The Xbox Situation Is Worse Than Microsoft Are Letting On

A lot of things are changing and to set

the tone for this video, I'm going to

open with a promise that has been made

to all of us by the new boss of Xbox. As

monetization and AI evolve and influence

this future, we will not chase

short-term efficiency or flood ecosystem

with soulless AI slop. Now, those are

the words of Xbox's new boss, Asha

Chararma. And on their own, they're

actually good words. I think we can all

get behind that. They would maybe give

you some hope that the new Xbox would

avoid the worst tendencies of Microsoft.

But the thing is that up until this

week, Asha Chararma was president of

Microsoft core AI. And as much as say

the open AI codeexes or clawed codes of

the world seem to be being quite

successful, when it comes to consumer

and business AI, Microsoft is kind of

specifically known for being sloppy and

being really quite bad. So, as much as

she's opened her tenure with that good

statement that is trying to meet a lot

of our our concerns and the sort of

angst of the day, I'm not necessarily

sure how much I'm willing to trust it.

Though, this story isn't just about

Asha. Of course, Phil Spencer is gone.

Sarah Bond is gone. And rather

dramatically, when everyone was writing

their memo saying farewell or saying

hello, only Phil Spencer mentioned Sarah

Bond. The rest didn't. and that will

seemingly mix in with what uh some

people are leaking. We'll get to that

later. But first, we need to talk about

how the story broke. It all went down

last thing on a Friday afternoon. That's

when Microsoft and Xbox decided to

announce their biggest shakeup in over

two decades. And I could read you the

various memos in full, but I'll just

paraphrase to save you time. So, Xbox

CEO Phil Spencer is retiring. He spent

38 years at Microsoft. Fair enough. And

in theory, it is the perfect year to

retire. It's the 25th anniversary of the

launch of the first Xbox. That feels

like a natural moment to pass on the

torch. But if that was the reason for

all of this change, then why is it

happening before the celebrations have

even begun? Now, to understand the

reason for this change, we got to look

at the new boss. So, Asha Chararma is

CEO, and she's an interesting person

when you go through her career history.

It is telling, and I'll run you through

it. She spent two years in marketing at

Microsoft. Then as COO, she helped to

found and establish an online home

contractor service called Porch. She

spent four years at Meta as VP of

product engineering, specifically

working on Messenger and Instagram. Then

she, I think, went a little bit up the

ladder again because she was COO at

Instacart, but with a very important job

for a company like that. She was

preparing the company for its stock

market listing. She had direct

responsibility for profit and loss. So,

you can see she's had a lot of

responsibility and generically she's got

a skill set that could be valuable to a

company like Microsoft. She's also on

the board of some companies like a South

Korean e-commerce company and uh Home

Depot. Now, in 2024, she goes back to

Microsoft as CVP head of product for

Microsoft's AI platforms. And then she

goes on to be president of core AI

product, which to many is the especially

worrying part considering the likes of

say Call of Duty right now. Chararma

promises quote no AI slop. I do have to

wonder if she had to ask Sati Nadella uh

permission to use that phrase because

he's on the record as hating the word uh

slop. But obviously reading that

statement, we're all thinking about the

AI slot that's ended up in Call of Duty.

Now, Phil Spencer had already been on

record stating the developers had free

reign on all of that tech and that for

the majority it was only used on

operational things like say moderation.

And that would be fairly easy to

disprove if it were untrue. So instead,

a real focus should be on her role as

product executive. That is someone who

builds up products, knows market fit,

and builds audiences. That's not nothing

and maybe not a bad fit for Xbox. I

mean, the group's problem for the last

decade has been that what Xbox means and

is keeps on changing. Believe me,

there's drama in that. And we will get

to that shortly because it's pretty much

all falling on one person, at least

person leaks. But this appointment

reflects a moment for change, especially

because unlike with Phil Spencer, she's

not stepping up to this role from within

Xbox. She's coming over for Microsoft's

most profitable venture in decades. Now,

her lack of industry specific experience

may obviously be a problem. And as good

as her engagement posting on Twitter

about liking Halo, Valheim, and Golden

Eye is uh fine and well, it's obviously

not the same thing as having real

experience of how the games industry

actually works. But obviously, you don't

need to be Phil Spencer wearing a

graphic tea and staggering play times to

run a games company. A lot of people

would hate to hear it, but technically

speaking, the most successful of them is

Bobby Cotic. As long as you're willing

to learn and make good products, outside

experience is absolutely not

automatically a bad thing. But the way

that this leadership came about, that

may be a bit different, and it's hard

not to read it as Microsoft bringing

someone in to run Xbox in a way that is

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are why. What happened to the old boss?

Well, a year ago, rumors started that

Phil Spencer wanted to retire. He was

asked about it directly by Destin Larry

in January, and he said he had no such

plans. Now, in July, rumors began to

spread that Spencer would step down

after the next console launched, with

the plan being that President Sarah Bond

would take over. But that was also

debunked. And it was debunked by

Microsoft's chief communications

officer. Now, according to memos

released last week, Phil Spencer changed

his mind and he started talking to

Microsoft CEO Satia Nadella in late

autumn of 2025. They made a decision and

while he'll be hanging around to advise

Chararma till the summer, he is out. If

we're approaching this skeptically, then

that timeline does align very cleanly

with Xbox suffering a massive drop in

Call of Duty sales last year. Now, I

don't think it would be fair to blame

Phil Spencer for those sales. I think

that would really be quite ridiculous.

It seems the Call of Duty development

problems are very much stemming from

legacy decisions of Activision

leadership, but it is true that going

from the first the bestselling game to

fifth bestselling game of the year does

a hell of a lot more damage to say your

quarterly revenue than something like

The Outer Worlds 2 underperforming to

the tune specifically of a 9% drop

yearonear which is brutal. And maybe

that gets the wheel spinning at

Microsoft. I mean, several years of Xbox

only keeping their head above water.

Layoffs and cancelled games driven by a

need to show more profit, especially

when multiple reports say that last

year's layoffs were specifically to free

up funds, future funding for AI. Now,

maybe Spencer makes this choice on his

own to step aside. Maybe he sees the way

the wind is blowing and decides, you

know what, I'm getting off this train.

But insiders speaking to the likes of

Greg Miller at Kind of Funny are saying

that this was not planned, especially

because at least one aspect of the

changeover feels like it would not have

happened under different circumstances.

As for who's left, well, there's Matt

Booty, formerly head of Xbox Game

Studios, who has been promoted to EVP

and chief content officer. But he's not

the president of Xbox. And that's

because there's someone missing from

these statements. From Nadella's

statement, from Chararma's statement,

and even from Matt Booty's statement,

and that person is Sarah Bond, the woman

who was president of Xbox since 2023,

simply resigned. We found out that she

had resigned. Very few people were

talking about her. Now, she was framed

in every way as Phil Spencer's

successor. And according to the Verge,

she was the person leading the quite

disastrous this is an Xbox marketing

campaign, which was one designed to

expand the audience for their games.

Now, this allegedly put her at odds with

internal skeptics who were quote

offended at the lack of focus on

consoles. Of course, the consoles

weren't really selling. And well, Xbox's

console sales have only got worse over

time. And this raises eyebrows because

as it had been framed, if Spencer were

to hand the torch to anyone, it was

expected to be her. And now the new CEO

is a product focused executive for

Microsoft's fastest growing division,

who has been moved over to Xbox, which

pretty much is their most turbulent

division. I can't sum up the state of

Xbox in general better than actually

Phil Spencer. He said this quote, "We

lost the worst generation to lose." That

was Phil's summation of Xbox's woes back

in 2023 when he was speaking to Kind of

Funny's XCast. Now, that makes sense in

context because he had been brought in

just after the disastrous reveal and

launch of the Xbox One. I'm sure you

remember TV, sports, TV, sports, and all

of that. Now, throughout his tenure,

Xbox basically could not convince people

to leave their PlayStations once they

were entrenched in Sony's ecosystem. and

every change afterward was basically

about finding new ways to run the

business. That meant doing things like

acquiring Minecraft, which was great for

the bottom line. They would also want

more games, and one way to do that was

Activision Blizzard. Obviously, that was

not as good for their bottom line after

all the regulatory fighting and the

fairly huge amount of money involved.

Now, of course, there was Game Pass. It

was the best deal in gaming, right up

until it had to be more profitable. So

um they they changed the prices

substantially multiple times but through

it you do see the strategy. It's all

about expanding. They opened up Xbox

games to PC players. That's another way

to expand the market. And now they are

selling Xbox games to PlayStation

players. Meaning there is firmly no

reason to buy an Xbox. And all this

turbulence appears to have put them at

odds with Microsoft, a group who wanted

consistent managed growth and for Xbox

to be able to pay its own way so that

the larger corporate entity could focus

on, say, the likes of its AI strategy.

Now, when we talked about the layoffs in

the summer of 2025, we noted that

Spencer had positioned Xbox as being

separate from Microsoft. His memo framed

the decision as a requirement to quote

follow Microsoft's lead. and Kotaku

pointed out the same thing at the Summer

Games Fest, how Xbox had to be quote

accountable to Microsoft. This new

language started to bleed into their

public communications. Now, I do need to

say that Microsoft has told CNBC that a

reported target of a 30% profit margin

for Xbox is quote incorrect. But that

framing keeps coming back and supposedly

it's from Microsoft CFO Amy Hood

directly. Now, there's always been an

undertone that Xbox's worst choices, the

layoffs, the cancellations of medium to

long-term projects, the push for just

more and more players by being on, I

don't know, a smart TV, maybe a smart

fridge, who knows? But the undertone was

that that was downstream of pressure

from Microsoft and that Spencer and Bond

essentially mitigated the worst of the

damage as best as they could, which does

not relieve them of responsibility

because there was still a shitload of

damage. A lot poorly mitigated. I mean,

Redfall famously was a flop. And a flop

that seemed to happen because Xbox just

gave Xanax free reign to keep doing what

they were doing. And allegedly that

approach has also led to crunch and

harassment at studios under their watch.

Development timelines of course have

ballooned across the board. But at their

core it did seem that they cared about

putting out games and making Xbox as a

gaming division of Microsoft work

perhaps in spite of Microsoft. That

framing of defending Xbox from some of

the corporate demands of Microsoft. I

think that feels understandable to

people given that Spencer came up at

Xbox. Obviously, now we have new

leadership handpicked by Microsoft.

They're not guaranteed to share those

same principles. What does it mean for

the future? Well, Matt Booty has

promised no layoffs for Xbox staff in

the wake of these changes. And we still

expect to see Xbox's big franchises.

Forza, Fable, Halo, Gears of War, all

deliver this year. I mean, it still is

the whole 25th anniversary of Xbox thing

that they have tried to align a bunch of

releases for. Chararma does inherit all

the decisions and the policies that Xbox

already had under Spencer and Bond. And

that means there will be a lag time as

these things already in motion play out.

We won't know what she'll change until

we see it, until some time has passed.

But I think what we can say is that

Chararma was not given this role as a

continuity candidate. There's perhaps

other people who are expected to have

filled that role if continuity is what

you would wanted. And the key thing is

for us to read the final lines of her

memo to staff. Here it is. I want to

return to the renegade spirit that built

Xbox in the first place. It will require

us to relentlessly question everything,

revisit processes, protect what works,

and be brave enough to change what does

not. Sounds good in theory, but there's

a story that kept coming up during

Spencer's time at Xbox. And it may be

the real thing to focus on here. You

see, when Phil Spencer was hired in

2014, Nadella was considering closing

Xbox, just stopping it. Spencer

convinced him otherwise based on his

belief in Xbox as a business and the

teams he was running as the head of

games. Now, per a report from the

information, but I need to say Microsoft

has denied, Satia Nadala was considering

closing Xbox down again in 2021.

Obviously, that didn't happen, and they

committed to a fairly serious expansion

in the acquisition of Activision

Blizzard. But if that conversation

happens for a third time under Chararma,

what will Satia and Nadala say? And

going into the next generation of

consoles, do you believe Microsoft will

be in any better footing? And in a case

like that, will Satia want to bother?

Honestly, I don't expect that he will,

but over the next few years, I'm fairly

sure we're going to find out. And for

the perfect follow-up to the story,

check out what's going on at Remedy.

They're in an extremely precarious

situation. Strategy failed. old CEOs

left and the new CEO's job history has a

lot of remedies core fans absolutely

bricking it. If you want to learn what's

up, watch that video next.