The October 2023 acquisition of Activision Blizzard cemented Microsoft’s gaming division as the largest video game maker by headcount, overseeing such top IP as Call of Duty, Candy Crush and Minecraft.
Now, close to two years later, Microsoft is still downsizing its gaming division after cutting approximately 2,800 roles throughout 2024. It’s necessary to dig into the company’s financial figures to understand why.
Microsoft kicked off July with 600 more job cuts across its gaming companies, including multiple studio closures and game cancellations, as part of a broader trim of 9,000 at the entire company.
Fingers can’t be pointed only at Xbox for layoffs so severe, though it’s as precarious a time as ever for the console brand. Since pushing forward with an aggressive strategy to bring more first-party titles to PlayStation, sales for those games have been strong enough to dominate PlayStation’s own charts.
Per Circana, Microsoft’s publishers accounted for six of PlayStation’s top 10 titles in the second quarter of 2025. CEO Satya Nadella cited this fact during the company’s earnings call at the end of July, describing Xbox as the “top publisher” on its rival console brand.
Microsoft discloses next to no hard numbers for its gaming business, making Activision Blizzard’s performance just as murky since its acquisition.
But that’s not the case for revenue, and looking back multiple years does hint at the harsh reality that has triggered strategic shifts.
Even without exact numbers, it’s clear the addition of Activision Blizzard, a highly profitable enterprise, exposed preexisting revenue issues at both Xbox and prior acquisition Bethesda. The holiday quarter is the biggest tell: Despite revenue leaping nearly 50% year over year in 2023 after the acquisition closed, the next seasonal quarter fell 7.5%.
That was through no fault of Activision, as Call of Duty: Black Ops 6 dominated the market upon its October 2024 release, achieving new franchise records and boosting subscribers for Xbox Game Pass. Modern Warfare 3 underperformed expectations the prior November, allowing Hogwarts Legacy to become the year’s bestselling title.
All of the above points to the core Xbox unit lacking in sales power, which is exactly why Microsoft has flooded PlayStation with new and old games since then. To its credit, Microsoft Gaming’s revenue has been up year over year for the first half of 2025.
In the last quarterly earnings, Nadella confirmed game sales predominantly contributed to the 10% revenue increase from 2024, with the bonus of record engagement for Minecraft after Warner Bros.’ highly successful film adaptation in April. Still, he acknowledged sales of Xbox hardware dropped 22%.
In order to stay competitive with PlayStation, Xbox had beefed up its first-party studios over the course of several years before Microsoft opened its wallet for the much heftier acquisitions of Bethesda and Activision Blizzard.
This resulted in a massive pipeline of games already significantly scaled back since a raucous summer showcase last year, including a Perfect Dark reboot that was in the works since 2018 and first announced at the Game Awards in 2020. Another game that had been worked on for years, Contraband, was canceled in August.
The length of time it was taking Microsoft Gaming to churn out such releases in the AAA console climate amid the desire to streamline the company’s expenses after spending $75.4 billion to bring Activision aboard was the death knell for Xbox as it’s been known.
As much as opening first-party IP to PlayStation has helped to boost sales, Nadella cares most about the macro outlook, making a point to boast 500 million active users across all platforms and devices for Microsoft titles in the last earnings call and confirming more than 40 games were still in development.
If those new titles aren’t able to stand on their own and grow subscriptions, as Call of Duty does, expect Microsoft Gaming to get even smaller.
