Xbox Says First Party Games Are Returning to Growth After an All Time Low

Xbox CEO Asha Sharma says Microsoft’s first party gaming business has started returning to growth after reaching what she described as an "all time low," months into one of the largest restructurings in Xbox history. The comments came during an internal Xbox town hall on October 6, where Sharma addressed employees about the state of the business, Xbox Series X|S, Game Pass, PC gaming, Battle.net, and the next generation Xbox Helix hardware strategy.

According to a transcript obtained and independently verified by Windows Central, Sharma said Xbox entered 2026 declining across player hours, active players, and revenue. Player engagement has since stabilized, while first party games have reportedly returned to year over year growth. Importantly, the growth figure discussed during the meeting referred specifically to games owned and published by Xbox rather than the entire Microsoft Gaming organization.

"We're making the right decisions to reinvest in the business, after an all time low, we've started to return to growth."
— Quote by: Asha Sharma

Sharma reportedly said first party growth is now more than 2 to 3 times where it had been previously, although Microsoft has not published the underlying numbers, timeframe, or methodology behind that comparison. She highlighted Gears of War: E Day, Minecraft Dungeons 2, and World of Warcraft Forever as titles with strong starts, while also claiming positive Xbox brand sentiment has increased by 30% over the past year.

The comments arrive only 3 months after Sharma publicly described Xbox’s financial position in considerably more severe terms. In the official Resetting Xbox announcement published on July 6, Microsoft confirmed plans to eliminate approximately 3,200 Xbox positions throughout fiscal 2027, including around 1,600 immediate job reductions. Sharma said the business was operating at margins between 3 and 10 times lower than comparable platform and publishing companies, while Game Pass, multiplatform publishing, and an expanded content portfolio had failed to grow at the pace Microsoft expected.

Microsoft consequently began consolidating its gaming organization around fewer operational groups. Compulsion Games and Double Fine transitioned toward independence, Undead Labs moved toward new ownership before ultimately becoming an employee owned independent studio, while Ninja Theory entered a separate ownership process. Arkane also entered consultation over potential strategic options.

The restructuring has continued across Bethesda, Activision, Blizzard, King, Mojang, and Xbox Game Studios. Microsoft recently confirmed another 268 position reductions as part of that previously announced 3,200 target, alongside major organizational changes that included moving additional development oversight under Activision and Bethesda. The changes also saw World’s Edge lose just under half of its staff, while several other teams have undergone reductions and management restructuring.

Microsoft has said approximately 75% of the restructuring is now complete, meaning additional changes are still expected before the process concludes. The company has maintained that none of its publicly announced first party projects are being cancelled specifically as part of the restructuring, although the workforce reductions have already affected production capacity across parts of the organization. Former ZeniMax Online Studios developers, for example, have warned that The Elder Scrolls Online will be unable to maintain its previous content production pace.

At the same town hall, Sharma reiterated that Xbox Series X|S players are once again being treated as a central part of the company’s strategy. She described Xbox’s future around 4 priorities: core, content, creation, and connection. Microsoft intends to continue investing in its current console generation while preparing Xbox Helix, which Sharma described as a family of next generation devices rather than a single piece of hardware.

The strategy includes a traditional console first, but Microsoft also sees portable hardware as an important part of the next generation. Some devices may be manufactured directly by Microsoft while others could come through hardware partnerships, extending the approach already used with Windows based handheld systems. Sharma also said development of the operating system for the new hardware family is progressing well.

Game Pass remains part of that strategy, although Microsoft appears to be moving away from treating one subscription structure as suitable for every player. Sharma again suggested that Game Pass will become more flexible, giving customers more control over the types of content and services included in their subscription.

PC is another major area of renewed investment. Sharma said Microsoft historically focused too heavily on a single Xbox application instead of recognizing that different PC gaming communities use different platforms. Battle.net is now being positioned as a larger part of Microsoft’s PC strategy, with Sharma claiming its user retention is nearly comparable to Steam once players enter the ecosystem. Microsoft still intends to support Steam and other PC channels where they reach distinct audiences.

Microsoft also wants to simplify how developers publish games across its ecosystem. Sharma acknowledged during the meeting that working with Xbox is currently too difficult, with the company planning to streamline APIs, reduce unnecessary certification complexity, and improve publishing tools across Xbox Series X|S, Xbox PC, and Xbox Helix.

These operational changes form part of a broader attempt to reverse the fragmentation Microsoft itself acknowledged earlier this year. The July restructuring plan revealed that some work passed through as many as 14 layers of management, while Xbox platform teams had become approximately 40% larger since the beginning of the current console generation even as player numbers and total playtime declined. Microsoft plans to reduce those management structures substantially while operating its gaming businesses under a more centralized financial model.

Sharma previously said Xbox is targeting a return to growth in 2027. The latest internal comments suggest Microsoft believes parts of that recovery may already be beginning, but there is still an important difference between improved first party performance and a confirmed recovery across the entire Xbox business.

Xbox appears to be seeing improved performance from its first party portfolio after a particularly difficult start to 2026, and stronger launches from Gears of War: E Day, Minecraft Dungeons 2, and World of Warcraft Forever are encouraging indicators. However, Microsoft has not released the financial data behind Sharma’s reported 2 to 3 times growth figure, and the statement should not be interpreted as confirmation that every part of Xbox has recovered.

The larger test will come after the restructuring finishes. Microsoft is cutting approximately 3,200 positions, reducing management layers, separating studios, consolidating development organizations, changing Game Pass, rebuilding its console strategy, expanding Battle.net, simplifying its PC business, and preparing an entirely new family of Xbox hardware at the same time.

If those changes translate into sustainable player growth, stronger software sales, healthier studios, and a more competitive Xbox ecosystem, 2026 may eventually be remembered as the year Microsoft successfully reset the business. For now, the recovery remains a work in progress rather than a completed turnaround.

Do you think Xbox’s renewed focus on first party games, consoles, PC, and a more flexible Game Pass can rebuild momentum after such a major restructuring?