Previous Game Pass Strategy Sent Xbox Into 'Freefall,' CEO Asha Sharma Reportedly Tells Staff

Xbox, under the leadership of CEO Asha Sharma, has been grappling with a major restructuring in 2026. The company has laid off nearly 2,000 employees and closed several studios, marking one of the most significant shifts in video game history. According to Sharma, Game Pass, Microsoft's subscription service, was instrumental in pushing Xbox's financial situation to a "freefall."

The strategy was fraught with issues, particularly concerning high-cost titles like Call of Duty. The addition of Call of Duty to Game Pass saw subscription costs soar, deterring existing subscribers and simultaneously reducing the sales of the game itself. This was a double-edged sword for the company. While Sharma acknowledged the challenges, she assured staff that the situation is improving.

She stated that the company is "returning to growth" and has begun to turn the tide, with a return to growth that is more than double the previous levels. Sharma also highlighted Blizzard's World of Warcraft: Forever as a promising title for Xbox. The company is also considering making Game Pass more accessible in the future, albeit with some compromises.

Rumors suggest Microsoft might introduce new tiers of Game Pass without day-one launches and possibly even without ads. Additionally, Microsoft filed a patent that could suspend games to display ads for additional game time. This could potentially broaden the reach of Game Pass by making it more budget-friendly. Sharma's initial announcement of the Xbox layoffs in the summer admitted that Game Pass had fallen short of Microsoft's growth expectations.

The company's financial health was at risk, with margins 3-10 times lower than those of comparable platform and publishing businesses. Sharma had initially expected Game Pass subscriptions to reach 77 million by the end of the year, but the actual number stands at around 30 million. Microsoft had aspired to achieve 100 million subscribers by 2030, a target that seems increasingly unattainable.

Sharma's first action upon taking over from Phil Spencer was to lower the price of Game Pass and remove Call of Duty from the subscription as a day one title. Sharma recently told Bloomberg that the company has been able to "reset" Game Pass after an eight-month decline, with it now returning to growth and expanding retention. Sharma emphasized that they are "getting back to being closer to our players and our community."

However, the future of Game Pass remains uncertain. Questions linger about whether Microsoft will eventually phase out day-one launches for all its games on the platform, including Bethesda's The Elder Scrolls 6 and the upcoming mainline Halo game. There is also speculation about whether Game Pass could evolve into a service more akin to Sony's PlayStation Plus, which does not feature day-one launches for first-party games.