Sales of Microsoft’s Xbox consoles are coming under pressure, and the company is signaling it may not care as much as fans expect. CNBC points to Microsoft’s first quarter fiscal 2026 earnings, in which overall gaming sales fell 2% year-over-year and Xbox hardware sales fell 29%.
The downturn is bigger than Xbox. Circana data cited by CNBC shows that spending on console hardware fell 27% year-over-year in November, typically a peak shopping month. Even in this ugly context, Xbox Series hardware was hit the hardest, with a 70% drop compared to the same month last year.
Instead of promising a classic comeback, Microsoft is taking a different approach. Phil Spencer said Microsoft isn’t trying to “outdo” Sony or Nintendo, and a source familiar with Xbox strategy said the company is looking for an open system that allows gamers to switch between console, PC and cloud gaming, as well as entertainment beyond gaming.
Xbox is way behind
The gap looks brutal in the unit comparisons highlighted by CNBC. Nintendo said the Switch 2 has sold 10.36 million units since its launch in June. Sony reported 9.2 million PlayStation 5 units sold in 2025.
For Xbox, CNBC cites estimates from VGChartz that the Xbox Series S and Series Microsoft declined to comment on sales numbers and stopped reporting console unit shipments back in 2015 as PlayStation’s lead grew.
Open system, fewer walls
Microsoft executives laid the groundwork for this public change. Satya Nadella has spoken of gaming being “everywhere on every platform” and suggested that the next Xbox could blur the line between console and PC. Xbox President Sarah Bond also touted the company’s newer handheld devices built by Asus, which are designed for cross-platform play and access to PC game stores.
The walls are also falling on the software side. Bond has called exclusives antiquated and Microsoft has announced that the next Halo will be coming to PlayStation 5, a first for the franchise.
What to watch next
The bet is that subscriptions and streaming can outpace declining hardware demand. CNBC cites Xbox as having 34 million Game Pass subscribers in 2024, nearly $5 billion in Game Pass revenue last fiscal year, and a 45% increase in cloud gaming hours compared to last year. Xbox Cloud Gaming now spans 30 countries, including India.
But the economic aspects remain difficult. There was a huge backlash after the price of Game Pass Ultimate rose 50% in October and Microsoft is testing an ad-supported cloud option. When deciding where to invest, next pay attention to two things: whether Microsoft is showing true “open system” features in its next-gen plan and how it will fare when new living room competitors like Valve’s next-gen Steam Machine come to market.
