Microsoft Hikes Xbox Prices While Diverting Silicon to $41B AI Push

Gamers Nexus

Microsoft justifies Xbox price hikes and job cuts by citing an industry-wide component crisis, even as its own multibillion-dollar AI infrastructure stockpiling fuels the silicon scarcity crippling its gaming division.

AI-assisted summary of Microsoft Doesn't Care About Xbox — original source. Check the original for full context.

Source published: 2026-09-17

Key ideas

Xbox console hardware revenue crashed 29% year-over-year, erasing roughly $1.7 billion in annual gaming revenue as Microsoft struggles with brand identity and multiplatform confusion. (0:00)
Defying traditional console lifecycle trends, Microsoft raised Xbox Series console prices up to 67% six years post-launch, elevating the Series X to $750 and Series S to $500. (20:46)
Microsoft deployed $41 billion in a single quarter on AI capital expenditures—including $27 billion directly on data center processors—while constricting Xbox hardware supply and capping cloud gaming access. (30:02)
Console partner AMD reported a 31% drop in gaming segment revenue, directly driven by reduced orders for Microsoft's semi-custom console silicon. (30:02)

Detailed notes

## Background Published on YouTube by Gamers Nexus on September 17, 2026, this investigative video examines Microsoft's handling of the Xbox brand. According to the video description, the report breaks down Microsoft's history of damaging decisions, executive turnover, mass layoffs, and price hikes on aging consoles and cloud subscriptions, contrasting Xbox's freefall with the company's aggressive pivot toward hoarding data center GPUs for AI.

## TL;DR Gamers Nexus analyzes the structural collapse of Microsoft's Xbox division, driven by a combination of strategic whiplash, studio divestitures, and massive leadership miscalculations. While Xbox hardware sales cratered by 29% and thousands of game developers were laid off following historic acquisitions like Activision Blizzard, Microsoft redirected $41 billion in a single quarter toward enterprise AI data center compute. To compensate, Microsoft imposed unprecedented price hikes on six-year-old Xbox Series consoles and heavily throttled cloud gaming hours. Ultimately, the piece illustrates how Microsoft points to soaring memory and component costs to justify gouging console players, even though its own frantic GPU stockpiling is a primary driver of the global component scarcity.

## Atmosphere & style The presentation carries Steve Burke's trademark sardonic, deeply investigative, and exasperated delivery, blending rigorous financial reporting with sharp consumer advocacy. It feels like watching a comprehensive autopsy of corporate mismanagement, moving from nostalgic technical appreciation for early Xbox generations to utter bewilderment at tone-deaf executive memos and buzzword-laden PR pivots. The mood is biting and dryly humorous yet profoundly cynical, leaving the viewer with a stark sense of corporate betrayal as Microsoft sacrifices its gaming legacy on the altar of enterprise AI hype.

## Bulletin - [00:00](https://www.youtube.com/watch?v=NX45ctOJnpg&t=0s) Xbox console hardware revenue crashed 29% year-over-year, erasing roughly $1.7 billion in annual gaming revenue as Microsoft struggles with brand identity and multiplatform confusion. - [20:46](https://www.youtube.com/watch?v=NX45ctOJnpg&t=1246s) Defying traditional console lifecycle trends, Microsoft raised Xbox Series console prices up to 67% six years post-launch, elevating the Series X to $750 and Series S to $500. - [30:02](https://www.youtube.com/watch?v=NX45ctOJnpg&t=1802s) Microsoft deployed $41 billion in a single quarter on AI capital expenditures—including $27 billion directly on data center processors—while constricting Xbox hardware supply and capping cloud gaming access. - [30:02](https://www.youtube.com/watch?v=NX45ctOJnpg&t=1802s) Console partner AMD reported a 31% drop in gaming segment revenue, directly driven by reduced orders for Microsoft's semi-custom console silicon.

## Key takeaways - [00:00](https://www.youtube.com/watch?v=NX45ctOJnpg&t=0s) Xbox overall revenue fell 7% and console hardware dropped 29% year-over-year, wiping out approximately $1.7 billion in annual revenue. - [00:00](https://www.youtube.com/watch?v=NX45ctOJnpg&t=0s) Microsoft allocated $41 billion in a single quarter to AI infrastructure, spending roughly $27 billion on data center CPUs and GPUs while constraining gaming hardware production. - [02:20](https://www.youtube.com/watch?v=NX45ctOJnpg&t=140s) Under new leadership from former AI executive Asha Sharma, Microsoft cut 3,200 Xbox division roles and divested four studios after losing an estimated 64 cents per dollar invested in game development. - [04:20](https://www.youtube.com/watch?v=NX45ctOJnpg&t=260s) Microsoft imposed severe monthly caps on Xbox Cloud Gaming—limiting users to between 5 and 15 hours per month—forcing subscribers to purchase excess streaming time a la carte. - [10:02](https://www.youtube.com/watch?v=NX45ctOJnpg&t=602s) The platform's modern decline originated with the 2013 Xbox One launch, where a mandatory Kinect bundle and an always-online mandate pushed the price $100 above the PS4 and permanently alienated consumers. - [12:07](https://www.youtube.com/watch?v=NX45ctOJnpg&t=727s) Microsoft spent heavily to build Game Pass content, including $2.5 billion for Mojang, $7.5 billion for ZeniMax, and $69 billion for Activision Blizzard, creating an unsustainable cost burden. - [13:37](https://www.youtube.com/watch?v=NX45ctOJnpg&t=817s) A sudden pivot away from exclusivity brought major Xbox titles like Hi-Fi Rush, Sea of Thieves, and Halo to PlayStation 5, undermining consumer justification for buying Xbox consoles. - [13:37](https://www.youtube.com/watch?v=NX45ctOJnpg&t=817s) Aggressive cost-cutting led to more than 5,750 layoffs and the abrupt closure of acclaimed developers including Tango Gameworks and Arkane Austin. - [20:46](https://www.youtube.com/watch?v=NX45ctOJnpg&t=1246s) Microsoft enacted unprecedented mid-generation console price increases six years into the cycle, citing a 2.5x rise in storage and memory costs. - [23:28](https://www.youtube.com/watch?v=NX45ctOJnpg&t=1408s) Substantial subscription price increases pushed Game Pass Ultimate to $30 a month before consumer backlash forced a partial walkback to $23. - [30:02](https://www.youtube.com/watch?v=NX45ctOJnpg&t=1802s) AMD suffered a 31% decline in gaming segment revenue as Microsoft significantly throttled orders for semi-custom console silicon. - [30:21](https://www.youtube.com/watch?v=NX45ctOJnpg&t=1821s) Microsoft is hoarding tens of thousands of high-end AI GPUs in warehouses that lack adequate power infrastructure while leasing billions in extra capacity from neocloud providers like CoreWeave and Iron. - [33:45](https://www.youtube.com/watch?v=NX45ctOJnpg&t=2025s) Microsoft publicly attributes Xbox price increases to unavoidable semiconductor shortages, despite its own massive AI infrastructure stockpiling being a major driver of global memory and silicon scarcity.

## Detailed walkthrough ### [00:00](https://www.youtube.com/watch?v=NX45ctOJnpg&t=0s) Microsoft's Contradictions and Infrastructure Priorities

Microsoft finds itself in an awkward contradiction: company leadership laments an industry-wide hardware crisis, citing exponential memory and storage costs, while uninstalled chips sit idle in warehouses simply because there are not enough physical server chassis—or "warm shells"—to house them. Executives publicly complain that YouTube generates more monetization from Xbox content than Microsoft does, yet Microsoft's own unveiled turnaround strategy for the struggling gaming division includes peculiar promotional initiatives, such as a high-profile brand partnership with IKEA.

Behind the gimmicks lies a severe financial downturn. Microsoft disclosed that Xbox overall revenue dropped by 7% year-over-year, while Xbox console hardware revenue plummeted by 29%, wiping out roughly $1.7 billion in annual revenue. The only buffer softening the blow was cloud gaming and Xbox Game Pass subscriptions. Concurrently, Microsoft poured a staggering $41 billion in a single quarter into AI data center infrastructure, attributing the massive capital outlay to corpo-speak "higher component pricing"—a direct deflection toward the ongoing memory and storage shortages. Fully two-thirds of that $41 billion infrastructure expenditure went toward acquiring CPUs and GPUs for Microsoft's Azure cloud. Unless a division directly serves data center expansion, Microsoft appears unwilling to fund it, leaving Xbox unable to produce enough consoles to meet its player base while falling victim to what amounts to a sunk-cost fallacy.

- Xbox hardware revenue dropped 29% year-over-year, contributing to a total annual Xbox revenue decline of $1.7 billion. - Microsoft allocated $41 billion in a single quarter toward AI infrastructure, with two-thirds dedicated to Azure data center CPUs and GPUs. - Management blamed soaring internal costs on component shortages while simultaneously constricting hardware production for consumer gaming.

[02:20](https://www.youtube.com/watch?v=NX45ctOJnpg&t=140s) Executive Turnover, Layoffs, and Price Hikes

In February, longtime Xbox head Phil Spencer—frequently lampooned for his relentless repetition of the word "grow"—departed the company. Microsoft subsequently appointed Asha Sharma as the new head of Xbox. Rather than breaking new creative ground, leadership resorted to the conventional corporate playbook: aggressive head-count reductions paired with immediate price hikes. In early July, Microsoft announced the layoff of 3,200 employees across the division over the course of the year, alongside the divestment of four internal game development studios. The company conceded that it had been losing approximately 64 cents on every single dollar invested into its game studios.

Instead of subsidizing hardware to expand market share, Microsoft instituted successive price hikes across multiple Xbox console models in August 2026, building upon earlier hikes in October 2025 and May 2025—occurring several years after the Xbox Series X originally launched in 2020. Executive statements attempted to frame the strategy around ambitious corporate jargon, promising to "grow great games into global franchises" and "extend the worlds that fans love" while pursuing "industry-leading margins" by fiscal year 2030. The tone reflects corporate leadership that treats microtransactions like "the best part" of modern gaming, promising a turnaround within four years while entering a self-declared "next 100 days" aimed at completely resetting an unhealthy business.

```mermaid flowchart TD accTitle: Microsoft Xbox Corporate Pivot accDescr: Flowchart illustrating Microsoft's restructuring of Xbox through layoffs, studio divestitures, and console price hikes. subgraph Cuts ["Restructuring & Downsizing"] L["Lay off 3,200 employees"] D["Divest 4 game studios"] L --> S["Acknowledge 64¢ loss per dollar invested"] D --> S end subgraph Revenue ["Margin Optimization"] P1["May 2025 Price Hike"] --> P2["October 2025 Price Hike"] P2 --> P3["August 2026 Price Hike"] end Cuts --> G["Target 'Industry-Leading Margins' by FY2030"] Revenue --> G ```

[04:20](https://www.youtube.com/watch?v=NX45ctOJnpg&t=260s) Xbox Cloud Gaming Restrictions and Renting the Future

While funneling billions into enterprise AI, Microsoft heavily throttled its consumer-facing Xbox Cloud Gaming service. Under the new tier structure, the entry-level Essential tier limits subscribers to a mere 5 hours of cloud streaming per month—averaging out to just 10 minutes per day. Mid-tier packages are capped at 10 hours monthly, while even top-tier Xbox Game Pass Ultimate subscribers are restricted to 15 hours of streaming per month. The move signals a restrictive future where players merely rent access to gaming while being squeezed out to conserve cloud compute for AI workloads.

This self-inflicted blow arrived right after Sony suffered widespread backlash over its disc-drive policies, handing Microsoft what should have been an easy public relations victory. Instead, Microsoft undercut its own goodwill. Under the new policy, once users exhaust their monthly streaming caps, "they'll be able to purchase additional cloud playtime through the Xbox store." To worsen the fallout, Microsoft opted to withhold the pricing details for these extra hourly packs until November, prolonging negative PR right into the Black Friday shopping window.

- Essential tier cloud gaming is restricted to 5 hours per month (approx. 10 minutes a day). - Mid-tier subscriptions cap streaming at 10 hours per month, while Ultimate tier caps at 15 hours per month. - Excess streaming hours must be purchased a la carte via the Xbox digital storefront, with rates kept under wraps until November.

*(Sponsor break: The segment highlights the Thermaltake TR200 WS Micro chassis, a stout microATX case featuring an optional 5.25-inch external drive/screen bay, perforated side panels, support for up to a 360 mm top radiator, seven 120 mm fan mounts, 175 mm CPU tower clearance, and 365 mm GPU clearance.)*

[06:49](https://www.youtube.com/watch?v=NX45ctOJnpg&t=409s) The Golden Era: Original Xbox and the Xbox 360

Understanding the severity of Xbox's modern collapse requires revisiting its origin. Gamers Nexus fondly references its own early roots, including a 2009 video where the team destroyed a broken console in the comedic style of *Office Space*. The platform itself debuted when Bill Gates introduced the original Xbox at CES on January 3, 2001, accompanied on stage by Dwayne "The Rock" Johnson, before launching commercially on November 15, 2001. Microsoft built the system out of fear that Sony's PlayStation 2 would conquer the living room and migrate gamers away from Windows PCs. While the original Xbox could not halt the PS2's march toward roughly 160 million units, it managed to sell over 24 million units—outselling Nintendo's GameCube by roughly 3 million units—propelled by the massive breakout success of Bungie's *Halo*.

The platform hit its historic zenith with the Xbox 360, which went on to sell over 84 million units worldwide. For most of that console generation, Microsoft outpaced Sony's PlayStation 3 until the very tail end of the cycle. The era also yielded the original Kinect, a motion-sensing peripheral that briefly became the fastest-selling consumer electronics device in history. (Viewed through a modern lens, releasing an unblinking, living-room camera today would invite immediate scrutiny over AI-driven facial profiling, gait tracking, and surveillance data piping into enterprise clusters.) However, the 360 era was not without major catastrophe: the notorious "Red Ring of Death" hardware failure forced Microsoft to swallow more than $1 billion in repair and warranty extension expenses to protect consumer trust.

[09:12](https://www.youtube.com/watch?v=NX45ctOJnpg&t=552s) The Downward Spiral: Xbox One and the Kinect Blunder

The true inflection point where Xbox lost its momentum occurred during the transition to the Xbox One. The console's rollout kicked off Microsoft's notoriously convoluted naming schemes—creating immediate consumer confusion between the original 2001 console and the third-generation machine, akin to erratic GPU branding cycles.

Emboldened by the initial commercial success of the Xbox 360 Kinect, Microsoft made the critical strategic error of mandating that every single Xbox One console ship bundled with an updated, second-generation Kinect sensor. This mandatory inclusion inflated the launch price of the Xbox One to $500, placing the system at a severe disadvantage against the competition right out of the gate and kicking off a downward slide the brand has spent years failing to correct.

[10:02](https://www.youtube.com/watch?v=NX45ctOJnpg&t=602s) The Xbox One Disaster: Kinect, Always-Online, and Don Mattrick's Flub

The seeds of Xbox's modern struggles were planted during the disastrous launch of the Xbox One, which hit store shelves priced at $100 more than Sony's competing PlayStation 4. Instead of pitching a dedicated gaming machine, Microsoft alienating gamers by marketing the console as the "ultimate all-in-one home entertainment system." Company executives leaned heavily into contemporary industry buzzwords, framing the console as a living-room set-top box for cable television, a smart device, and a hub for running apps like Skype.

Compounding the pricing and marketing issues was Microsoft's insistence on an always-on internet connection. When backlash erupted, Don Mattrick, then-head of Xbox, famously dismissed critics during an interview by offering a blunt alternative:

> "Fortunately, we have a product for people who aren't able to get some form of connectivity. It's called Xbox 360... if you have zero access to the internet, that is an offline device."

This tone-deaf defense felt like a thinly veiled insult to consumers, setting an aggressive precedent for locking hardware utility behind mandatory connectivity. Compounding consumer outrage, the system initially required the Kinect camera to remain plugged in at all times to function, stoking intense privacy fears. Microsoft eventually reversed course by dropping the mandatory Kinect requirement and selling the peripheral standalone for $150, but the damage was irreversible. In an ironic twist, the Kinect—once one of Microsoft's fastest-selling hardware successes—became the instrument of its console downfall due to corporate overreach. By the time Microsoft officially discontinued the Kinect in 2017, the Xbox brand was relegated to a distant third place behind Sony and Nintendo, to the point where major retailers such as Costco eventually stopped carrying Xbox consoles altogether.

[12:07](https://www.youtube.com/watch?v=NX45ctOJnpg&t=727s) The Spending Spree: Mojang, ZeniMax, and Activision Blizzard

Rather than recalibrating conservatively after the Xbox One missteps, Microsoft spent the following decade making massive, high-stakes bets. In 2014, the company purchased Mojang Studios and the *Minecraft* IP for $2.5 billion. While widely viewed as a major gamble at the time, *Minecraft* evolved into an extraordinary cash cow, grossing an estimated $10 to $12 billion. However, much like the early success of Kinect, the windfall from *Minecraft* reinforced an aggressive, acquisition-heavy mindset that would later backfire when applied indiscriminately.

To feed the content appetite of its subscription service, Xbox Game Pass, Microsoft embarked on an unprecedented acquisition spree: - In 2021, Microsoft acquired ZeniMax Media—the parent company of Bethesda Softworks—for $7.5 billion, roughly triple the cost of Mojang. - In 2022, Microsoft announced the record-shattering $69 billion purchase of Activision Blizzard, completing the largest tech acquisition in history at the time.

This rapid consolidation raised industry alarms regarding platform lock-in and monopolistic control. If a first-party platform holder owned a colossal stable of premier development studios, the obvious risk was that they would withhold flagship franchises from rival hardware, establishing an integrated, vertically monopolized gaming ecosystem.

```mermaid flowchart TD accTitle: Microsoft Gaming Expansion and Contraction Cycle accDescr: Flowchart tracing Microsoft's trajectory from massive acquisitions to multiplatform pivoting and studio shutdowns.

subgraph Acquisitions ["Mega-Acquisitions"] A["2014: Mojang ($2.5B)"] B["2021: ZeniMax / Bethesda ($7.5B)"] C["2022–2023: Activision Blizzard ($69B)"] end

subgraph Shifts ["Strategic Whiplash"] D["Multiplatform Pivot (2024)<br/>Ports to PS5 & Switch"] E["'This is an Xbox' Campaign<br/>Hardware de-emphasized"] end

subgraph Fallout ["Cost Cutting & Bloodbath"] F["Mass Studio Closures<br/>Tango, Arkane Austin, Alpha Dog"] G["5,750+ Layoffs & Project Cancellations"] end

A --> B --> C C --> D --> E E --> F --> G ```

[13:37](https://www.youtube.com/watch?v=NX45ctOJnpg&t=817s) The Multiplatform Retreat, Studio Closures, and Brand Dilution

Rather than walling off its newly acquired portfolio behind Xbox hardware, Microsoft responded to regulatory and market pressure by dramatically retreating from platform exclusivity. In early 2024, Microsoft announced that formerly first-party titles like *Hi-Fi Rush*, *Pentiment*, *Sea of Thieves*, and *Grounded* would be ported to PlayStation 5 and Nintendo Switch.

Any optimism surrounding this pro-consumer cross-platform strategy evaporated just months later. In May 2024, despite Microsoft standing as the world's most valuable company by market capitalization, the company executed severe budget cuts across its gaming division. Microsoft shuttered Arkane Austin, Roundhouse Studios, Alpha Dog Games, and Tango Gameworks, alongside sweeping job cuts across ZeniMax. The closure of Tango Gameworks proved especially galling given Microsoft’s prior public praise of their rhythm-action hit:

> "Hi-Fi Rush was a breakout hit for us and our players in all key measurements and expectations."

To follow up studio closures, Microsoft launched the widely panned "This is an Xbox" marketing campaign, attempting to convince consumers that smartphones, smart TVs, laptops, and even connected appliances were effectively Xboxes. By divorcing the brand from dedicated hardware, Microsoft gave consumers virtually no incentive to buy an actual Xbox console. The pipeline of ports expanded to include heavyweight titles like *Indiana Jones and the Great Circle*, *Forza Horizon 5*, *Senua's Saga: Hellblade II*, *Doom: The Dark Ages*, and *Halo*, sending Xbox hardware sales spiraling toward reported "rock bottom" numbers throughout 2024.

[15:22](https://www.youtube.com/watch?v=NX45ctOJnpg&t=922s) Leadership Turnover: Sarah Bond, Asha Sharma, and Identity Crisis

Despite plummeting hardware numbers, Xbox leadership resisted exiting the console space Sega-style. In June 2025, Xbox President Sarah Bond doubled down on physical systems, publicly announcing a multi-year hardware partnership:

> "I am thrilled to share we've established a strategic multi-year partnership with AMD to co-engineer silicon across a portfolio of devices including our next generation Xbox consoles in your living room and in your hands."

That commitment proved short-lived. In February 2026, Bond stepped down, replaced by Asha Sharma as Xbox's new Executive Vice President and CEO. Sharma had virtually no background or public footprint in gaming; instead, she came directly from executive roles in artificial intelligence as the former President of Microsoft Core AI. The appointment telegraphed Microsoft's broader corporate priorities. After public curiosity led to scrutiny of her newly minted Xbox profile, Sharma addressed the community:

> "I also didn't expect my gamertag to blow up, and the reality is more boring. I created it recently to learn and understand this world. My focus is to make Xbox the best place to play and return to our roots."

While executive willingness to engage with their own product is commendable, tasking a gaming newcomer with orchestrating a return to heritage raised skepticism—it is difficult to guide a company back to roots one never witnessed growing. True to form, Xbox strategy experienced another whiplash in April 2026, when Sharma announced yet another internal re-evaluation of exclusivity. The division appeared entirely directionless: porting *Halo* to PlayStation 5 while abruptly canceling an eleventh-hour PS5 port of *Gears of War: E-Day*.

[17:53](https://www.youtube.com/watch?v=NX45ctOJnpg&t=1073s) Mass Layoffs and Corporate Posturing

The operational whiplash manifested as a brutal wave of internal layoffs initiated under Phil Spencer and continued under Asha Sharma. Since closing the Activision Blizzard deal, Microsoft eliminated at least 5,750 Xbox-related jobs across multiple rounds of cuts.

On July 2, 2025, Xbox initiated an internal purge, canceling anticipated titles such as *Everwild*, *Perfect Dark*, ZeniMax Online’s MMO codenamed Project Blackbird, and an unannounced project at Romero Games. The accompanying workforce reductions hit studios across the portfolio: - *Candy Crush* publisher King and Bethesda’s London office were severely hit. - *Call of Duty* support studios Raven Software and Sledgehammer Games suffered heavy cuts alongside High Moon Studios, Blizzard Entertainment, and Halo Studios. - Turn 10 Studios, the developer behind *Forza Motorsport*, had roughly 50% of its total workforce terminated.

Amid these mass reductions, Phil Spencer circulated an internal staff memo that read as tone-deaf investor posturing:

> "I recognize that these changes come at a time when we have more players, games, and gaming hours than ever before. Our platform, hardware, and game road map have never looked stronger. We must make choices now for continued success."

The messaging drew scathing comparisons to Lord Farquaad's infamous line: *"Some of you may die, but it's a sacrifice I am willing to make."* The corporate insensitivity peaked when Xbox Game Studios executive producer Matt Turnbull took to LinkedIn with what was widely regarded as the most tone-deaf post of the year, suggesting laid-off staff use large language models like ChatGPT or Microsoft Copilot to process their grief:

> "If you're navigating a layoff or even quietly preparing for one, you're not alone, and you don't have to go it alone. I've been experimenting with ways to use LLM AI tools like ChatGPT or Copilot to help reduce the emotional and cognitive load that comes with job loss."

Turnbull even went so far as to supply sample prompts for devastated developers, suggesting they prompt the AI: *"I'm struggling with impostor syndrome after being laid off. Can you help me reframe this experience in a way..."*

[19:58](https://www.youtube.com/watch?v=NX45ctOJnpg&t=1198s) Overbetting on AI and Escalating Xbox Layoffs

Reacting to tone-deaf corporate advice telling newly terminated workers to ask ChatGPT questions like "what reminds me what I'm good at?", Steve remarks that what these executives are distinctly terrible at is "reading the room." A massive portion of Microsoft's recent job cuts stems directly from overbetting on AI. Ironically, former gaming division chief Phil Spencer lost his job to someone brought over from Microsoft's AI organization who was elevated to head the group. Predictably, leaning into Copilot and ChatGPT did nothing to restore sagging employee morale, and the cuts kept coming.

On July 6, 2026, Microsoft revealed that it planned to reduce its overall Xbox workforce by approximately 3,200 people through the next fiscal year, eliminating 1,600 roles right out of the gate. Skyrocketing prices across the board did nothing to help stabilize the brand's crumbling consumer goodwill.

[20:46](https://www.youtube.com/watch?v=NX45ctOJnpg&t=1246s) The Unprecedented Console Price Hikes

While speaking in June, newly appointed Xbox head Asha Sharma acknowledged the hardware pressure, declaring: "It is natural that prices go up. Every generation around us is raising prices, but I don't think you can raise prices through the hardware crisis that we're seeing. And so it will require fundamental change in terms of how we innovate and how we think about the business models and how we go bring this to market. And we're working on that."

Just weeks later, Microsoft did the exact opposite: they raised hardware prices right in the middle of that crisis. In August, Microsoft jacked up prices on current-generation Xbox consoles—hardware that is roughly six years old:

- Base 512 GB models increased by $100. - 1 TB models jumped by $150. - The 2 TB Xbox model was outright discontinued (or sent "to a farm upstate"). - These hikes followed an earlier October price increase that had already bumped prices by $20 to $70.

```mermaid flowchart TD accTitle: Xbox Pricing Trajectory accDescr: Diagram illustrating Xbox launch prices compared to their current inflated prices six years later. subgraph Launch["2020 Launch Pricing"] SS_Launch["Xbox Series S: $300"] SX_Launch["Xbox Series X: $500"] end subgraph Current["Current Pricing (6 Years Later)"] SS_Now["Xbox Series S Base: $500 (+67%)"] SX_Now["Xbox Series X: $750 (+50%)"] end SS_Launch --> SS_Now SX_Launch --> SX_Now ```

Microsoft blamed this move on severe shortages in memory and storage—a crisis Microsoft's own data-center hoarding largely fueled. The company claimed in a statement: "Unfortunately, console storage and memory prices have increased by more than 2 and a half X, and we expect another doubling by the fall of 2027. The entire consumer electronics industry is struggling with the current component crisis. But the effects are particularly hard on consoles. Unlike phones, computers, speakers, and other consumer devices, consoles are typically not sold out at a profit, but instead for less than they cost to make."

Steve ridicules this defense, mocking the idea of multi-trillion-dollar Microsoft weeping over losing money on console boxes when they recoup billions via cloud subscriptions and platform publishing cuts. Historically, hardware prices decrease over the lifespan of a console generation; they do not inflate six years into a cycle. The Series S debuted at $300 in 2020 and now sits at $500 (a roughly 67% increase), while the Series X ballooned from $500 at launch to $750 (a 50% increase).

[23:28](https://www.youtube.com/watch?v=NX45ctOJnpg&t=1408s) Peripheral Gouging, Failed Handhelds, and the Game Pass Revolt

The aggressive price inflation quickly spread beyond standard home consoles: - **Peripherals and Games:** In May 2025, Microsoft increased the pricing of controllers and headsets and floated a trial balloon suggesting first-party releases would cost upwards of $80. After consumer backlash made it clear that charging $80 for titles like *The Outer Worlds 2* was completely detached from reality, Microsoft walked the software pricing back. - **Handheld Systems:** In September 2025, Microsoft announced pricing for the ROG Xbox Ally ($600) and ROG Xbox Ally X ($1,000). At launch, an enthusiast could have bought both a PlayStation 5 and a Nintendo Switch 2 for less than the cost of a single ROG Xbox Ally X. Circana tracking showed sales slowed rapidly after an initial surge, staying under 1 million total units—paling in comparison to the Steam Deck, which IDC estimated at upwards of 4 million units sold. - **Game Pass Hikes and Walkback:** In October 2025, PC Game Pass increased from $12 to $16.50 per month (a ~38% jump), while Game Pass Ultimate surged 50%, rising from $20 to $30 per month. Following massive subscriber cancellations, Microsoft hastily softened the blow by dropping PC Game Pass to $14 and Ultimate to $23. Steve points out that this reveals one of two realities: either Xbox has zero conviction and has no idea what it is doing, or leadership intentionally established an outrageous price anchor so a smaller, predetermined hike would appear palatable.

Arkane Studios founder Raphaël Colantonio bluntly blasted the subscription approach on social media, writing that Game Pass is an unsustainable model that has spent a decade damaging the industry: "I'm fed up with all the [bullshit] they fed us at first. Like, 'don't worry, it doesn't impact sales,' only to admit years later that it totally does." Steve underscores that Microsoft continues to make excuses about hardware losses while simultaneously setting its own ecosystem on fire with across-the-board gouging.

[27:06](https://www.youtube.com/watch?v=NX45ctOJnpg&t=1626s) Plummeting Xbox Earnings and the "Personal AI" Pivot

The fallout from these missteps is clearly reflected in Microsoft's financial filings. On July 29, Microsoft reported corporate quarterly earnings of $90 billion in revenue (up 18%), $40.6 billion in operating income, and $35.8 billion in net income, heavily driven by Azure and Microsoft 365 cloud infrastructure.

However, Microsoft tucks its Xbox operations inside its "More Personal Computing" division, where the decline was stark: - More Personal Computing revenue fell 4% quarter-over-quarter to $12.9 billion. - Xbox business revenue plunged 10% in the quarter. - Xbox hardware sales plummeted 13% quarter-over-quarter, marking three consecutive quarters of revenue drop. - Windows OEM and device sales (including Surface) dropped by 7%.

Steve quips that he is waiting for Microsoft's inevitable "Less Personal Computing" division, where machines are sold directly to autonomous AI agents instead of actual humans. During earnings presentations and promotional appearances, executives openly championed this shift, enthusing about turning the personal computer into a desktop data center run autonomously by AI agents rather than a tool for everyday users (even hyping Windows on NVIDIA's GB300 systems).

For the full fiscal year 2026, Xbox generated $21.7 billion in revenue, shedding $1.7 billion year-over-year. By comparison, Microsoft's business platform LinkedIn generated $19.8 billion—nearly eclipsing the entire gaming division. Across the fiscal year, Xbox content and services dropped 5% (cushioned only slightly by cloud subscriptions), while Xbox hardware revenue crashed 29% year-over-year. Satya Nadella tried to strike an optimistic chord on the earnings call, asserting that Microsoft is resetting operations and content to return Xbox to growth in fiscal 2027. Yet the fallout reaches outside Microsoft: in its subsequent SEC filings, key console silicon partner AMD revealed that its own gaming segment revenue had tumbled by 31%.

[30:02](https://www.youtube.com/watch?v=NX45ctOJnpg&t=1802s) AMD’s Slump and Microsoft’s Massive Capital Pivot

AMD CEO Lisa Su pulled no punches when addressing recent financial declines, directly driving the bus over Microsoft by attributing the drop primarily to reduced sales in semi-custom solutions. These semi-custom designs represent the very silicon AMD produces to power Microsoft’s and Sony’s gaming consoles. Yet, while Microsoft is cutting back sharply on chips destined for consumer gaming boxes, the company has simultaneously opened up an endless firehose of cash for enterprise GPUs. NVIDIA CEO Jensen Huang confirmed as much, highlighting that Microsoft has deployed the largest and fastest fleet of Grace Blackwell systems anywhere in the world.

During its latest quarter, Microsoft swelled its capital expenditures to a staggering $41 billion. The official corporate justification was to "support customer demand for cloud and AI offerings" while absorbing "the impact from higher component pricing." Roughly two-thirds of that colossal sum—approximately $27 billion—was spent entirely on CPUs and GPUs for data centers in a single quarter. Microsoft openly acknowledges that component shortages are driving up hardware prices, even as its own purchasing frenzy serves as the primary catalyst behind that scarcity.

Putting that sheer volume of capital into perspective highlights just how divorced Microsoft's priorities have become from its gaming roots. That single quarter's $27 billion hardware spend equates to: - Approximately 36 million Xbox Series X 1TB Digital Editions at the current retail price of $750. - Roughly 90 million original Xbox 360 baseline consoles at their launch price of $300 (unadjusted for inflation). - An absurd 337.5 million pairs of official Microsoft Xbox Crocs before they sold out.

While these conversions are humorous non-sequiturs, they illustrate an undeniable reality: the silicon and capital still exist in massive quantities, but Microsoft has redirected them entirely away from gamers while pretending the market pressures are an unavoidable, external act of God.

---

[30:21](https://www.youtube.com/watch?v=NX45ctOJnpg&t=1821s) Billions in GPUs, Warehouses Without Power, and the Neocloud Web

Microsoft is pouring tens of billions into stockpiling high-end computing silicon, to the point of cramming hardware into warehouses for planned data centers that may not even have the electrical grid capacity to run them. The company risks sitting on mountains of inventory it cannot physically plug in. Over the past year alone, Microsoft has rolled out massive enterprise deployments across the globe: its Fairwater data center initiative spanning Wisconsin and Georgia is set to house hundreds of thousands of NVIDIA GPUs; thousands of Grace Blackwell systems are active on Azure; Anthropic entered a $30 billion agreement for compute power hosted on NVIDIA hardware; and Mistral relies on thousands of GPUs running inside Microsoft's European cloud infrastructure.

```mermaid flowchart TD accTitle: Microsoft AI Infrastructure and Neocloud GPU Pipeline accDescr: Diagram tracing Microsoft GPU investments through direct hardware purchases and Neocloud rentals.

subgraph DirectDeals["Direct Deployments & Client Deals"] A["NVIDIA Grace Blackwell & Vera Rubin"] --> B["Microsoft Azure Data Centers\n(Fairwater: WI & GA)"] B --> C["Enterprise AI Clients\n(Anthropic $30B, Mistral, UAE)"] end

subgraph Neoclouds["Neocloud Rental Network (NVIDIA-Backed)"] D["CoreWeave\n(Billions spent)"] E["Iron ($9.7B GB300 Deal)"] F["NScale (UK, Norway, Portugal)"] G["Lambda & Nebius"] end

Neoclouds -->|"Rented GPU Compute"| B ```

Beyond its own facilities, Microsoft is aggressively leasing computational capacity from third-party "neocloud" providers—startups and specialized cloud platforms that are themselves bankrolled by NVIDIA: - A $9.7 billion deal with Iron to access GB300 GPUs located in Texas. - Multi-billion-dollar commitments secured with Lambda and Nebius. - Billions directed to CoreWeave, NVIDIA's primary compute partner. - Joint AI data center construction alongside NScale spanning the UK, Norway, and Portugal. - Exporting tens of thousands of NVIDIA AI processors directly to the United Arab Emirates, alongside commitments to be among the earliest operators of NVIDIA's Vera Rubin NVL72 architectures.

Whether buying the accelerators directly or leasing them from NVIDIA-backed proxies, Microsoft's insatiable appetite is directly choking the global supply chain for memory and semiconductor manufacturing.

---

[33:45](https://www.youtube.com/watch?v=NX45ctOJnpg&t=2025s) The Five-Layer Cake: Creating the Crisis and Blaming the Market

The bitter irony peaks when Microsoft leadership takes to public stages to lament industry-wide hardware inflation. Executives openly justify Xbox price hikes by claiming an unavoidable semiconductor and memory emergency has gripped consumer electronics. They point to storage and memory costs escalating 2.75x to an eventual 7.5x over baseline projections, throwing their hands up as if pricing adjustments were the only lever left to pull.

```mermaid flowchart LR accTitle: Microsoft Circular Memory Scarcity and Price Hike Loop accDescr: Flowchart illustrating how Microsoft's AI spending drives the component shortages it blames for Xbox price increases.

A["Microsoft Invests Tens of Billions\nin AI GPUs & Data Centers"] --> B["Global Memory & Silicon\nShortages Deepen"] B --> C["Component Costs Spike\nAcross Electronics"] C --> D["Microsoft Hikes Xbox\nHardware & Sub Prices"] D -->|"Blames 'Industry Headwinds'"| A ```

As Jensen Huang might colorfully say, Microsoft wants to have its five-layer cake and eat it too. The corporation is not an innocent bystander caught in an economic storm; its manic drive to stockpile every piece of silicon available to feed hypothetical future AI workloads is the literal engine creating the scarcity. Microsoft acts like a hapless victim of a global memory crisis that it played a leading role in engineering.

Closing out the discussion, Steve points viewers toward the Gamers Nexus store, noting that the team has begun burning and selling custom disc media in-house—fully verified and functional on the physical drive of an Xbox Series X—and invites supporters to back the channel on Patreon and catch up on the related AMD coverage.

## Notable quotes > [04:20](https://www.youtube.com/watch?v=NX45ctOJnpg&t=260s) they'll be able to purchase additional cloud playtime through the Xbox store.

> [10:02](https://www.youtube.com/watch?v=NX45ctOJnpg&t=602s) Fortunately, we have a product for people who aren't able to get some form of connectivity. It's called Xbox 360... if you have zero access to the internet, that is an offline device. — Don Mattrick

> [13:37](https://www.youtube.com/watch?v=NX45ctOJnpg&t=817s) Hi-Fi Rush was a breakout hit for us and our players in all key measurements and expectations.

> [15:22](https://www.youtube.com/watch?v=NX45ctOJnpg&t=922s) I am thrilled to share we've established a strategic multi-year partnership with AMD to co-engineer silicon across a portfolio of devices including our next generation Xbox consoles in your living room and in your hands. — Sarah Bond

> [15:22](https://www.youtube.com/watch?v=NX45ctOJnpg&t=922s) I also didn't expect my gamertag to blow up, and the reality is more boring. I created it recently to learn and understand this world. My focus is to make Xbox the best place to play and return to our roots. — Asha Sharma

> [17:53](https://www.youtube.com/watch?v=NX45ctOJnpg&t=1073s) I recognize that these changes come at a time when we have more players, games, and gaming hours than ever before. Our platform, hardware, and game road map have never looked stronger. We must make choices now for continued success. — Phil Spencer

> [17:53](https://www.youtube.com/watch?v=NX45ctOJnpg&t=1073s) If you're navigating a layoff or even quietly preparing for one, you're not alone, and you don't have to go it alone. I've been experimenting with ways to use LLM AI tools like ChatGPT or Copilot to help reduce the emotional and cognitive load that comes with job loss. — Matt Turnbull

> [17:53](https://www.youtube.com/watch?v=NX45ctOJnpg&t=1073s) I'm struggling with impostor syndrome after being laid off. Can you help me reframe this experience in a way... — Matt Turnbull

> [20:46](https://www.youtube.com/watch?v=NX45ctOJnpg&t=1246s) It is natural that prices go up. Every generation around us is raising prices, but I don't think you can raise prices through the hardware crisis that we're seeing. And so it will require fundamental change in terms of how we innovate and how we think about the business models and how we go bring this to market. And we're working on that. — Asha Sharma

> [20:46](https://www.youtube.com/watch?v=NX45ctOJnpg&t=1246s) Unfortunately, console storage and memory prices have increased by more than 2 and a half X, and we expect another doubling by the fall of 2027. The entire consumer electronics industry is struggling with the current component crisis. But the effects are particularly hard on consoles. Unlike phones, computers, speakers, and other consumer devices, consoles are typically not sold out at a profit, but instead for less than they cost to make.

> [23:28](https://www.youtube.com/watch?v=NX45ctOJnpg&t=1408s) I'm fed up with all the [bullshit] they fed us at first. Like, 'don't worry, it doesn't impact sales,' only to admit years later that it totally does. — Raphaël Colantonio

## Mentioned Activision Blizzard, Alpha Dog Games, AMD, Anthropic, Arkane Austin, Arkane Studios, Asha Sharma, Azure, Bethesda Softworks, Bill Gates, Blizzard Entertainment, Bungie, Call of Duty, Candy Crush, ChatGPT, Circana, CoreWeave, Don Mattrick, Doom: The Dark Ages, Dwayne 'The Rock' Johnson, Everwild, Forza Horizon 5, Forza Motorsport, Gamers Nexus, Gears of War: E-Day, Grounded, Halo, Halo Studios, Hi-Fi Rush, High Moon Studios, IKEA, Indiana Jones and the Great Circle, Iron, Jensen Huang, King, Kinect, Lambda, LinkedIn, Lisa Su, Matt Turnbull, Microsoft, Microsoft Copilot, Minecraft, Mistral, Mojang Studios, Nebius, Nintendo, Nintendo Switch, Nintendo Switch 2, NScale, NVIDIA, Pentiment, Perfect Dark, Phil Spencer, PlayStation 2, PlayStation 3, PlayStation 4, PlayStation 5, Project Blackbird, Raphaël Colantonio, Raven Software, ROG Xbox Ally, ROG Xbox Ally X, Romero Games, Roundhouse Studios, Sarah Bond, Satya Nadella, Sea of Thieves, Senua's Saga: Hellblade II, Sledgehammer Games, Sony, Steam Deck, Tango Gameworks, The Outer Worlds 2, Thermaltake, Turn 10 Studios, Windows, Xbox, Xbox 360, Xbox Cloud Gaming, Xbox Game Pass, Xbox One, Xbox Series S, Xbox Series X, ZeniMax Media

## Video description Sponsor: Thermaltake TR200 WS mATX Case on Amazon https://geni.us/bviRvG Microsoft has repeated boneheaded decisions that have damaged its Xbox brand. Xbox is currently in freefall, with new leadership taking to layoffs and cutdowns to try and save the brand, while simultaneously increasing the price of cloud subscription gaming and allowing GPUs to sit in warehouses. In this video, we dig into Microsoft's history of poor decisions and its implosion.

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TIMESTAMPS

00:00 - Microsoft’s Contradictions 02:21 - New Xbox Leadership 04:20 - Xbox Game Pass Changes 06:49 - History of Xbox 09:46 - Kinect: The Beginning of the Freefall 12:07 - Spending Spree 17:56 - Mass Layoffs 20:47 - Price Hikes 27:06 - Xbox Sales Plummet and PCs for AI Agents 30:21 - Microsoft’s GPU Piles 33:23 - Conclusion

CORRECTIONS: 13:40 - The so-called quadruple-A game was Skull and Bones, not Sea of Thieves. This has been trimmed in the edit.

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Steve Burke: Host, Writing Vitalii Makhnovets: Editing Tim Phetdara: Editing Jimmy Thang: Writing Ben Benson: Writing

[Source](https://www.youtube.com/watch?v=NX45ctOJnpg)

中文简报

微软大幅上调Xbox售价，同时将芯片资源转向410亿美元AI投入微软以全行业零部件危机为由为Xbox涨价和裁员辩解，然而其斥资数百亿美元囤积AI基础设施的做法，恰恰加剧了导致其游戏部门受挫的芯片短缺。 Gamers Nexus分析了微软Xbox部门面临的结构性崩溃，指出这一局面由战略频繁摇摆、工作室剥离以及管理层重大误判共同导致。在完成对Activision Blizzard等历史性收购后，Xbox硬件销售额却暴跌29%，数千名游戏开发者被裁员，而微软在单季度内将410亿美元转投至企业级AI数据中心算力建设。为弥补亏损，微软对发售已六年的Xbox Series主机实施了前所未有的涨价，并大幅限制了云游戏时长。报道最终指出，尽管微软以内存和零部件成本暴涨为由向主机玩家转嫁高价，但其自身狂热囤积GPU的行为恰恰是推动全球零部件短缺的核心诱因之一。 Xbox主机硬件收入同比暴跌29%，导致年度游戏业务收入减少约17亿美元，与此同时微软正疲于应对品牌定位与跨平台策略带来的混乱。 (0:00) 微软打破传统主机生命周期的价格走势，在发售六年后将Xbox Series主机价格最高上调67%，使Series X售价推高至750美元、Series S推高至500美元。 (20:46) 微软在单季度内投入410亿美元用于AI资本支出（其中270亿美元直接用于数据中心处理器），同时收紧Xbox硬件供应并对云游戏使用时长设定上限。 (30:02) 主机芯片合作伙伴AMD报告其游戏部门收入下降31%，直接原因是微软半定制主机芯片订单出现缩减。 (30:02)

Reading summary

Gamers Nexus argues that Microsoft is systematically deprioritizing its Xbox division to fund enterprise artificial intelligence infrastructure, triggering sharp hardware declines, studio closures, and aggressive monetization. While Microsoft leadership blames industry-wide component shortages for severe consumer price hikes, the company's own tens-of-billions data center spending is fueling the very memory and silicon scarcity it laments. Capital Reallocation to Enterprise AI Infrastructure (0:00) Microsoft directed an unprecedented $41 billion in a single quarter toward capital expenditures, with roughly two-thirds—approximately $27 billion—spent exclusively on data center CPUs and GPUs for Azure. To secure cutting-edge compute, the company deployed massive clusters of NVIDIA Grace Blackwell hardware and committed billions to specialized 'neocloud' providers, including a $9.7 billion deal with Iron and extensive capacity leases from CoreWeave, Lambda, and Nebius. The stockpiling has reached such scale that uninstalled chips sit idle in warehouses awaiting power grid capacity. This capital rotation has come at a steep cost to consumer gaming. In the same fiscal timeframe, Xbox hardware revenue dropped 29% year-over-year, driving a total annual divisional revenue decline of $1.7 billion. The contraction rippled across Microsoft's supply chain: key console silicon partner AMD disclosed a 31% drop in its gaming segment revenue, with CEO Lisa Su directly attributing the slump to reduced demand for semi-custom console processors as Microsoft prioritized enterprise AI deployments. Unprecedented Mid-Cycle Console Price Hikes (20:46) Defying traditional console lifecycles where hardware becomes cheaper over time, Microsoft instituted consecutive price hikes on hardware entering its sixth year on the market. In August 2026, the baseline Xbox Series S climbed from its $300 launch price to $500 (a 67% increase), the Xbox Series X jumped from $500 to $750 (a 50% increase), and the 2 TB model was discontinued. Microsoft justified these increases by citing a 2.5-fold increase in console memory and storage costs, projecting another doubling by late 2027. Gamers Nexus characterizes this defense as a circular contradiction: Microsoft claims to be an innocent victim of semiconductor inflation while acting as the primary catalyst behind that scarcity through its enterprise GPU hoarding. The price gouging extended across the ecosystem, including attempted $80 software tags, peripheral price bumps, and steep Game Pass increases—briefly raising Ultimate from $20 to $30 before subscriber backlash forced a partial retreat to $23. Arkane Studios founder Raphaël Colantonio criticized the Game Pass model as unsustainable, arguing that years of assurances regarding subscription economics ultimately damaged game sales. Severe Downsizing and Shifting Executive Leadership (2:20) Under the strain of studio operations that Microsoft admitted were losing 64 cents on every dollar invested, leadership executed sweeping cutbacks. Following the $69 billion acquisition of Activision Blizzard, Microsoft eliminated more than 5,750 Xbox positions, followed by an additional planned reduction of 3,200 employees across fiscal 2026. High-profile project cancellations included Everwild, Perfect Dark, and ZeniMax Online's Project Blackbird, while acclaimed studios such as Arkane Austin and Tango Gameworks—developer of the breakout hit Hi-Fi Rush—were permanently shuttered. Corporate restructuring culminated in the departure of longtime Xbox head Phil Spencer and console president Sarah Bond. Microsoft appointed Asha Sharma, the former president of Microsoft Core AI with no background in gaming, as the new CEO of Xbox. Despite internal messaging urging staff to use generative AI tools like Copilot to process the emotional toll of job loss, Sharma framed the new era around aggressive restructuring, committing to 'industry-leading margins' by fiscal 2030 and a 100-day operational reset. Eroding Console Exclusivity and Service Utility (13:37) In response to mounting hardware losses, Microsoft reversed its historical commitment to hardware exclusivity. Under the widely panned 'This is an Xbox' campaign, the company marketed smart TVs, phones, and connected appliances as Xbox devices, while porting major first-party franchises like Sea of Thieves, Hi-Fi Rush, Indiana Jones, and Halo to competing platforms like Sony's PlayStation 5. The move diluted brand identity and eliminated consumer incentives to buy dedicated Xbox hardware, with hardware sales plummeting toward historical lows. Simultaneously, Microsoft throttled Xbox Cloud Gaming to conserve server compute for enterprise AI workloads. New tier restrictions capped entry-level Essential subscribers at just 5 hours of monthly streaming—roughly 10 minutes a day—while mid-tier and Game Pass Ultimate subscribers were limited to 10 and 15 hours per month, respectively. Players exhausting their caps were directed to purchase additional cloud playtime through the digital storefront, transforming what was once pitched as the future of unconstrained gaming into a metered utility. Gamers Nexus concludes that Microsoft has fundamentally abandoned the dedicated console model in pursuit of higher-margin enterprise AI operations. While CEO Satya Nadella expressed optimism for an operational recovery in fiscal 2027, the platform's multiplatform retreat, service throttling, and severe hardware price hikes leave Xbox's long-term consumer relevance deeply uncertain.

Source quotes

[4:20] they'll be able to purchase additional cloud playtime through the Xbox store. [10:02] Don Mattrick: Fortunately, we have a product for people who aren't able to get some form of connectivity. It's called Xbox 360... if you have zero access to the internet, that is an offline device. [13:37] Hi-Fi Rush was a breakout hit for us and our players in all key measurements and expectations. [15:22] Sarah Bond: I am thrilled to share we've established a strategic multi-year partnership with AMD to co-engineer silicon across a portfolio of devices including our next generation Xbox consoles in your living room and in your hands. [15:22] Asha Sharma: I also didn't expect my gamertag to blow up, and the reality is more boring. I created it recently to learn and understand this world. My focus is to make Xbox the best place to play and return to our roots. [17:53] Phil Spencer: I recognize that these changes come at a time when we have more players, games, and gaming hours than ever before. Our platform, hardware, and game road map have never looked stronger. We must make choices now for continued success. [17:53] Matt Turnbull: If you're navigating a layoff or even quietly preparing for one, you're not alone, and you don't have to go it alone. I've been experimenting with ways to use LLM AI tools like ChatGPT or Copilot to help reduce the emotional and cognitive load that comes with job loss. [17:53] Matt Turnbull: I'm struggling with impostor syndrome after being laid off. Can you help me reframe this experience in a way... [20:46] Asha Sharma: It is natural that prices go up. Every generation around us is raising prices, but I don't think you can raise prices through the hardware crisis that we're seeing. And so it will require fundamental change in terms of how we innovate and how we think about the business models and how we go bring this to market. And we're working on that. [20:46] Unfortunately, console storage and memory prices have increased by more than 2 and a half X, and we expect another doubling by the fall of 2027. The entire consumer electronics industry is struggling with the current component crisis. But the effects are particularly hard on consoles. Unlike phones, computers, speakers, and other consumer devices, consoles are typically not sold out at a profit, but instead for less than they cost to make. [23:28] Raphaël Colantonio: I'm fed up with all the [bullshit] they fed us at first. Like, 'don't worry, it doesn't impact sales,' only to admit years later that it totally does.

Original transcript

[0:00] they get to the microtransactions, [0:01] they're like, "Oh, the best part." You [0:03] may actually have a bunch of chips [0:05] sitting in inventory that I can't plug [0:07] in. In fact, that is my problem today, [0:09] right? It's not a supply issue of chips. [0:12] It's [music] actually uh the fact that I [0:14] don't have warm shells to plug into. [0:16] >> Look on hardware. It we are in a crisis [0:19] right now. The entire industry is [0:21] there's a shortage of memory and storage [0:24] and the costs are uh exponential. Like [0:27] there's more monetization of Xbox games [0:30] happening on YouTube uh than at [0:32] Microsoft. [0:33] >> Every generation [music] around us is [0:35] raising prices, but I don't think you [0:37] can raise prices through the hardware [0:39] crisis that we're seeing. [0:40] >> Now, we have to turn this into a [0:43] sustainable business that delivers what [0:46] is fundamentally the one of the best [0:48] sources of entertainment. Still, [0:52] Microsoft wants to turn Xbox around and [0:55] they have a solution. [0:57] It's a partnership with IKEA. [1:02] [music] [1:11] Okay, look, not all ideas are winners [1:13] like the Microsoft Crocs, but they're [1:16] trying. After admitting the Xbox [1:18] business isn't healthy, Microsoft [1:20] disclosed that its Xbox revenue declined [1:22] by 7% year-over-year, and revenue from [1:24] Xbox console sales fell even further by [1:27] 29%. Annual revenue from Xbox fell by [1:30] 1.7 billion. Microsoft's cloud gaming [1:33] sales with the Xbox Games Pass softened [1:36] the blow. Meanwhile, Microsoft spent $41 [1:38] billion in the last quarter to fund AI [1:41] data centers. Microsoft partly blamed [1:44] the sky-high bill as a result of quote [1:46] higher component pricing end quote which [1:49] is corpo speakak for blaming the memory [1:51] and storage shortage. Twothirds of [1:52] Microsoft's $ 41 billion infrastructure [1:55] bill came from CPUs and GPUs for [1:57] Microsoft's Azure cloud. Unless you're a [1:59] data center, Microsoft doesn't want to [2:00] fund you. And that includes its own [2:02] Xboxes apparently because the Xbox maker [2:05] said that it can't make as many consoles [2:07] as it needs to in order to fulfill the [2:09] demand for its player base which I not [2:13] sure they understand demand. It's seems [2:17] kind of like a throw in good money after [2:18] bad situation or some cost fallacy. But [2:20] anyway, after a long time Xbox had Phil [2:23] Spencer and man who likes the word grow [2:25] is a world of you got to be growing your [2:27] business. Growth [music] growth and [2:28] growth growing growing growing. How do [2:30] we make sure Xbox is growing? Growing [2:33] for our players, growing for our [2:34] creators, grow the Xbox. Growing, grow, [2:36] grow. Left in February, Microsoft [2:39] anointed Asha Chararma as the new Xbox [2:42] Master Chief. Chararma decided to revive [2:45] the brand with the classic corporate [2:46] playbook that starts with layoffs and [2:48] ends with price hikes. In early July, [2:50] Microsoft said that it would lay off [2:52] 3,200 people over the course of the year [2:54] and split off four game studios. [2:56] Microsoft also admitted that it lost [2:58] about 64 cents on each dollar it [3:00] invested in game studios. Then starting [3:02] in August 2026, Microsoft raised prices [3:05] for multiple Xbox models, which followed [3:07] price hikes from October 2025, which [3:09] followed price hikes from May 2025. All [3:11] price hikes happened years after the [3:12] Xbox Series X came out in 2020. We can [3:15] relax, though. Microsoft has a plan to [3:18] quote grow great games into global [3:20] franchises. grow [3:21] >> and they said quote extend the world [3:23] that fans love end quote with uh quote [3:27] industryleading margins end quote that's [3:30] the that's the part fans love this is [3:34] like when you know that the executives [3:36] haven't played games or understood them [3:38] they they get to the microtransactions [3:40] they're like ooh the best part I can't [3:43] believe it took me this long to get to [3:44] this part anyway the plan is to have the [3:46] industryleading margins by 2030 fiscal [3:49] year to save the Xbox So just 4 years. [3:53] That's good. At the present time though, [3:55] Xbox is in rough shape. Even Microsoft [3:57] admits that Xbox is in rough shape after [4:00] years of missteps. [4:01] >> We've got work to do. You shared the [4:03] numbers. Um we're not in a healthy spot. [4:05] And so, you know, next 100 days is going [4:08] to be about resetting the business. [4:09] >> So Microsoft is laying people off, [4:11] cutting game studios loose, raising [4:12] prices while aiming to return to glory [4:14] in the gaming market. But Microsoft is [4:15] also holding Xbox hostage by spending [4:17] billions of dollars on data centers [4:18] that's led to a global memory and [4:20] component shortage. 10 minutes a day for [4:21] a month is what Microsoft has decided [4:23] its low-end essential Xbox cloud gaming [4:27] service will provide for your monthly [4:30] payments. 10 minutes per day because no [4:34] you need to go work in the mines to [4:36] power the AI slot machine that Microsoft [4:38] is building. These come as the latest [4:41] round of boneheaded decisions from [4:42] Microsoft, which include limiting its [4:45] Xbox cloud streaming playtime hours per [4:48] month to at the very highest end 15 [4:50] hours with the ultimate tier because [4:53] you're not allowed to have entertainment [4:54] anymore. Uh, and it's just another [4:57] glimpse into our future of renting [5:00] access to gaming. comes after Microsoft [5:03] had the easiest PR win in history when [5:06] Sony continually shot its own feet [5:09] relating to the discs fiasco and still [5:11] continues to do so by the way but [5:13] Microsoft said no no wait a minute we've [5:15] got a follow-up actum and essential [5:18] members are restricted even further with [5:19] monthly caps of 10 and 5 hours [5:21] respectively but of course Xbox has [5:24] wares if you have coin the company [5:26] writes quote once subscribers use their [5:28] included hours they'll be able to [5:30] purchase additional cloud playtime [5:32] through the Xbox store. End quote. Oh, [5:34] good. [5:36] Are they going to tell us that costs or [5:38] Nope. They are saving the big extra [5:39] pricing reveal for November to really [5:41] set the stage for its Black Friday [5:43] success for Xbox and extend the PR [5:46] damage for as long as possible, an [5:48] additional two months for some reason. [5:50] And that brings us to the state of Xbox [5:52] where we think they have no idea who [5:54] they are anymore or what they're doing. [5:57] Microsoft has made a lot of mistakes [5:58] when it comes to Xbox over the years. [6:00] And really, Microsoft only has itself to [6:02] blame, but they could just kind of [6:04] broadly gesture at memory and storage [6:07] prices instead, I guess. Before that, [6:09] this video is brought to you by [6:10] Thermaltch and the TR200 WS Micro [6:13] chassis, a microATX stout case. It [6:16] includes an optional 5 and a quarter bay [6:18] for either a screened or 5 and a quarter [6:20] drives. The case has a highly perforated [6:22] side panel, a color accent front styled [6:24] like other popular cases, can fit [6:26] radiators and closed loop liquid coolers [6:28] in the top up to 360 mm claimed support [6:31] and a total of seven 120 mm fan mounting [6:34] locations between the top, bottom, and [6:36] rear of the case. Max CPU tower cooler [6:38] clearance is claimed at 175 mm and GPU [6:41] clearance at 365 mm. The chassis [6:44] provides a portable, highly compatible [6:45] box for your builds. Learn more at the [6:47] link in the description below. Xbox [6:49] actually has a pretty long history. A [6:50] lot of people associate lots of good [6:52] memories with Xbox, especially early [6:54] Xbox, just like anyone's earliest [6:56] consoles. And uh it helps to start with [6:59] some of that history for perspective to [7:01] where it's ended up. And I don't just [7:03] mean our own history with Xbox when one [7:05] of our first videos from 2009 was [7:08] destroying an already dead Xbox and [7:10] mouse in the style of office space. The [7:12] video doesn't quite rise to our modern [7:13] standards of a tear down, but I don't [7:16] regret a goddamn thing. Anyway, Bill [7:19] Gates unveiled the original Xbox at CES [7:21] on January 3rd, 2001 alongside The Rock [7:25] for whatever reason. [7:31] >> That's fascinating. [7:32] >> The original Xbox launched later that [7:34] year on November 15th, 2001. Microsoft [7:37] created it over concerns that the [7:38] PlayStation 2 would pull gamers away [7:40] from Windows PCs. The original Xbox did [7:43] little to slow the PlayStation 2, which [7:45] went on to become the bestselling [7:47] console of its type ever at roughly 160 [7:50] million units. [music] However, the Xbox [7:52] sold over 24 million units with the help [7:54] of its new Halo franchise. That's [7:56] roughly 3 million more units than [7:58] Nintendo's Gamecube. The Xbox also laid [8:00] the groundwork for Microsoft to release [8:02] its most successful console to date, the [8:05] Xbox 360. Microsoft's second console [8:08] sold over 84 million units and was ahead [8:10] of the PlayStation 3 for much of that [8:12] console race up until Sony's console [8:15] overtook it towards the end of the [8:16] cycle. The Xbox 360 also paved the way [8:19] for the Connect, Microsoft's motion [8:21] sensing camera, which became the [8:23] fastestselling electronics device at the [8:25] time. Just going to say, imagine [8:27] launching a Connect type device today. [8:29] Imagine the videos we would make about [8:31] that. It would be about spying and about [8:34] AI analysis of your living room and your [8:37] movements and maybe understanding the [8:39] gate and how you walk and then sending [8:41] all that data back to AI data centers to [8:43] process for flock cameras to correlate [8:45] against something to spy on you in the [8:46] physical world outside of your house. [8:48] But this was a different time. We [8:50] weren't quite at the end game yet. While [8:53] the 360 era was peak Xbox, it was [8:56] hampered as well, which was by the [8:58] infamous red rain of death, which was [9:00] caused by a thermal issue that prevented [9:02] players from using the consoles. [9:04] Microsoft ultimately paid over $1 [9:07] billion to extend warranties in relation [9:10] to that issue. Arguably, the real [9:13] beginning of the end though for Xbox was [9:15] none of that. The 360 was wildly [9:18] successful. It did well and it was [9:21] really the launch of the Xbox One where [9:23] you can kind of point to a graph and say [9:25] this appears to be when it started to [9:27] fall apart for Microsoft. And that's not [9:30] to be confused, by the way, with the [9:32] first Xbox, which is the second problem, [9:35] which is the naming that nobody can keep [9:37] up with anymore. It's like the AMD [9:38] approach to GPU names where they act [9:40] like it doesn't matter, except it [9:42] definitely does. And this is where the [9:43] naming conventions began losing the [9:45] plot. After the connect became a runaway [9:47] success, Microsoft bet heavily on it by [9:49] requiring every Xbox One to ship with a [9:52] second generation connect. [9:53] >> We're bringing a new connect sensor [9:55] paired with every Xbox One, which puts [9:57] you at the center of your entertainment. [9:59] >> This made the system $500, which was [10:02] $100 more than Sony's competing [10:04] PlayStation 4. Gamers criticized how the [10:06] Xbox One took its focus away from gaming [10:09] and pitched itself as the quote ultimate [10:11] all-in-one home entertainment system and [10:14] quote putting a great emphasis on being [10:16] a set top box for TVs, a buzzword of the [10:19] time, a smart device, another buzzword, [10:21] and a machine for uh Skype or something. [10:25] The Xbox One also landed in hot water [10:27] for initially requiring an internet [10:28] connection. Xbox head Don Matrick tried [10:31] to quell the hate at the time, stating, [10:34] >> "Fortunately, we have a product for [10:35] people who aren't able to get some form [10:38] of connectivity. It's called Xbox 360, [10:40] >> right? So, stick with 360. That's your [10:41] message. If you don't like it, [10:43] >> if if you have zero access to the [10:45] internet, that is an offline device." [10:47] >> Great answer in that interview. I can [10:49] almost kind of respect it. It's [10:51] basically a if you don't like it, [10:53] you. How about that? How do you like [10:55] that for an answer? And and this is [10:57] another one of those it's a sign of [10:59] bigger things to come. Requiring [11:02] internet for devices to be useful. It [11:05] wasn't quite where it is today at that [11:08] time. Microsoft was really ahead of the [11:09] curve with both the putting a motion [11:12] sensing device in your living room and [11:14] with the requiring internet. But it also [11:17] they still seemed more innocent than [11:19] today. Uh, we just didn't realize yet [11:22] how many devices would ultimately get [11:24] locked behind internet connections. [11:25] Requiring the Connect to stay plugged in [11:28] at all times alongside the online [11:30] requirement fueled privacy concerns, so [11:33] there were some of those early on. [11:34] Microsoft eventually removed the Connect [11:36] requirement and later sold it separately [11:39] for $150. So, Microsoft flubbed that [11:42] launch. And ironically, one of [11:44] Microsoft's biggest successes, the [11:46] Connect, led to one of its biggest [11:48] failures when they got over ambitious [11:50] with it. Microsoft discontinued the [11:52] Connect in 2017. But the damage was [11:54] done. Combined with several other failed [11:56] bets and boneheaded decisions, the Xbox [11:59] One left Microsoft a distant third in [12:01] the console market. Today, major [12:03] retailers like Costco no longer carry [12:06] Xbox consoles. Speaking of boneheaded [12:08] decisions, after the launch of the Xbox [12:09] One, Microsoft spent over the next [12:11] decade making them. In 2014, the company [12:14] purchased Mojane Studios and the [12:16] Minecraft IP for $2.5 billion. While [12:19] this was seen as a big gamble at the [12:21] time, it ended up being a lucrative [12:23] investment for the company with some of [12:25] the estimates indicating that [12:26] Microsoft's Minecraft purchase has [12:28] grossed 10 to 12 billion. Much like [12:30] Connect, its success reinforced [12:32] decisions that when applied less [12:34] strategically than the Minecraft [12:36] purchase, ultimately hurt Xbox. To fuel [12:38] its Game Pass efforts, Microsoft went on [12:41] a studio buying spree. In 2021, it [12:44] purchased Bethesda Softworks parent [12:46] company Xenax Media for $7.5 billion, [12:49] roughly three times what it paid for [12:51] Mojane. that was dwarfed a year later by [12:54] Microsoft's $69 billion acquisition of [12:57] Activision Blizzard, which was the [12:59] largest tech acquisition ever at the [13:01] time. The obvious concern was one of [13:04] vendor lockins and more exclusives. When [13:06] you have a first party hardware vendor [13:08] buying game studios whose games might go [13:10] on that hardware to be played, the end [13:13] concern there is pretty clear. What if [13:16] they just decide to not release any of [13:18] the good stuff on any other devices and [13:20] develop this sort of fully integrated [13:23] games hardware vertical monopoly? [13:26] But Microsoft responded to this concern [13:28] by reducing exclusives. At least so they [13:31] planned. With a huge library of games [13:33] bolstered by its studio acquisitions, [13:35] Microsoft pivoted away from exclusives [13:37] in early 2024 by announcing that titles [13:40] like Hi-Fi Rush, Pentiment, Sea of [13:42] Thieves, and Grounded would also release [13:44] on the PlayStation 5 and Nintendo [13:46] Switch. But something went wrong [13:48] somewhere and fast [music] because just [13:50] a few months later in May of 2024, [13:53] Microsoft began cutting costs. Microsoft [13:56] shuttered Roundhouse Studios, Arcane [13:58] Austin, Tango Gameworks, Alpha Dog [14:00] Games, and laid off an undisclosed [14:02] number of employees across Zenax. [14:05] Microsoft made these cuts despite being [14:07] the world's most valuable company by [14:09] market capitalization at the time. The [14:11] Hi-Fi Rush Studio got hit really hard, [14:13] but you could understand poor [14:15] Microsoft's decision-making if the game [14:18] that came out simply wasn't a breakout [14:21] hit that met expectations for players. [14:24] for example, quote, "Hi-fi Rush was a [14:27] breakout hit for us and our players in [14:29] all key measurements and expectations." [14:31] End quote. [14:33] Okay. Okay. Look, that's maybe not a [14:35] good example. Microsoft then pushed its [14:37] controversial this is an Xbox campaign [14:39] where it tried to market smartphones, [14:40] TVs, and laptops as Xboxes and maybe [14:43] even refrigerators or something, further [14:45] reducing the value of the actual [14:46] hardware. Meanwhile, the company [14:48] continued to port more of its exclusives [14:50] to other platforms, including Indiana [14:52] Jones, and The Great Circle, Fortza, [14:53] Horizon 5, Hellblade 2, Doom, The Dark [14:55] Ages, and Halo Campaign Evolved. Now, [14:58] opening up more games to more hardware [15:01] agnostically is a good thing for [15:02] players, but it also meant there's a lot [15:05] less reason to buy an Xbox at a time [15:07] when there was already a lot less reason [15:09] to buy an Xbox. All of this was [15:11] reflected in the company's finances with [15:13] outlets reporting system sales had [15:15] reached quote rock bottom end quote in [15:17] 2024. [15:22] Rather than follow Sega and exit the [15:24] console business, Xbox President Sarah [15:26] Bond doubled down on hardware and [15:28] revealed in June 2025 that more Xbox [15:31] consoles were coming. I am thrilled to [15:32] share we've established a strategic [15:34] multi-year partnership with AMD to [15:36] co-engineer silicon across a portfolio [15:38] of devices including our next generation [15:41] Xbox consoles in your living room and in [15:44] your hands. Less than a year later in [15:47] February 2026, Bond stepped down from [15:50] her role and Asha Chararma stepped in as [15:53] Xbox's new EVP and CEO. Chararma had no [15:57] gaming experience, even from what we can [15:59] tell, playing them. Chararma's [16:01] background is in AI, not in gaming, [16:04] which signals the direction Microsoft [16:06] wants to take its games given her tenure [16:08] as the former president of Microsoft [16:10] Core AI. She wrote in a reply to IGN, [16:13] which is 50% better than us by letter [16:15] count alone via Twitter, quote, I also [16:17] didn't expect my gamer tag to blow up, [16:20] and the reality is more boring. I [16:22] created it recently to learn and [16:23] understand this world. My focus is to [16:25] make Xbox the best place to [music] play [16:28] and return to our roots." End quote. [16:30] Look, I actually do really respect a CEO [16:34] trying to understand the thing that they [16:36] represent and sell by using it. That is [16:39] a good thing. We don't want to shame [16:40] that. Uh, and I also welcome people who [16:44] are older and have, by which I mean not [16:47] a kid and have never played games trying [16:49] to play games later in life for the [16:51] first time. That is awesome. This is the [16:54] CEO of one of the largest gaming [16:57] hardware divisions in the world. and [17:00] games divisions in the world. Uh, and [17:03] she's talking about returning to roots, [17:06] but it's hard to be the one guiding a [17:08] return to roots if you weren't there to [17:10] watch them grow. [17:13] God damn it, I used Phil Spencer's word, [17:14] >> grow. [17:15] >> That really wasn't intentional, but [17:16] [laughter] it's like contagious. But the [17:18] point is, [17:20] she might not fully understand the [17:22] roots. It's one thing if you come in and [17:24] you say, "I'm going to turn this thing [17:25] around and point it in a different [17:27] direction, 270 degrees that way." Uh, [17:30] it's another to say, "We're going to go [17:32] back to where we came from, but I don't [17:33] understand that place and have never [17:34] been there." A few months later, in [17:36] April 2026, Chararma announced that the [17:38] company would re-evaluate its approach [17:40] on exclusivity. This represented yet [17:42] another shift in Xbox's strategy. Now, [17:45] Microsoft looks to be flailing. It [17:47] recently released Halo Campaign Evolved [17:49] on PS5, but reportedly canceled its [17:51] Gears of War EDay port at the 11th hour. [17:53] And that brings us to the mass layoffs, [17:55] which started under Phil Spencer and [17:58] have continued under Asha Chararma. [18:00] Since acquiring Activision Blizzard, [18:02] Microsoft has announced at least 5,750 [18:06] Xbox related layoffs across multiple [18:07] rounds of cuts. On July 2nd, 2025, Xbox [18:11] cancelled Perfect Dark Ever Wild. [18:13] Several unannounced projects which [18:15] included Xenomax Online's MMO Cenamed [18:17] Blackbird and a title from Romero Games. [18:20] In addition to the canceled games, Xbox [18:22] developers suffered a bloodbath of [18:24] layoffs. Candy Crush developer King and [18:27] Bethesda's London office were reportedly [18:29] quote hit hard end quote. Call of Duty [18:31] developers Raven and Sledgehammer Games [18:33] also laid off staff joined by layoffs at [18:35] Highmoon Studios, Blizzard, and Halo [18:36] Studios. Forza Motorsport developer Turn [18:38] 10 reportedly had quote nearly 50% and [18:41] quote of its staff cut despite the [18:42] cancellations and mass layoffs. Then [18:44] Xbox CEO Phil Spencer wrote an internal [18:47] message to employees which read more [18:49] like posturing for investors knowing [18:51] it'd be leaked. Quote, "I recognize that [18:53] these changes come at a time when we [18:54] have more players, games, and gaming [18:56] hours than ever before. Our platform, [18:58] hardware, and game road map have never [18:59] looked stronger. We must make choices [19:01] now for continued success." End quote. [19:04] Some of you may die, but it's a [19:06] sacrifice I am willing to make, bro. [19:10] >> Following the layoffs in the cringiest [19:11] post of the year, Xbox Game Studios [19:13] executive producer Matt Turnbolt took to [19:15] LinkedIn to say, quote, "If you're [19:17] navigating a layoff or even quietly [19:20] preparing for one, you're not alone, and [19:22] you don't have to go it alone. I've been [19:24] experimenting with ways to use LLM AI [19:26] tools like ChatGpt or Copilot." Just got [19:29] to interrupt here to say uh [music] [19:31] the the guy at Xbox named Copilot [19:35] second. [19:37] So even they hate it. Anyway, he said [19:39] he's been experimenting with ways to use [19:40] LLM AI tools to help reduce the [19:43] emotional and cognitive load that comes [19:46] with job loss. End quote. He suggested [19:49] laid-off employees take to AI to say [19:51] quote, "I'm struggling with impostor [19:53] syndrome after being laid off. Can you [19:56] help me reframe this experience in a way [19:58] that reminds me what I'm good at? End [20:01] quote. Tell you what he's not good at is [20:03] uh reading the room. Many of [20:06] these people probably lost their jobs [20:08] because of overbedding on AI. [20:12] Ironically enough, Phil Spencer lost his [20:15] job to someone who came from the AI [20:18] division to become CEO or lead of that [20:22] group and was ousted in favor of her. [20:24] But believe it or not, and I know this [20:27] is hard to believe, Chat GPT and Copilot [20:30] were not enough to boost the morale. So, [20:32] Xbox's layoffs will continue. On July [20:35] 6th, 2026, Microsoft said it would [20:38] reduce its Xbox workforce by about 3200 [20:40] people through its next fiscal year. [20:42] Microsoft eliminated 1,600 ROS [20:44] immediately. Skyrocketing prices [20:46] obviously don't help sales. Microsoft [20:48] hiked the prices on Xbox consoles [20:50] numerous times in recent months. In June [20:53] this year, new Xbox head Asha Chararma [20:55] said the following. [20:56] >> I think that um look, it is natural that [21:00] prices go up. Um every generation around [21:02] us is raising prices, but I don't think [21:05] you can raise prices through the [21:07] hardware crisis that we're seeing. And [21:08] so it will require fundamental change in [21:11] terms of how we innovate and how we [21:12] think about the business models and how [21:14] we go bring this to market. And we're [21:16] working on that. [21:16] >> A few weeks later, Microsoft raised the [21:19] prices in a hardware crisis. Microsoft [21:21] announced that it would raise prices in [21:22] August for its current generation of [21:24] Xbox, which is now going on 6 years old [21:26] by $100 for the 512 GB models and $150 [21:30] for the 1 TB models. Microsoft also sent [21:33] the two TBTE Xbox model to a farm [21:35] upstate that follows its prior October [21:38] price increase of 20 to $70. Microsoft [21:42] blamed the price increase on the memory [21:43] and storage shortage that it's largely [21:45] responsible for. quote, "Unfortunately, [21:47] console storage and memory prices have [21:49] increased by more than 2 and a halfx, [21:51] and we expect another doubling by the [21:53] fall of 2027. The entire consumer [21:55] electronics industry is struggling with [21:57] the current component crisis. But the [21:59] effects are particularly hard on [22:01] consoles. Unlike phones, computers, [22:03] speakers, and other consumer devices, [22:05] consoles are typically not sold out at a [22:07] profit, but instead for less than they [22:09] cost to make." End quote. That's right. [22:11] Unlike phones, consoles really [snorts] [22:15] lose money when they sell them. This I I [22:18] didn't have any hundreds. This was a [22:21] five. [22:24] Historically, consoles come down over [22:26] time. They don't go up. That's not the [22:28] direction it's supposed to go. So, even [22:31] though there's this whole, oh, we sell [22:33] it at a loss. Poor us. we only make it [22:35] back in billions of dollars by renting [22:38] you access to games in the cloud or I [22:41] don't know all of the publishing fees [22:43] for every single game that sells on the [22:44] platform. Even in spite of that, the [22:47] consoles get cheaper normally as they [22:50] age, not more expensive for consumers. [22:52] And yeah, okay, the cost went up, but no [22:56] one cares about that. They care about [22:58] what's reality to them, which is the [23:00] price of the thing 6 years after it [23:03] launched. The Xbox Series X launched for [23:06] $300 in 2020. Today, the base model [23:10] sells for $500 in the US. That's like a [23:13] 67% [23:15] increase 7, I think, repeating uh [23:18] rounded up. The Xbox Series X climbed [23:21] uh from $500 at launch to $750 [23:26] today. So, that's another 50%. And the [23:28] recent price increases affect more than [23:30] consoles. In May 2025, Microsoft raised [23:32] prices on Xbox peripherals like [23:34] controllers and headsets and announced [23:36] that first-party games may cost upwards [23:38] of $80. Microsoft walked back the last [23:41] part of this claim after realizing that [23:43] trying to sell the Outerorlds 2 at this [23:45] price represented out of this world [23:46] pricing. In September 2025, Microsoft [23:48] revealed the price of its ROG Xbox Alli [23:51] X and ROG Xbox Ally handhelds, which [23:53] would launch for $1,000 and $600, [23:56] respectively. At launch, buyers could [23:58] purchase both a PlayStation 5 and a [24:01] Switch 2 for less than the price of a [24:03] single ROG Xbox Ally X. While [24:05] Microsoft's handheld reportedly sold [24:07] well during its first month, according [24:09] to Cirana, growth has slowed and the ROG [24:12] Xbox Ally total sales are currently [24:14] under 1 million units, which is good cuz [24:16] God knows ASUS isn't going to help you [24:18] if you have a warranty claim. That's [24:22] $200. For frame of reference, analyst [24:25] firm IDC estimated the competing Steam [24:27] Deck to have sold upwards of 4 million [24:29] units alongside Valve's prior comments [24:31] of having sold quote millions of units [24:33] and quote to the Verge. Okay, bad [24:35] subjectverb agreement arrangement there. [24:37] They didn't sell millions of units to [24:38] the Verge. They made the comment about [24:39] selling millions of units to the Verge. [24:41] But anyway, there's Microsoft's games as [24:43] a service subscription as well, and even [24:46] that went up in price. That's Game Pass. [24:48] In October 2025, Microsoft raised the [24:50] prices on its Game Pass subscriptions. [24:52] Its PC Game Pass tier went from $12 a [24:54] month to $1,650, an increase of about [24:57] 38% for a digital service without [25:00] ownership. Microsoft also massively [25:02] boosted the Game Pass Ultimate service [25:04] by 50%, going from $20 to $30 per month [25:08] for the privilege of playing games that [25:10] they might snap out of existence one [25:12] day. Subscribers abandoned Game Pass in [25:14] droves and prompted Microsoft to soften [25:16] its price hikes. PC Game Pass went down [25:18] from $1,650 to $14, splitting the [25:22] difference, but still up. Its ultimate [25:24] tier went from $30 a month down to 23, [25:27] which in light of $30 looks like a great [25:29] deal. But you could kind of look at this [25:30] two ways, where either Xbox has [25:33] absolutely no idea what it's doing and [25:35] has no conviction whatsoever in its [25:37] decisions, which is bad. Or Xbox is [25:39] manipulating acceptance of its price [25:41] hikes by going up to a ridiculous price [25:43] and then coming down to the price it [25:44] actually wanted to set it at originally. [25:46] but still a higher price. Arcane Studios [25:48] founder Raphael Co Antonio said, "Game [25:51] Pass is bad for the industry," tweeting, [25:53] quote, "I think Game Pass is an [25:54] unsustainable model that has been [25:56] increasingly damaging the industry for a [25:58] decade. I'm fed up with all the [26:00] they fed us at first. Like, don't worry, [26:02] it doesn't impact sales," only to admit [26:05] years later that it totally does. No [26:07] it does. End quote. It definitely [26:09] does. I mean, the point of all this is [26:12] Microsoft is boohooing and qing and [26:15] tting. I guess you get all the old [26:18] emoticons in there about how they sell [26:22] their consoles at a loss and therefore [26:24] unlike other devices that go up in [26:26] price, which first of all, you. [26:28] Like, I'm sure some of those other [26:29] devices do the same strategy, but unlike [26:32] other devices, [26:34] there's has to go up because they're [26:35] already at a loss and they can't be at [26:37] more of a loss. [26:39] even though their AI division is causing [26:41] a lot of this price increase and they're [26:44] increasing the prices across the board [26:47] in ridiculous ways. That's really the [26:49] problem here. Microsoft's acting like it [26:52] doesn't understand why Xbox is failing [26:55] and then it does all this stuff. It just [26:57] compounds the problem. Uh Microsoft's [26:59] Xbox strategy or lack thereof though is [27:02] showing up in the company's earnings as [27:04] well. On July 29th, Microsoft disclosed [27:06] that it generated $90 billion in [27:08] revenue, an increase of 18%. Microsoft's [27:11] operating income was $4.6 billion, net [27:13] income, 35.8 billion. The majority of [27:15] this revenue came from its Azure and [27:17] Microsoft 365 cloud services. Microsoft [27:20] includes the Xbox business within what [27:21] it calls the more personal computing [27:24] category. In the more personal computing [27:26] category, Microsoft made 12.9 billion, a [27:30] decrease of 4% compared to the prior [27:32] quarter. Microsoft's Xbox revenue [27:34] decreased by 10%. Now, personally, I'm [27:36] looking forward to Microsoft's future [27:38] less personal computing category, which [27:40] I assume will be when they sell [27:42] computers to AI chatbot agents instead [27:45] of, you know, people. [27:47] >> The PC evolved from being an incredible [27:50] tool to now being a tool that's used [27:54] autonomously by an AI assistant. This [27:57] idea that that the PCB evolved from a [28:00] from a personal computer to a personal [28:03] AI is just really exciting. I think the [28:06] days of having a really smart assistant [28:08] running autonomously on the PC is here. [28:10] >> Yeah, I know. It's so awesome. And in [28:11] fact, I'm also excited about Windows [28:13] coming to the GB300. Uh, and so that's [28:16] another thing that it's kind of like [28:18] data center right on your desktop. [28:20] >> Microsoft's earnings presentation [28:21] provided more detail on its Xbox sales. [28:23] Revenue from the Xbox business declined [28:25] in three consecutive quarters. Further, [28:27] Xbox hardware sales decreased by 13% [28:29] quarter over-arter. Xbox wasn't [28:31] Microsoft's only hardware that fell in [28:33] revenue. Microsoft's Windows OEM and [28:35] device business, which includes Surface [28:37] Laptops, decreased by 7%. Microsoft [28:40] provided a full picture of Xbox's decay [28:42] in its annual report. For its fiscal [28:44] year 2026, Xbox generated $21.7 billion [28:48] in revenue, a decrease of about $1.7 [28:50] billion compared to the prior fiscal [28:52] year. For comparison, LinkedIn generated [28:54] $19.8 billion in revenue, only a couple [28:57] mere billion from topping Xbox. And [28:59] that's the platform that brought you the [29:01] LinkedIn lunatic who told everyone to [29:02] use chat GPT to prepare for being laid [29:04] off by asking it if they have imposter [29:06] syndrome and how to fix that. For the [29:08] whole fiscal year, Xbox's content and [29:10] services revenue decreased by 5%. The [29:12] decrease was offset by growth in the [29:14] cloud-based Xbox Game Pass. On a more [29:16] dire note, Xbox hardware revenue [29:18] decreased by 29% year-over-year due to [29:20] lower sales. On Microsoft's earnings [29:22] call, Nadella said he expects Xbox to [29:24] begin growing again next year. [29:26] >> When it comes to Xbox, we are making the [29:28] necessary decisions required across our [29:30] content portfolio, platform, and [29:32] operations to reset the business for [29:34] long-term growth. We have the best IP in [29:37] the industry and talented studios around [29:39] the world and believe we can bring these [29:42] strengths together and expect to return [29:44] the business to growth in fiscal 2027. [29:47] But Microsoft's declining sales are [29:49] impacting more than just Microsoft, like [29:52] AMD. Shortly after Microsoft's earnings, [29:54] AMD released its own quarterly earnings, [29:56] which we talked about in a separate [29:57] video. In an SEC filing, AMD disclosed [29:59] that its gaming revenue decreased by 31% [30:02] compared to a year ago. AMD CEO Lisa Sue [30:06] then got into the bus and drove over [30:08] Microsoft as she blamed them for the [30:10] decline primarily on lower sales of [30:12] semi-custom solutions. AMD's semi-custom [30:15] gaming solutions include the chips it [30:16] makes for Microsoft's and Sony's [30:18] consoles. Even if Microsoft isn't buying [30:20] chips for its consoles, though, [30:21] Microsoft is still buying lots of GPUs, [30:24] like a lot of them. Doesn't matter who [30:26] it's from. Jensen says so. [30:29] >> Microsoft deployed the largest number of [30:32] Grace black wells in the world today. [30:34] The fastest and the largest number of [30:36] Grace Blackwells in the world. In its [30:38] last quarter, Microsoft increased its [30:39] spending and capital expenditures to $41 [30:41] billion to quote support customer demand [30:43] for cloud and AI offerings and included [30:46] the impact from higher component [30:47] pricing. End quote. Microsoft spent [30:49] about twothirds of this $41 billion on [30:52] CPUs and GPUs. Microsoft spent roughly [30:54] $27 billion on CPUs and GPUs for data [30:57] centers in one quarter. Even Microsoft [30:58] acknowledges that component shortages [31:01] that it's partially causing drove up [31:02] prices. For some perspective, in a very [31:05] Microsoftian way, uh the $27 billion [31:09] could buy 36 million Xbox Series X one [31:14] TBTE digital editions at the current [31:16] retail consumer price of $750. Or it's [31:20] also enough money to buy 90 million [31:23] baseline Xbox 360 systems at the [31:26] original $300 price point, not inflation [31:28] adjusted. Look, it's been a long time [31:29] that it cuts a little bit with inflation [31:31] adjustment, but it's still tens of [31:33] millions of units. And while that is a [31:35] nonsequittor measurement of anything [31:37] because we're talking retail consumer [31:39] price, the point is like the money and [31:42] the parts are going somewhere. It's just [31:43] not gaming. And that's not good. But if [31:47] they want to just embrace that, that's [31:48] one thing. They want to pretend like [31:50] this is all headwinds and it's outside [31:52] of our control. That's kind of where we [31:54] have the problem with it. But there is [31:55] an important metric that's not non [31:57] sequittor. For example, 27 billion also [32:01] could have purchased 337 [32:04] million500,000 [32:06] Xbox Microsoft Crocs before they sold [32:09] out. Microsoft buys billions and [32:10] billions of dollars worth of GPUs to [32:12] shove into warehouses for possible data [32:14] centers that Microsoft may not even have [32:16] the power for. You may actually have a [32:18] bunch of chips sitting in inventory that [32:20] I can't plug in. Within the last year, [32:22] Microsoft announced many data center [32:23] projects with NVIDIA GPUs. Microsoft's [32:25] Fairwater data center network in [32:27] Wisconsin and Georgia will house quote [32:28] hundreds of thousands quote of Nvidia [32:30] GPUs. Microsoft has thousands of Grace [32:31] Blackwell chips running on Azure. [32:33] Anthropic agreed to purchase $30 billion [32:35] of Microsoft compute power that runs on [32:36] Nvidia hardware. Mistral is using [32:38] thousands of NVIDIA GPUs on Microsoft's [32:40] cloud in Europe. Microsoft sold tens of [32:42] thousands of Nvidia AI GPUs to the [32:43] United Arab Emirates. Microsoft will be [32:45] among the first cloud companies to [32:47] deploy Nvidia's upcoming Ver Ruben NVL72 [32:49] systems. And this doesn't include the [32:51] Neoclouds that Microsoft rents GPU power [32:53] from as well, like where Microsoft rents [32:55] Nvidia GPUs from companies that are [32:57] backed by Nvidia. Microsoft has a $9.7 [33:00] billion deal with Iron to use GB300 GPUs [33:03] in Texas. Microsoft is building AI data [33:05] centers with NScale across Europe, [33:07] including in the United Kingdom, Norway, [33:09] and Portugal. Microsoft has a [33:10] multi-billion dollar agreement with [33:12] Lambda and NBUS. Microsoft has spent [33:15] billions of dollars with Nvidia Sugar [33:16] Baby Coreweave. Nvidia has invested in [33:19] or plans to invest in every one of these [33:20] Neocloud companies. It doesn't matter [33:22] whether Microsoft buys the Nvidia GPUs [33:25] or rents them from a Neocloud provider. [33:28] Microsoft is contributing to the global [33:31] component shortage in a big way while [33:34] crying foul about how the global [33:36] component shortage is affecting their [33:40] Xbox prices and you should just swallow [33:43] that price increase and deal with it. [33:45] Unfortunately, because of what's [33:47] happening with the cloud and AI, the [33:50] prices have gone up, right? It's [33:51] happening with PCs, it's happening with [33:53] phones, Xbox is impacted uh as well. So, [33:56] the scarcity of the semiconductor supply [34:00] and memory in particular [34:03] having a massive impact uh on consumer [34:06] electronics all up. [34:07] >> Look on hardware. It we are in a crisis [34:10] right now. the entire industry is [34:12] there's a shortage of memory and storage [34:15] and the costs are uh exponential. Um [34:18] they are usually at this point in the [34:20] generation about 50% of the the cost and [34:24] uh we we're seeing they're up 2.75x [34:26] they're up 50% since I started going to [34:29] be up effectively 7 and 12x and so yes [34:34] pricing is a lever of course but we must [34:38] think about other options as well [34:40] >> as Jensen would weirdly say Microsoft [34:42] wants to have its five layer cake and [34:45] eat it too. Microsoft has spent billions [34:47] of dollars to build AI data centers [34:48] which has caused the global memory [34:50] shortage which increased prices for [34:51] consumer electronics which Microsoft [34:52] says required it to raise prices for [34:54] Xbox hardware. In our recent AMD video [34:56] which is up, we said that Microsoft [34:58] can't pretend to be a bystander being [35:00] affected by prices that are out of its [35:02] control. Microsoft's insatiable demand [35:05] to build warehouses full of GPUs to [35:08] maybe put in a data center when it's [35:09] built to maybe use if the power comes [35:11] online for that data center is the [35:14] reason that the supply of silicon is so [35:16] tight right now. It's part of it at [35:17] least. They're one of a few companies [35:19] that are really big in that space, but [35:20] they are one of the largest ones in the [35:22] world. Microsoft is acting like the [35:25] victim of the memory crisis that it [35:28] helped to create. That's it for this [35:31] one. You can subscribe for more. You can [35:33] go to store.gamesac.net to help support [35:35] us directly, like by grabbing one of [35:37] these uh disc packs that we're selling [35:38] now on the store. We're making we're [35:40] actually burning discs in house and uh [35:43] we have tested them on the Xbox Series X [35:45] for the Blu-ray ones and it worked. So, [35:47] that's cool. 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