Nadella Links Xbox’s Next Phase to a New Approach to Gaming
Microsoft CEO Satya Nadella says Xbox needs to develop the right sustainable business model if the division is to reach more players with its games, as the company continues a major restructuring under Xbox chief Asha Sharma.
Speaking on the Sources Podcast, Nadella said he remains highly confident in Xbox’s studios and intellectual property portfolio, while describing the streamlining underway under Sharma as “great to see.”
The comments come after thousands of Xbox roles were eliminated and multiple studios were placed under new ownership or faced potential closure. Microsoft has also reorganized several of its first-party teams as part of what Xbox has described as a broader reset.
Nadella said the division is targeting a return to growth in the next fiscal year.
Xbox Is Still Searching for a Sustainable Business Model
Nadella’s comments place the question of Xbox’s long-term business model at the center of Microsoft’s current gaming strategy.
“If I look at the studios, the IP portfolio we have, and our ability to then take that and produce great games going forward, I feel fantastic,” Nadella said.
He then pointed to the restructuring taking place under Sharma before identifying the next challenge: developing a business model capable of expanding Xbox’s audience while remaining financially sustainable.
The objective, according to Nadella, is not simply to produce more games. Microsoft wants Xbox to operate as both a publisher and a platform provider across PC and Xbox.
That broader positioning reflects the company’s increasingly diversified approach to gaming, with its first-party content reaching beyond the traditional Xbox console ecosystem.
Nadella also said Sharma and her team have stated that Xbox will return to growth in the next fiscal year, with the company executing toward that objective.
Asha Sharma’s Reset Has Already Reshaped Xbox
The comments arrive as Xbox undergoes one of the most substantial restructurings in its history.
In July, Microsoft announced plans to reduce Xbox’s workforce by 3,200 positions, with roughly half of those cuts taking effect immediately. The restructuring also involved plans to divest several studios.
Microsoft subsequently announced another 268 role eliminations in September as part of the same restructuring effort. Xbox said those actions, combined with studio divestitures, had brought the company roughly three-quarters of the way through its previously announced reset.
The latest phase also reorganized several major franchises and studios.
Activision is expanding its remit to include Rare and World’s Edge, while a new team under Activision will develop the next Halo game. A smaller team at Halo Studios will remain focused on supporting the existing games and community.
Bethesda is also expanding its remit to include Obsidian, while Playground Games and Turn 10 are being brought together around the Forza and Fable franchises.
Ninja Theory and Arkane Remain in Uncertain Positions
The restructuring has also created uncertainty around two studios that were originally part of Microsoft’s planned divestitures.
Xbox chief content officer Matt Booty said two separate agreements involving Ninja Theory had fallen through. Microsoft has begun consultation with employees on a proposed closure while continuing to explore other options.
Consultation with Arkane is also still underway and is expected to continue through the end of 2026, according to Microsoft’s Xbox Wire announcement.
The situation illustrates the scale of the restructuring Nadella referred to when discussing the need for streamlining.
For employees and studios, however, that streamlining has meant substantial changes to teams, ownership structures and future operating plans.
Microsoft Wants Xbox to Reach More Players
Nadella’s comments also reinforce the importance Microsoft places on expanding the reach of its games.
“We want to be a great publisher and a great platform provider for games across both PCs and Xboxes,” he said.
That objective comes as Xbox continues to operate across multiple distribution channels rather than relying solely on console hardware.
Microsoft’s strategy has increasingly involved making its first-party games available beyond the traditional Xbox ecosystem, while its Game Pass subscription service remains an important part of its gaming business.
The challenge described by Nadella is therefore not simply audience growth. Microsoft must find a model that allows it to invest in studios and major franchises while making that wider distribution financially sustainable.
That tension is particularly relevant after years of significant investment in Xbox’s content portfolio and Microsoft’s acquisition of major gaming companies.
Growth Is Now the Next Test for Xbox
Nadella’s expectation that Xbox will return to growth in fiscal 2027/28 provides a clear target for the restructuring now underway.
However, the changes implemented so far indicate that Microsoft is not pursuing growth by simply expanding its existing structure.
The company is reducing roles, consolidating teams, changing reporting structures and reconsidering how its studios operate. At the same time, Microsoft continues to emphasize the strength of its franchises and the potential to reach larger audiences.
Nadella’s remarks therefore connect two sides of the current Xbox strategy: a smaller and more streamlined organization on one side, and broader access to its games on the other.
Whether that combination produces the sustainable model Microsoft is seeking will depend on how effectively the company can turn its extensive portfolio of studios and intellectual property into long-term growth.
Xbox’s Reset Now Moves Toward Its Next Phase
Microsoft’s latest restructuring has already changed the shape of Xbox, but Nadella’s comments suggest that the company sees those changes as a step toward a larger objective rather than an endpoint.
The immediate focus is on streamlining the organization, while the longer-term goal is to build a sustainable model that allows Xbox to publish games and operate its platforms for a broader audience.
With further studio changes still underway and Microsoft targeting renewed growth in the next fiscal year, the coming months will provide a clearer indication of whether the reset can deliver the business model Nadella says Xbox still needs to invent.
