Xbox gaming revenues have declined by $113 million, or 2%, due to drop in hardware sales and limited growth of gaming content and services in Q1 FY2026 over the prior year, Microsoft confirmed in its latest financial report.
On Wednesday, the company reported its Q1 FY2026 earnings, confirming the Xbox hardware revenue 29% decline, which is offset in part by growth in Xbox content and services, whose $5.5 billion revenue is a 1% improvement over the "strong prior year". This revenue increase was driven by growth in Xbox Game Pass and third-party content, and partially offset by a decline in first-party content.
Xbox hardware sales declining is hardly surprising, as console sales were already down 22% last quarter. With the current generation almost at the end, increasing prices, and a multiplatform strategy that is bringing tentpole franchises like Halo to the PlayStation 5, no improvement was to be expected.
Considering the above, it will be very interesting to see how much of a difference the next-generation Xbox will make. The new system will reportedly be a very premium experience combining the best of the PC and console worlds, but its popularity could be severely impacted by its price, which is expected to be much higher than the price of the PlayStation 6.
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