Xbox Revenue Falls as Microsoft Reports Another Difficult Quarter for Game Pass

Microsoft is heading into the holiday season with declining Xbox revenue and another difficult quarter for Game Pass, although the company expects upcoming game releases to improve its performance.

According to Microsoft’s first-quarter fiscal 2027 earnings report, Xbox generated $5.38 billion USD (around $7.51 billion CAD) in revenue for the three months ending September 30, 2026, down approximately 2% from $5.51 billion USD (roughly $7.69 billion CAD) a year earlier.

Xbox hardware revenue has reportedly fallen 14 percent year over year, which Microsoft attributed to fewer console sales. The company did not disclose how many Xbox Series X and Series S consoles were sold during the quarter. Meanwhile, Xbox content and services revenue declined 2 percent, marking its fourth consecutive quarter of year-over-year declines.

Microsoft attributed the latest decrease partly to lower revenue from third-party games and Xbox Game Pass, although growth in first-party content helped offset those losses. The company did not disclose updated Game Pass subscriber figures or specify how much subscription revenue declined.

Despite the broader decline, Microsoft CEO Satya Nadella highlighted strong performances from two of the company’s biggest franchises. During the October 28 earnings call, Nadella said Minecraft hit a record quarter for revenue and engagement, which is no surprise. The game has sold over 425 million copies worldwide and is the best-selling game in history. Minecraft also retains strong core engagement with its audience.

World of Warcraft also recorded the largest beta in the franchise’s history. The milestone comes ahead of the November 4 launch of World of Warcraft: Forever, a new experience that revisits the original Azeroth with additional zones, dungeons, and a playable Skyborne race. However, Microsoft did not provide specific participation numbers or reveal how much either franchise contributed to its gaming revenue.

Looking ahead, Microsoft CFO Amy Hood forecasts mid-to-high single-digit growth in Xbox content and services revenue during the October-to-December quarter. Several major releases support that outlook, including Call of Duty: Modern Warfare 4, which launched October 23, and Grand Theft Auto VI, scheduled for November 19. Both games fall outside the reporting period covered by Microsoft’s latest earnings. The company expects first-party and third-party game releases to boost content revenue, although Xbox hardware sales are projected to decline again in the holiday quarter.

The financial results arrive amid significant changes to Microsoft’s gaming business. Following Phil Spencer’s departure and Asha Sharma’s appointment as Xbox CEO, Microsoft announced plans to eliminate approximately 3,200 positions throughout fiscal 2027.

The restructuring has affected several first-party studios, including Halo Studios, while other developers have transitioned toward independent management. In September, Microsoft announced another 268 job cuts across its gaming operations. Those reductions were included in the previously announced restructuring plan.

The company has also acknowledged that Game Pass and its broader gaming investments have not grown as quickly as expected. The upcoming holiday quarter will test Microsoft’s newly minted strategy.

While major releases could help reverse declining content revenue, another projected drop in hardware sales suggests Xbox’s challenges extend beyond its game lineup.