Recently, Xbox CEO Asha Sharma and Xbox Executive Vice President and Chief Content Officer Matt Booty issued an internal memo to all employees, summarizing the results of the new leadership’s first 100 days of work, analyzing the challenges facing the Xbox business, and proposing a plan to “revitalize a stronger Xbox.”
The memo paints a bleak picture: Despite more than $20 billion in investments over the past five years (excluding Activision Blizzard), Xbox's core revenue is still declining and profit margins are expected to be only about 3% for the fiscal year ending June 30, which means a major restructuring may be needed.
According to Bloomberg reporter Jason Schreier, citing people familiar with the matter, Xbox plans to conduct "massive" layoffs soon after the end of the fiscal year, while also significantly cutting spending in marketing and other business areas.
The full text is as follows:
To the team:
In our first 100 days together, we have begun to reinvigorate Xbox.
Our platform team has released more updates in the past 100 days than in the entire previous year combined. We have more active partners on Xbox than ever before. Our Game Pass team worked to improve the service, which has started to grow again after more than eight months of decline. Through PlayerVoice, we have a 24/7 channel to hear directly from players, creators, and developers.
Through the Xbox Game Showcase and the return of FanFest, we bring together hundreds of millions of fans around the world. We've reintroduced exclusive games: Gears of War: Days of Incident in 2026 and Clockwork Revolution in 2027. Players can expect iconic exclusives from us every year. At the same time, PlaygroundGames shows us that mature IP can reach incredible new heights.
These results are preliminary, but they demonstrate what we can achieve when we move faster, stay close to our communities, and align around a shared vision. We have made mistakes and will continue to make them, but it is important that we listen, learn, and pivot when necessary. Remember, our fans support us.
Now, we start the next 100 days. As you work to revive your business, it's equally important to remain optimistic and realistic.
Here is the reality we need to deal with:
First: More than 1 billion players choose XBOX and our games every year, playing a total of 72 billion hours on consoles, PCs, mobile terminals and cloud games (excluding most regions in China and a few other markets). Our game IP is also one of the largest and most popular series in the world, and it has repeatedly broken records in the film and television field. Moving forward, our competitor is “attention.” There are more great games, TV series, IPs, creators, content formats, apps, and more than ever before.
Second: At the end of this fiscal year, our liability margin will be approximately 3%, which is down year-over-year. Excluding Activision Blizzard, our ongoing investment in content, platform and hardware subsidies over the past five years has exceeded $20 billion, but our annual revenue has declined by nearly $500 million during the same period. Going forward, this cannot continue.
Third: We are facing a hardware component crisis. When I became CEO in February, our prices for purchasing host storage components were more than twice what they were last fall. Those costs have since doubled. Looking ahead to the 2027 Christmas season, we expect another sharp increase, bringing prices to more than five times what they were just two years ago. Memory costs have followed much the same trend. While the entire industry is facing a component crisis, we believe we have been more severely impacted than many of our peers due to the choices we made over the past five years. We are currently unable to produce as many consoles as players will want to buy, and we need to establish new business models and partnerships for the hardware as we remain committed to Project Helix.
Fourth: In the past, we have expanded our studio system in order to meet the demand for content from multiple strategies such as subscription, streaming media and devices. Along the way, we found ourselves overextended because we were executing changing strategies in an environment where content was more accessible. We're lucky enough to be at the helm of some industry-defining IPs that have huge potential and player demand, but we don't give them enough financial backing to compete and win. At the same time, as we saw at the showcase last weekend, a stable and reliable pipeline of first- and third-party exclusive games and new IP is critical to our success. We need to reassess the balance of these aspects and adjust investment priorities for the next five years.
Fifth: Our current platform infrastructure is not equipped to handle future challenges. Our system was overly complex, involving hundreds of dependencies, which hindered our ability to move quickly. We have become overly reliant on vendors to operate systems and must become more self-reliant as an engineering culture, building for the future. We must increase the value we deliver to players while reducing the time it takes to deliver. Looking forward, we will evolve and restructure our technology stack, review the capabilities of Xbox across the board, and pursue potential acquisitions to help us win in the hardware, PC, mobile and cloud gaming fields.
For some of you, these realities may be surprising or even frustrating. But we cannot succeed by concealing harsh truths, nor can we repeat the same behavior and expect different results. Just like the "small wins every day" mentality in the first 100 days, we will sprint forward and make progress together in hardware, content, experience and services.
XBOX is one of the few places where people come not only to play games, but also to interact with others and create memories. With consoles at the core of our showcase experience, Windows as one of the world's largest gaming platforms, and our incredible lineup of games from one of the world's largest publishers - we've built a solid foundation.
Let us revive a stronger XBOX and build the world's number one gaming and entertainment company.
Asha & Matt