Xbox Cuts Costs as Microsoft Posts Record Quarter
Xbox CEO Asha Sharma has pursued layoffs, studio divestitures and game cancellations, while a South of Midnight creative director says he would no longer fund games like it.
Updated on Nov. 3, 2026 in Business Strategy
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South of Midnight creative director David Sears said he would have stopped funding games like South of Midnight, which Xbox funded and published. The comments come as new Xbox CEO Asha Sharma cuts costs through layoffs, studio divestitures including Compulsion, and game cancellations.
Why it matters
The shift signals a change in how Microsoft approaches its gaming division after years of spending billions on studios and franchises to support Xbox Game Pass. Xbox represents a small portion of Microsoft's overall business, which posted strong growth even as the gaming unit retrenches.
Microsoft reported $92.3 billion in latest quarterly revenue, up 19%, and $36.6 billion in profit, up 32%. Xbox is described as a small portion of Microsoft's overall business, and the extraction does not give a separate Xbox revenue figure.
The players
Asha Sharma
Asha Sharma is the new CEO of Xbox, leading the division's cost-cutting and strategy shift.
David Sears
David Sears is the creative director of South of Midnight, who said he would have stopped funding games like it.
The details
Microsoft spent billions of dollars buying studios and franchises to support Xbox Game Pass. Sharma has since cut costs through layoffs, spun out studios including Compulsion, and cancelled games, and she said Game Pass needs to evolve to appeal to a broader range of customers.
Timeline
April 2025: South of Midnight launched for Xbox and PC.
March 2026: South of Midnight came to PS5 and Switch 2.
November 3, 2026: Sears' comments on Xbox funding were published.
Business Strategy Context
Microsoft spent billions acquiring studios and franchises to build out the Xbox Game Pass catalog, and the current cost cuts reverse that expansion. The shift reflects a reassessment of whether that subscription model can be sustained.
Players who subscribe to Game Pass may see the catalog of new first-party releases shift as Xbox cancels games and spins out studios. The extraction does not confirm specific changes to subscription pricing or tiers.
The takeaway
Subscription platforms built on heavy acquisition spending can face pressure to cut back when parent companies reassess returns. Readers following gaming should watch whether Game Pass changes its pricing or catalog strategy.
Further reading
For broader context on corporate restructuring, see Business Strategy.
Source note: This article includes information reported by GameSpot.
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