Xbox Reverses the Game Pass Bet That Caused Its Freefall

Xbox CEO Asha Sharma told staff on October 6, 2026, that the old Game Pass strategy sent the division’s balance sheet into “freefall.” She said first-party games Xbox owns have started to return to growth, “more than 2 to 3 times what we were,” after an all-time low.

The rebound she described is not the subscription Microsoft spent a decade building around day-one blockbusters. It is the catalog Xbox still publishes, counted after Call of Duty left launch day and after thousands of jobs came out of the company.

Sharma Told Staff Game Pass Sent Xbox Into Freefall

Jez Corden published a transcript of the all-hands, which people at the meeting verified. Sharma said Xbox was declining in hours spent, players, and revenue at the start of 2026, and that hours spent have now stabilized. She tied the earlier slide on the books to the prior Game Pass plan, the one that put huge new games on the service the day they shipped.

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 continue.

Asha Sharma, Xbox CEO, October 6 town hall

Corden later clarified that the chart behind that line was first-party growth, games Xbox owns and publishes, not a new public Game Pass member total. Sharma pointed to strong starts for Gears of War: E-Day, Minecraft Dungeons 2, and World of Warcraft Forever, and she cited a 30% rise in positive brand sentiment over the past year.

She also restated a scale target she has used since taking the job in February 2026. “Why do we exist?” she asked staff. “We exist to be where the world plays, we will know when we have a billion daily active people, and we have a right to win because we’re now focused on our fans and franchises.”

The $69 Billion Game That Ate Game Pass

Microsoft closed the $69 billion Activision acquisition in 2023 with Game Pass at the center of the pitch. Call of Duty was supposed to pull millions of players onto the service and, in time, onto Xbox hardware. Black Ops 6 became the test in October 2024, landing in Game Pass on day one.

People inside Xbox had warned that putting expensive new games into the service at launch could cheapen them and eat full-price sales. Circana analyst Mat Piscatella later said Call of Duty on Game Pass “did not significantly boost subs, and had little impact on hardware.” A person familiar with the figures put the Black Ops 6 hit at about $300 million in sales Xbox did not make versus a year without day-one Game Pass. Piscatella called that “piracy math,” arguing that a Game Pass play is not the same as a lost $70 copy and that subscription revenue has to be counted too.

Even the copies that did sell mostly did not sell on Xbox. About 82% of Black Ops 6 full-price sales still went through PlayStation, which has no Game Pass. The service did not turn the industry’s biggest shooter into an Xbox exclusive in practice. It turned a $70 launch into a monthly fee, then failed to move the hardware or the member base the deal had modeled.

Microsoft had also been spending about $1 billion a year on third-party games to keep the catalog looking full, a push associated with former Xbox president Sarah Bond. That bill sat on top of the Activision check. The subscription was being asked to justify both.

30 Million Subscribers Against a 77 Million Target

Acquisition-era filings aimed at 77 million Game Pass members by the end of fiscal 2026, which closed on June 30. A person familiar with the tally put the service at about 30 million in early July, less than half that goal and about 39% of it. Bond’s last official figure, in September 2024, was 34 million. The newer number is about 4 million lower.

Those same proceedings also carried a longer-range hope of 100 million members by 2030. Nothing Sharma has said since February treats that figure as a live plan.

GAME PASS MEMBERS AND ULTIMATE PRICING

Matthew Ball, Xbox’s chief strategy officer, said in June that millions of people canceled after the October 2025 increase, which lifted Ultimate from $19.99 to $29.99, a 50% jump timed to a new Call of Duty. Sharma later said growth slowed and “subscriber loss accelerated after the pricing and SKU changes last year.” The high price was the bill for day-one Call of Duty. Players left anyway.

Ultimate Dropped to $22.99, and Call of Duty Left Launch Day

Sharma’s first major product move reversed both halves of that bargain. On April 21, Xbox said Ultimate drops from $29.99 to $22.99 a month, with PC Game Pass falling from $16.49 to $13.99. Future Call of Duty games left day-one Game Pass the same day. New CoD titles now join Ultimate and PC Game Pass in the following holiday season, about a year later. Games already in the library stay.

$22.99 is still $3 above the $19.99 price from before the hike. Sharma has said the cut improved sign-ups and retention, and that Xbox had “been able to reset Game Pass after an eight-month decline.” She has not published a new member total to replace the July figure of about 30 million.

WHAT CHANGED ON GAME PASS

• Day-one Call of Duty: New titles wait about a year, then arrive in the next holiday season instead of on launch day.
• Ultimate price: The top tier went from $29.99 to $22.99 on April 21, 2026, after the 50% rise in October 2025.
• PC Game Pass: The PC tier went from $16.49 to $13.99 on the same day.
• Older Call of Duty: Games already in the catalog remain playable on Ultimate and PC Game Pass.
• Flexibility: Sharma told the town hall the service will get more “flexible for more players,” with users able to tailor what they pay for, without naming new prices.

That is the quiet end of the Gen 9 pitch. Game Pass is no longer the place you open on night one to play the year’s Call of Duty. It is a cheaper catalog with a delayed window on the franchise Microsoft paid $69 billion to own.

Activision Takes Halo After Another 268 Cuts

On July 6 Sharma wrote to staff that Xbox was beginning the most significant restructure in Xbox history, cutting about 3,200 roles through fiscal 2027, with about 1,600 jobs ended that day, and sending four studios to new management. Compulsion Games and Double Fine were to go independent with their IP and catalogs. Ninja Theory and Undead Labs were lined up for new owners with funding to finish their games.

She was blunt about the books. “Our business today is not healthy,” she wrote. “We are operating at margins that are 3-10x lower than comparable platform and publishing businesses. 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.” In a typical year, she has said, Microsoft lost 64 cents on every dollar it put into game studios.

A June staff note filled in the hole the subscription never closed. Excluding Activision Blizzard King, Xbox had spent over $20 billion in five years on content, platform, and hardware subsidies, while annual revenue fell by nearly half a billion dollars. Storage costs for consoles had already more than doubled after she arrived, then doubled again, with another jump expected that would take parts to more than 5 times the prices of two years earlier by the 2027 holiday season.

THE UNWIND FROM OCTOBER 2025

1. October 2025: Ultimate rises 50% to $29.99 a month as a new Call of Duty hits Game Pass; millions of members cancel in the months that follow.
2. February 2026: Asha Sharma becomes Xbox CEO, succeeding Phil Spencer, after a stint in Microsoft’s CoreAI group.
3. April 21, 2026: Ultimate falls to $22.99 and future Call of Duty games leave day-one Game Pass for a roughly one-year window.
4. July 6, 2026: Sharma announces about 3,200 role cuts through fiscal 2027, about 1,600 of them that day, and four studios leaving Xbox.
5. September 22, 2026: Chief Content Officer Matt Booty cuts 268 more roles and moves next Halo development into Activision, with Rare and World’s Edge also under Activision’s remit.
6. October 6, 2026: Sharma tells the all-Xbox town hall that the old Game Pass strategy sent the balance sheet into freefall and that first-party games are growing again.

Booty’s September note said the July cuts, the studio exits, and the 268 roles together brought Xbox roughly three-quarters of the way through the plan. Activision will build the next Halo with a new team kept separate from Call of Duty. A small group stays at Halo Studios to support games already in market. Undead Labs, under a new publisher, is still slated to put State of Decay 3 into Game Pass on day one. The shooter Microsoft bought is off launch day. The sci-fi shooter it already owned is now an Activision project.

The 2-to-3-Times Chart Tracks Games Xbox Owns

Take the money-losing studios off the books, delay the game that was cannibalizing its own $70 sales, and a first-party growth chart can turn up fast. That does not mean Game Pass is anywhere near 77 million members. Sharma did not show staff a new subscriber print on October 6. She showed them owned games after an all-time low, plus three launches she called strong, plus a sentiment score.

WHAT WE KNOW

• The freefall line: Sharma told staff the previous Game Pass strategy sent Xbox into freefall on the balance sheet.
• The growth line: The 2-to-3-times figure sat on a first-party chart of games Xbox owns and publishes.
• The CoD window: New Call of Duty titles are out of day-one Game Pass until the following holiday season.
• The member gap: About 30 million members in July against a 77 million fiscal 2026 target, down about 4 million from Bond’s 34 million in September 2024.

WHAT IS UNCONFIRMED

• The 2-to-3-times base: Sharma did not define the starting number, the time window, or whether the multiple is revenue, units, or hours.
• A new Game Pass total: Xbox has not replaced the July figure of about 30 million with an official count.
• Ad tiers and extra SKUs: The town hall promised more flexibility, not a priced ad-supported plan.

Sharma told staff Xbox does not have “the right” to grow beyond console if it cannot serve its most valuable players. That sentence is the other half of the Game Pass unwind. The service was built to reach everyone. The reset is built around people who already buy Xbox hardware and Xbox franchises.

Series X Stays Core While Helix Becomes a Family

Core, content, creation, and connection are the four C’s Sharma used to frame the next stretch. Strengthening Xbox Series X and Series S is the near-term job, with cloud gaming, the disc-to-digital program, and Play Anywhere named as tools. She described Xbox Helix, the Gen-10 hardware, as a family of devices rather than a single box.

“We are moving to a family of devices for Gen-10. There is not one device that fits all. We will certainly have a great console first, but we also know that many players will be on the go. There are some things that we are the best in the world to manufacture, and there are other things that will we partner on,” she said. “The operating system is starting to look really good.”

Battle.net is part of the same publisher turn. Sharma said its retention is almost on par with Steam and that Xbox will grow it “the right way for those communities,” including through a deal that put CD Projekt Red games such as The Witcher 3 on the store. Call of Duty still sells as a boxed product on PlayStation. World of Warcraft Forever is being counted as a first-party win. Halo’s next mainline game sits inside Activision, next to the shooter Game Pass is no longer allowed to give away on night one.

The $69 billion catalog is still inside Microsoft. The plan that used that catalog to juice Game Pass on launch day is the plan Sharma told staff had put Xbox in freefall, and it is the plan she has spent 2026 taking apart.