass Ultimate, implemented by Spencer in October 2025, cost the service "millions of subscribers over the span of a few months," Xbox chief strategy officer Matthew Ball said earlier this year. A Bloomberg report found that launching 2024's Black Ops 6 day-one on Game Pass cost Microsoft roughly $300 million in lost revenue.
"Our business today is not healthy," Sharma said. "We are operating at margins that are 3-10x lower than comparable platform and publishing businesses."
Xbox still plans to invest in Game Pass, which generates $5 billion a year in revenue according to Game File's Stephen Totilo. But the service's future looks like a scaled-down version of what Spencer envisioned.
Microsoft once projected 100 million subscribers by 2030. At current numbers, that target is off by more than two-thirds.
Sharma told Bloomberg the company has "been able to reset Game Pass after an eight-month decline" and that it has "returned to growth." But with fewer first-party studios, no day-one Call of Duty, and a subscriber base that hasn't cracked 35 million in over two years, the question isn't whether Game Pass can grow. It's whether the subscription model can survive in its current form at all.
