"You used to buy Nintendo for Mario and for Pokémon, you used to buy Xbox for shooters like Halo... Now there's like, why buy an Xbox? There's no real reason to."

I said that on this week's Pixels & Profits, and I think it's the whole story in one line. A platform exists because it has something players can't get anywhere else. Take that away and you're competing on hardware specs and subscription price, which isn't much of a reason.

Most of the coverage of the Xbox reset reads like a Microsoft earnings story: 3,200 job cuts, four studios out the door, margins three to ten times below peers, and a lot of speculation about whether Satya keeps the business. Matthew Kanterman (Director of Research at Blue River Financial), Eric Kress of Deconstructor of Fun and I covered that side in depth on Pixels & Profits, and the full episode is below.

This post is for people who build, ship and fund games. My claim: for the last decade, Microsoft was the closest thing this industry had to a patron. It paid for exclusivity, it paid for Game Pass placement, and it bought studios that were struggling. All three are going away at the same time, and most studios haven't planned for a world without them.

I took four lessons away from the conversation for studios. Then I'll give you the one point where both of my co-hosts disagreed with me.

1. A platform needs a reason to exist, and Xbox gave its away (1:32, 6:15)

Matthew started with the history. The 360 gained ground because it was first to market with online multiplayer, with Halo as the spearhead. Then the Xbox One went sideways. Eric put it bluntly: Kinect was technology "no one really wanted," it pushed the price up by "almost a hundred dollars," and Xbox "evaporated their lead against Sony in like one generation." Meanwhile Sony doubled down on first-party content.

My view, which I argued on the show, is that Game Pass and the move away from exclusives finished the job. Once the games are everywhere, there's no reason to buy the box. Eric went further and said Xbox can't go back:

"There's just no way they could do exclusives anymore. Like, it's impossible. There's just too much money left on the table."

For studios, this cuts two ways. The upside: multiplatform is now the default even for Microsoft's own franchises, so you will never again have to justify shipping on PlayStation. The downside is that the exclusivity deal, the check a platform writes to keep you off a competitor, was one of the few ways a mid-sized studio could fund a console game before launch. This next part is my inference, not something said on the show: I don't expect anyone to replace those checks, because Sony is winning without writing them.

And one more consequence people miss. Microsoft's first-party games are coming to every platform, including PlayStation. If you compete in a genre Xbox studios own, they're now on your storefront.

What I'd do: budget console projects as if there is no platform money at all. If a deal shows up, treat it as upside, not the plan.

2. Watch third-party share, not MAU (6:15, 9:10, 15:13)

This is the number that should matter most to anyone shipping on consoles. Eric estimates Sony is outselling Xbox close to 8 to 1 in current unit sales, which he called "a leading indicator of what's to come." And Xbox's share of third-party software has fallen from roughly 35 to 40% to around 15%, which is "where all the margin is in this business."

Matthew explained why that matters so much to the platform itself. Sony's disclosures show that the majority of its gaming profit comes from the roughly 30% commission on third-party games. When third parties stop selling on your box, the business model goes with them. He also pointed out that Xbox hardware revenue has declined four fiscal years in a row: down 11%, 13%, 25% and 29%.

Then there's the 500 million MAU figure. It sounds like a platform to build on until you subtract King, Call of Duty Mobile and Minecraft. In Matthew's words, "there's not much left."

What I'd do: treat your Xbox SKU as an audience decision, not a prestige decision, and size it to the actual install base on the storefront you'd ship to. Be skeptical of any platform pitch that leads with a blended MAU number.

3. Game Pass is a back catalog, not a funding source (21:25)

Game Pass deals saved a lot of studios over the last few years: a guaranteed check before launch, sometimes covering a big share of the budget. That model is in trouble.

Here's what's public. Microsoft last disclosed 34 million subscribers in February 2024, and that included the Core tier. The Wall Street Journal reported 30 million in 2026 against an internal goal of 77 million. Since last year's price hikes and tier renames, the new leadership has said almost nothing about Game Pass strategy. My read is that they know the economics don't work, and we're looking at a slow wind-down, or a shrink into a back-catalog service.

Matthew had a sharper version: keep Game Pass alive until after a transaction, then shut it down so the new owners can book the savings. Eric thinks the premium tier survives for the hardcore Xbox fans as long as the console exists. I also argued on the show that Game Pass is cannibalistic and fights an exclusive strategy. I'd add that it competes with buy-to-play sales of the very games it carries.

None of those outcomes is good news if your financial plan has a Game Pass check in it.

What I'd do: if a subscription deal is on the table, take it as a one-time window, and negotiate for cash up front rather than anything tied to the service's future growth. Plan your launch so the game still works commercially if the service shrinks. And if your game depends on buy-to-play revenue, think hard about whether day-one subscription placement cannibalizes it. That's the same tension Xbox has with its own games.

4. The acquisition safety net has holes in it (12:28, 15:13, 17:24)

This is the part I'd want every studio founder to read.

When a studio sold to Microsoft, the implicit promise was stability: big parent, deep pockets, a long runway. The reset broke that promise in public. In July, about 350 people left with four studios being spun out: Ninja Theory, Undead Labs, Compulsion and Double Fine. Compulsion and Double Fine have since left with their IP. Undead Labs left on similar terms. Ninja Theory had two deals fall through and now faces a proposed closure.

Eric thinks cutting the smaller studios was the obvious move, and he wasn't impressed by it:

"Any banker at Goldman, Morgan Stanley, even CS First Boston could have put a team together to do this, right? Cut, cut all this stuff... The hard part is managing the studios going forward, right?"

Platform holders are concentrating on franchises that move the needle. Sharma's own memo said three Xbox franchises are already over $1 billion each (she didn't name them; my guess is Call of Duty, Minecraft and Candy Crush). If your studio isn't attached to something on that scale, you're a line item in the next reorg, no matter who owns you.

The flip side is IP. Two of the four studios walked out with their IP, and that is the difference between a studio with a future and a team looking for jobs.

Even the big franchises aren't safe. Eric pointed out that the latest Gears of War had a Metacritic score around 88 and, by his estimate, has sold fewer than two million units on a budget he puts at $200 to $300 million. And on the push to license Xbox IP into TV and film:

"You can't build a movie out of Halo or Gears of War or Fable when these IPs are completely irrelevant in the market, right? It's like step four when you should be doing step one through three."

What I'd do: before you sign an acquisition or publishing deal, read the IP reversion clause as if the buyer will reorganize you out within three years. Recent history says that's a reasonable assumption. And fix the core game before you expand the IP. Licensing amplifies a franchise that's working; it doesn't rescue one that isn't.

Where I disagree: are players leaving console? (42:35)

I pushed a thesis on the show that both of them rejected, so I'll be honest about it. Since COVID, the center of gaming seems to have moved to PC and mobile, with friend groups coordinating on Discord. I haven't touched my own consoles in a long time, and the kids I watch play Roblox, Minecraft, Valorant and a lot of friendslop games, almost never on a console. I'll admit that's anecdotal.

Eric's case is worth hearing if you build for core players. The console install base has been roughly flat for three generations and is only about 10% below last generation right now, even with Xbox's problems. Players progress: kids play what they can on phones, Roblox included, and then grow into console and PC. And PlayStation's roughly 120 million players are the 18-to-44 core audience that, in his words, "spends insane amounts of money." Matthew added that PlayStation's monthly users are still growing a couple of million a year, and a console is still cheaper than a comparable gaming PC.

I still think console usage declines over time. But for a studio deciding where to ship in the next two years, their point stands. Mobile and Roblox are where players start; console and PC are where a lot of core spenders end up. Pick which stage of that journey your game is built for.

The bottom line for studios

Xbox didn't lose because it made bad games. It lost because players stopped having a reason to choose it. When content went everywhere, the platform's moat went with it, and so did the money it used to spend on studios like ours.

So my planning assumption is simple: the platform is no longer your investor. Fund your next project from players, from publishers taking real risk, or from your own balance sheet, and treat any platform money as a bonus.

Matthew and Eric both expect Xbox to be spun out of Microsoft, and Matthew put a date on it: an announcement around Microsoft's fiscal 2027 earnings and an independent Xbox by June 2028. New owners could mean new priorities and new deals. I'd love to be wrong about the patron leaving. I'm just not planning around it.

Watch the full episode

The full conversation runs 57 minutes and goes deeper on the business side, including the spin-off debate. Chapters worth jumping to as a developer:

• 1:32 How Xbox Lost Its Lead

• 6:15 Was Game Pass the Downfall?

• 17:24 The Easy Part Is Done

• 21:25 What Happens to Game Pass?

• 26:13 Hardware: OEM or Exit?

• 42:35 Is Console Shrinking?

• 49:50 AI, Minecraft and King

Subscribe to Pixels & Profits on YouTube: https://www.youtube.com/@pixelsprofits

For the investor view (the numbers, the reset memos and the spin-off question), read the full Pixels & Profits issue: https://pixelsprofits.com/

If you've signed a platform or subscription deal recently, tell me in the comments what the terms look like now. I'd love to compare notes.

This post is for informational purposes only and is not investment advice. Figures are as discussed on the show, and many are the speakers' own estimates.