Xbox CEO Asha Sharma Says Game Pass Strategy Sent Balance Sheet Into Freefall

Xbox CEO Asha Sharma has reportedly acknowledged in an internal memo that the company's Game Pass strategy sent the division's balance sheet into "freefall," according to reporting from Windows Central. The admission comes after Microsoft laid off nearly 2,000 staff in 2026 as part of sweeping layoffs and studio closures that represent one of the most significant restructures in video game history. Sharma's candid assessment marks a striking shift from the optimistic subscriber targets Microsoft once touted for its subscription service.

The financial damage stems from a collision of two strategic bets that backfired simultaneously. After Microsoft acquired Activision Blizzard for $69 billion and added Call of Duty to Game Pass, subscription costs skyrocketed — a move that likely scared away existing subscribers while simultaneously cutting into Call of Duty's standalone sales. As the source article notes, why spend $70 on the new Call of Duty when a month's subscription provides access for a fraction of the price? This dual erosion of revenue streams helps explain why Xbox is operating at margins 3-10x lower than comparable platform and publishing businesses.

Microsoft's forecast for Game Pass was higher than the actual result. The Wall Street Journal noted the company had bet on 77 million subscribers by 2026, yet the platform now supports only about 30 million users. Back in 2023, during the FTC‑vs‑Microsoft trial, executives pushed an ambitious 100 million‑subscriber goal for 2030— a target that now feels out of reach. Sharma said last summer that the pass had not accelerated as Microsoft had hoped. She added, “While those businesses have created meaningful value, they did not grow at the pace we expected.”

This subscriber shortfall forced Microsoft to add more teams, more investment, and more time hoping for a better outcome, even as the core business weakened. The company entered the current console generation with a smaller install base and a higher cost structure than competitors, making the Game Pass bet an existential attempt to change the trajectory. Instead, the strategy appears to have accelerated the very problems it was meant to solve.

Sharma, who replaced former Xbox boss Phil Spencer, has begun implementing decisive changes to reverse the decline. One of her first major decisions was to cut the price of Game Pass and pull Call of Duty out as a day-one title — moves that directly address the dual revenue erosion identified in the reporting. Sharma recently told Bloomberg that Xbox had "been able to reset Game Pass after an eight-month decline," adding that "it's now returned to growth and expanding retention, and most importantly, we're starting to get back to being closer to our players and our community."

"We're making the right decisions to reinvest in the business, after an all time low, we've started to return to growth, more than 2 to 3 times what we were, and we expect that to continue."

Asha Sharma, Xbox CEO

Sharma said in the memo that growth has returned at more than 2 to 3 times prior levels, hinting that price cuts and new tactics might be working. Still, the total subscriber count is well below the internal benchmarks.

Despite the reported return to growth, fundamental questions about Game Pass's long-term model remain unresolved. Will Microsoft eventually pull all its first-party games out of the subscription as day-one launches? The source article raises specific concerns about whether the next mainline Halo game will launch day-one on Game Pass. The comparison to Sony's PlayStation Plus — which does not launch first-party games day one — looms large as a potential model for where Xbox may be headed.

Rumors from last month suggest Microsoft may introduce new tiers of Game Pass without day-one launches, both with and without ads. A patent filing revealed Microsoft exploring technology that would suspend gameplay to show ads for additional game time. If Microsoft can lower the asking price sufficiently, a more limited ad-supported Game Pass could expand the subscriber base by offering a more affordable entry point — which appears to be Sharma's stated goal of reaching more players. But the rumored $12.99 price point for an ad-supported tier seems high compared to the current $9.99 base price, raising questions about the value proposition for cost-conscious consumers.

The shift shows the industry confronting the subscription model's hard limits. Microsoft spent $69 billion to buy Activision Blizzard, hoping to boost Game Pass with top‑tier titles.