Microsoft’s FY27 Q1 earnings release arrives as XBOX undergoes a major restructuring and prepares changes to Game Pass cloud streaming. The results bring another setback: XBOX Game Pass contributed to a 2% year-over-year decline in content and services revenue. Lower third-party content revenue also contributed, while growth in first-party content helped offset those decreases.
Microsoft published its FY27 Q1 earnings release on October 28, covering the quarter ended September 30, 2026. The accompanying earnings presentation identified Game Pass as a contributor to the decline but didn’t reveal how much its revenue fell or provide an updated subscriber count. That means the results confirm lower Game Pass revenue, not that the service lost subscribers.
Game Pass and Third-Party Content Contribute to Revenue Decline
XBOX content and services includes game and in-game content sales, subscriptions such as Game Pass, advertising and XBOX Cloud Gaming. The 2% decline applies to that combined business, not Game Pass alone. Excluding currency movements, the decrease was 1%.
This was the fourth consecutive quarter of year-over-year declines for content and services. Revenue fell 5% in FY26 Q2 and Q3, then 10% in Q4, before the latest 2% decrease. The smaller decline is an improved year-over-year comparison, not evidence that revenue rose between quarters.
Microsoft previously reported nearly $5 billion in Game Pass revenue for the full FY25 fiscal year. There’s no comparable Game Pass dollar figure in the latest results, so we can’t calculate the size of the decline.
First-Party Growth Comes During XBOX Restructuring
Microsoft’s first-party content brought in more revenue than a year earlier, helping offset the declines elsewhere. The company didn’t name the games responsible or reveal separate dollar totals for each part of content and services.
The financial results follow major changes under XBOX CEO Asha Sharma, who replaced Phil Spencer in February. Sarah Bond also left Microsoft during that leadership transition. In July, XBOX announced plans to eliminate approximately 3,200 positions through FY27 and move several studios to new management or ownership.
Another 268 roles were eliminated in September as XBOX reorganized its studios. XBOX assigned development of the next Halo game to a new Activision team and announced a merger of Playground Games and Turn 10. Those steps are part of the previously announced restructuring, not a separate round added to the 3,200 planned job cuts.
Sharma previously said Game Pass and Microsoft’s wider gaming strategy hadn’t grown as quickly as expected. The earnings provide a new measure of the business during that overhaul, but Microsoft hasn’t linked the restructuring to this quarter’s revenue decline.
XBOX Cloud Gaming Changes Are Still Ahead
XBOX is also changing how players pay for cloud gaming. Starting in November, Game Pass Ultimate will include 15 hours of streaming a month, Premium 10 and Essential five. Additional cloud time will be sold separately. In October, XBOX began testing paid cloud playtime for people without a Game Pass subscription.
Microsoft previously reported more than 500 million hours streamed through XBOX Cloud Gaming during FY25. The latest earnings don’t include a comparable usage figure, cloud gaming revenue total or new Game Pass subscriber number.
The quarter ended September 30, before November’s new limits take effect. The results therefore can’t show how those changes affect subscriber behaviour or cloud gaming revenue.
Sharma wants XBOX back to audience and revenue growth by the end of FY27, with streaming part of that plan. That target comes from a staff memo obtained by The Verge. For now, the financial picture is incomplete: Game Pass contributed to lower revenue, while XBOX Cloud Gaming’s individual performance remains undisclosed.
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