Microsoft’s third-quarter earnings for fiscal year 2025 reveal a clear picture: Xbox’s gaming revenue is rising, even though console sales are slipping.
The company posted a 5% increase in total Xbox gaming revenue, largely fueled by an 8% rise in content and services. Game Pass continues to be a strong engine for growth, bringing in more users and keeping engagement high, though Microsoft hasn’t disclosed exact subscriber numbers this time.
A major part of the revenue boost comes from first-party and key third-party games. Titles like Call of Duty, which was recently acquired through Microsoft’s massive Activision Blizzard deal, alongside Minecraft and the new RPG Avowed, played a central role in boosting Xbox’s content and services income. These popular titles help keep Game Pass attractive while also bringing in individual purchase revenue for Microsoft.
Despite this positive momentum, Xbox hardware sales saw a 6% drop compared to the same quarter last year. That means fewer Xbox Series X and Series S units are being sold, continuing a downward trend from previous quarters. It’s unclear whether this is because most of the demand has already been met or if competition from PlayStation and Nintendo is drawing attention away from Microsoft’s consoles. Another possibility is that gamers are holding off for new hardware announcements.
Speaking of which, Microsoft has made no secret that it’s thinking ahead. Xbox boss Phil Spencer recently teased that a handheld Xbox device might be on the horizon, something to compete with devices like the Steam Deck or the Nintendo Switch. And the next-generation Xbox console, rumored to be called Xbox Prime, is reportedly in the works with a target release window of 2027.
According to industry insider Jez Corden from Windows Central, Xbox Prime could be a hybrid device that blends console simplicity with PC flexibility. It’s expected to have fixed specs for developers but offer the kind of modular, scalable performance gamers expect from PCs. That could mean a very different kind of Xbox experience is on the way, possibly reshaping how people think about console gaming altogether.
So even with consoles dipping a bit this quarter, Microsoft isn’t pulling back on its gaming ambitions. The company is doubling down on software, subscriptions, and a more futuristic hardware roadmap. If this strategy pays off, Xbox might end up less about boxes under your TV, and more about wherever you are.
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