Xbox’s business has started to recover after what Asha Sharma described as an all-time low, even as the company continues to wrestle with the damage from its Game Pass strategy. In an internal memo obtained today, Sharma said the business had begun to return to growth after a period she tied to severe pressure on Xbox’s finances.
The timing matters because Xbox is still moving through a sweeping reset. The company cut nearly 2,000 staff in 2026 and closed studios as it tried to steady a business many inside the company now view as strained by its subscription push. Sharma’s memo lands as readers are again searching for the direction of Game Pass and what that means for the next phase of Xbox.
The memo is blunt about how far the business had fallen. Microsoft’s Game Pass strategy sent Xbox’s balance sheet into freefall, the memo said, with the damage reaching both Call of Duty and Game Pass, according to a comment from Jez Corden. That account fits with the broader picture after Microsoft bought Activision Blizzard for $69 billion and then added Call of Duty to Game Pass, a move that helped drive subscription costs higher.
Sharma did not try to soften the reset when layoffs were announced in the summer. “Our business today is not healthy,” she said then, adding that Xbox had to reset. She said Microsoft entered Gen 9 with a smaller install base and a higher cost structure, a combination that made the business harder to run even before the latest round of cuts.
That is the friction point in today’s memo. Sharma now says Xbox has started to return to growth, and she says it is doing so at more than 2 to 3 times what it was before. Yet the company reached that point only after the nearly 2,000-job reduction and while the wider business was still being described internally as being in freefall. The recovery is real enough for management to point to, but it follows a stretch of damage that still shapes every decision around Game Pass.
The unresolved question is how Microsoft turns that recovery into a subscription product that can grow without repeating the same mistake. The said Microsoft had expected Game Pass subscriptions to reach around 77 million this year, and last month rumors pointed to new Game Pass tiers without day-one launches, including options with and without ads. Microsoft also filed a patent around the same time for suspending a game to show an ad for more game time, which only sharpened speculation that the company wants cheaper, more limited access tiers.
What comes next is clearer in direction than in detail. Microsoft appears to be reworking Game Pass around tiers that are more accessible but less generous, with pricing and launch-day access likely at the center of that shift. Sharma’s memo suggests the company believes the worst is behind it; the harder test is whether it can rebuild growth without leaning on the same model that pushed Xbox into freefall in the first place.
