Xbox hardware sales plummet 29% before console price increases, but Game Pass shows growth

With Xbox reportedly targeting 30% profit margins, there was more attention on the just-released Microsoft earnings report. The results are a mixed bag for the company’s gaming division. During Q1 of the 2026 fiscal year, hardware sales fell by another 29%, as the Xbox Series X and S continue to fade. However, buoyed by Game Pass, content and services saw a 1% increase compared to the same period a year prior.

Overall, Microsoft’s gaming revenue suffered a 2% loss of $113 million. That number may not be surprising, given that the Xbox is in a transition period. The company is moving away from first-party hardware and is now endorsing OEM devices, such as the ROG Xbox Ally handhelds. It’s also putting more emphasis on cross-platform publishing and digital services like Xbox Game Pass.

The Microsoft earnings report covered the months of July through September 2025. As a result, gamers don’t yet know the impact of the most recent Xbox price increases, effective on October 3rd. The U.S. Game Pass changes are also a more recent development.

It’s likely that Xbox console sales will slow further after retailers like Costco stop stocking the system. The Series X MSRPs rose by another $50, with the disc-based option a startling $649.99. Other versions of the gaming machine, including the Series S, also saw the same price hike. The latest decline followed a 22% decrease in hardware sales during the previous quarter.

With new first-party hardware not arriving until 2027 at the earliest, Microsoft will need to rely on other revenue streams. Yet the rising costs of Xbox Game Pass are testing the patience of subscribers. Some gamers need the Ultimate tier to play day-one new Xbox games on day one, but it now demands $29.99 per month.