Microsoft Weighs Xbox Spin-Off, Joint Venture, or Subsidiary Carve-Out

Microsoft is reportedly putting every structural option on the table for its Xbox division, from a full spin-off to a joint venture to a wholly owned subsidiary, as gaming margins crater and capital gets redirected to AI and cloud.

The review lands as MSFT investors increasingly judge the company on Azure, Copilot, and data center spend rather than consoles.

What is on the table

The Information's report outlined three structural scenarios Microsoft is weighing for Xbox: a full spinoff into an independent public company, formation of a joint venture with outside partners, or conversion into a wholly owned subsidiary — a model Microsoft already uses for LinkedIn and GitHub.

No decision is believed to be imminent, but the possibilities are actively on the table and have not been ruled out by CEO Satya Nadella or CFO Amy Hood. Any of these structures would give Xbox greater operational autonomy and, crucially, make the gaming business easier to sell if Microsoft later chose to exit entirely.

The numbers behind the rethink

Xbox's profit margins collapsed to 3% this fiscal year. The division spent more than $20 billion on content, platform, and hardware subsidies over the past five years while annual revenue declined by nearly half a billion.

Microsoft is also planning major layoffs in July, with significant cuts to marketing and other budgets. New Xbox CEO Asha Sharma, who took the role in February, is leading the reset.

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Why now: AI is eating the capital budget

The Xbox studio closures and restructuring debate highlight where Microsoft is drawing the line between capital intensive entertainment and higher margin AI and cloud businesses. Shuttering teams like Ninja Theory and Compulsion Games, while reviewing options such as a spin off, joint venture, or tighter subsidiary, signals that Xbox now has to justify its capital needs against AI data centers, Copilot and Azure.

Translation: every dollar tied up in console subsidies is a dollar not going into GPUs or Azure capacity, and the market has made clear which one it wants to pay for.

The LinkedIn and GitHub playbook

Structuring Xbox as a subsidiary would mirror how Microsoft treats LinkedIn and GitHub, both of which operate with their own leadership and brand identity. A joint venture or sale would be more dramatic, effectively ending Microsoft's two-decade run as a console platform owner.

Options market and stocks to watch

Watch the following names as this story develops:

• MSFT — watch for flow reaction to any formal restructuring announcement and how Street models treat a potential Xbox carve-out versus continued in-house funding.
• SONY — a more focused or weakened Xbox could shift console market share dynamics in PlayStation's favor.
• NTDOY — Nintendo sits on the other side of any console pullback by Microsoft.
• TTWO — third-party publishers benefit if Xbox leans harder into platform-agnostic distribution.
• EA — same logic; a restructured Xbox could change exclusivity and Game Pass economics across the publisher landscape.

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