According to Windows Central, Microsoft’s Q2 FY26 earnings revealed a significant downturn for Xbox, with overall gaming revenue decreasing by 9%. The quarter, covering October 1 to December 31, 2025, saw Xbox hardware revenue plummet 32% and content/services revenue drop 5%. During the earnings webcast, CFO Amy Hood explicitly stated the shortfall was “driven by first-party content,” pointing to titles like Call of Duty: Black Ops 7, Outer Worlds 2, Ninja Gaiden 4, and Keeper. CEO Satya Nadella’s attempt to highlight a “record” number of PC players in paid streaming underscored the struggle to find positive news. The company expects hardware revenue to drop again next quarter, hoping Game Pass growth will offset it.
The CoD-shaped hole
Here’s the thing: when Microsoft points to first-party content, what they’re really saying is that Call of Duty dropped the ball. That’s the only title in that lineup with the sheer weight to move the needle like this. And reports, like the one from industry insider Shinobi602, show Black Ops 7 got outsold by Monster Hunter Wilds, Borderlands 4, NBA 2K26, and Battlefield 6. That’s… not supposed to happen. For years, Call of Duty was the reliable holiday juggernaut you could bank on. If that pillar is wobbling, the whole financial structure for Xbox gets shaky. It basically means their $70 billion safety net has a tear in it.
A platform with no point?
So why is everything falling apart? Look, the strategy has been clear for a while: de-emphasize the console, push Game Pass, go multi-platform. But this quarter exposes the brutal downside. You’ve abandoned console exclusives, which removes a core reason to buy the box. Then you’ve got the Series S, a years-old machine, still sitting at a baffling $399—the same price as a PS5 Digital Edition, which smokes it. And then, as the cherry on top, they hiked the price of Game Pass Ultimate by 50%. They’ve systematically removed incentives while raising costs. I mean, what’s the value proposition anymore? “Pay more for less reason to be here?” It’s a tough sell.
Is there any way out?
The author isn’t wrong to be pessimistic. The rumored next-gen “Windows-like” Xbox with Steam integration sounds cool on paper—especially to a PC gamer. But will it save them? If it’s priced anywhere near a decent gaming PC or a Steam Machine, why wouldn’t people just buy those instead? It feels like they’re chasing a hardcore PC niche while the broader console audience drifts away. The only real lifeline is the games. They need a string of undeniable, system-selling hits from their other studios—the Fables, the Perfect Darks, the next Gears. But those are always “in development.” The pressure on those teams right now is immense. This quarter has to be a stumble, not a trend. But honestly, it’s getting harder to see the path back to being a hero.
