Xbox content and services revenue fell for a fourth straight quarter as Game Pass declined

Microsoft said on October 28, 2026, that revenue from Xbox content and services fell 2% from a year earlier in the three months to September 30, the first quarter of its 2027 fiscal year. It was the fourth quarter in a row in which the business shrank. Content and services covers Microsoft's own and other publishers' games and in-game content, Xbox Game Pass and other subscriptions, Xbox Cloud Gaming and advertising. Total Xbox revenue, including consoles, fell $129 million, or 2%, to $5.38 billion.

The mix behind the decline changed. In its quarterly report, Microsoft said content and services fell because of "declines in third-party content and XBOX Game Pass, offset in part by growth in first-party content." Through fiscal 2026, which ended in June, Microsoft had cited Game Pass as a source of growth and blamed falls on a prior year that "benefited from strong first-party content performance."

Nine quarters of Xbox content and services

The latest fall is the smallest of the four, and it compares with a quarter a year earlier in which content and services grew only 1%. In constant currency, which Microsoft uses to show results without the effect of exchange-rate swings, the decline was 1%.

Consoles

Xbox hardware revenue fell 14% on lower console volumes. That is a smaller drop than in each of the first three quarters of fiscal 2026, when Microsoft reported hardware declines of 29%, 32% and 33%. For fiscal 2026 as a whole, hardware revenue fell 29% and total Xbox revenue fell $1.7 billion, or 7%, according to Microsoft's annual report.

Microsoft's annual report gives only the full-year hardware figure, so the April-June 2026 quarter is not shown.

A smaller share of a faster-growing company

Microsoft changed how it reports its businesses for fiscal 2027, a change it announced in September, and restated last year's figures to match. Xbox now sits in a segment called Devices and Consumer, whose revenue fell 3% to $15.5 billion. Operating expenses in that segment fell $122 million, or 3%, which Microsoft said was driven by Xbox, partly offset by spending on research and development.

The rest of Microsoft is growing much faster. Group revenue rose 19% to $92.3 billion, and Microsoft Cloud revenue rose 30% to $63.9 billion. On our calculation, Xbox accounted for 5.8% of group revenue in the quarter, down from 7.1% a year earlier.

Capcom, a third-party publisher whose new games such as Pragmata come out on Xbox Series X|S, PlayStation 5, Nintendo Switch 2 and PC, had a stronger period: it said on October 27 that sales in its games business rose 70.8% in the six months to September (our report). Microsoft's figures do not show which third-party games sold less on Xbox.