Following the umpteenth destructive wave of layoffs at Xbox, which this time also led to four (possibly five) studio divestitures and thousands more job cuts at historic studios like Bethesda, Obsidian, and id, it has become abundantly clear that the whole strategy centered on Game Pass was flawed.
Xbox head Phil Spencer, with the blessing of Microsoft CEO Satya Nadella, explicitly sought to replicate Netflix's subscription service boom in gaming. However, the reality is that the two forms of entertainment couldn't be more different: games are generally much longer than TV series, for starters. Moreover, unlike TV shows or movies, they are interactive and therefore inherently replayable, whereas most people won't really rewatch shows or movies.
That's why Netflix remains the strongest subscription service in that business: it has the wider portfolio. Sure, tentpole attractions like Stranger Things or Money Heist are helpful, but if that were all Netflix had, people would subscribe only as long as they consume those shows. Netflix, Prime Video, and the like need a broad portfolio to ensure people actually have something to watch regularly; otherwise, they'll just unsubscribe.
The same absolutely does not apply to gaming. In fact, most gamers buy two or three games each year and are perfectly content with that, especially now that there are plenty of enjoyable free-to-play games, too. Despite these fundamental differences, Xbox and Microsoft used the same formula as Netflix: invest aggressively in content. They purchased many studios, spending more than $80 billion on studio acquisitions and about a billion per year on third-party deals for Game Pass. This ultimately stretched the division too thin, as new Xbox CEO Asha Sharma has now admitted.
When Game Pass launched in 2017, Xbox executives targeted $77 million active Game Pass subscribers by fiscal year 2026. The reality, however, turned out to be a far cry from that. According to a Wall Street Journal report, GP subscribers are now just 30 million, down from the 34 million Microsoft had last confirmed two years ago. The failed strategy also "succeeded" in lowering revenue from full-priced games added to Game Pass: according to Bloomberg, Microsoft lost about $300 million when it put Call of Duty on the subscription service, a strategic choice it has reversed earlier this year.
Gamers have spoken all too clearly: subscriptions don't really work in gaming, except as add-ons featuring old games, like PlayStation Plus Extra and Nintendo Switch Online. In short, as Alinea analyst Rhys Elliott said after last year's July round of Xbox layoffs, Microsoft bet on the wrong horse and is paying the price now. Where that leaves Game Pass under Sharma's tenure remains to be seen, but it is unlikely to remain the core of Xbox's strategy.
About the author: With over two decades of experience in gaming journalism, Alessio Palumbo has led the gaming vertical at Wccftech since August 2015. He started working at a young age for Italian websites like Everyeye.it, Gamestar.it, Nextgame.it, and Multiplayer.it before kickstarting the indie English-language publication Worlds Factory as its founder and Editor in Chief. In the last decade, he has coordinated the overall output of Wccftech's gaming section, managed PR relations, assigned reviews, produced daily news coverage, edited gaming content as needed, and delivered game reviews. Arguably, his trademark content is the long series of exclusive developer interviews that have been cited by Wikipedia and by the biggest news media and gaming publications. His passion for technology also makes him knowledgeable when it comes to gaming hardware and tech. His favorite genres include RPGs, MMORPGs, and action/adventure games.
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