Xbox gaming revenue dropped 7% in fiscal year 2026, which ended in June, as declining console hardware sales outweighed gains from new players. The company added more than 200 million new players over the year, but that wasn't enough to stop the slide. In the fourth quarter alone, hardware revenue fell 13% and content and services revenue — which includes Game Pass — dropped 10%.
Why hardware is hurting
Console sales have been the main drag on Xbox's numbers. The company has trailed Sony's PlayStation for most of the current generation, and the gap isn't closing. Microsoft cut 4,800 jobs in July 2026, including 3,200 roles in its Xbox division, and spun off four internal studios, trimming its first-party lineup. Those moves signal a shift away from the traditional console arms race.
Price increases and Game Pass changes
Starting August 1, 2026, Xbox is raising console prices by up to $150, citing higher memory and storage costs. The move could further dampen hardware demand. Meanwhile, a $7-per-month price cut to Game Pass Ultimate in April 2026 hurt subscriber growth, according to the company. The service, once seen as Xbox's growth engine, is now under pressure to retain users.
Xbox CEO Asha Sharma outlined a plan to return to growth by the end of fiscal year 2027. The strategy relies on a mix of higher hardware prices, a leaner studio structure, and a focus on content and services. But with Sony planning to stop producing physical PlayStation discs by 2028, the industry is moving toward an all-digital future — a shift Xbox has already embraced. Whether the price hikes and studio cuts will be enough to reverse the revenue decline remains an open question. The new console pricing takes effect in less than two weeks.
