Microsoft weighs an Xbox spinoff. Would it revive the business or put it at risk?

Microsoft is reportedly exploring a spinoff or restructuring of its Xbox gaming division due to declining console sales and underperforming subscription and cloud gaming initiatives. In its most recent earnings report, Microsoft disclosed that Xbox hardware sales decreased by 33% year over year. The company's significant investments in content, platform, and hardware subsidies, totaling over $20 billion in the past five years excluding Activision Blizzard King, have not translated into revenue growth, with annual revenue declining by nearly $500 million during the same period, according to a recent internal memo from Xbox CEO Asha Sharma and Chief Content Officer Matt Booty. This financial performance has prompted leadership to state that "this cannot continue." The memo also highlighted the impact of rising component costs, with computer memory prices increasing five-fold since 2024, affecting sales of current consoles and the next-generation system, codenamed Project Helix. Microsoft acquired major publishers like Bethesda and Activision in recent years, but the current financial climate suggests Xbox may not be able to sustain these acquisitions. The Xbox division, launched in 2001, experienced a period of strong competition with Sony during the Xbox 360 era but has since fallen behind in market share.