YouTube makes more money from Xbox games than Microsoft itself, said CEO Satya Nadella, speaking on The New York Times “Hard Fork” podcast on Friday.

Nadella said Microsoft has struggled to monetise gaming despite decades of investment in Xbox, signalling that the tech giant may be preparing for a major strategic shift.

“In fact, there's more monetisation of Xbox games happening on YouTube than at Microsoft,” he said.


“No one can accuse Microsoft of not having invested for the last 25 years. And now we have to turn this into a sustainable business that delivers what is fundamentally one of the best sources of entertainment. Still, the challenge we have is we've not been monetising that entertainment. In fact, if anything, we've been subsidising…” he added.

This comes as Bloomberg reported last week that Xbox is planning major layoffs next month, along with significant reductions to marketing and other budgets.

The job cuts would mark the first major restructuring under Asha Sharma, who took charge as CEO of the gaming unit in February.

Xbox has faced mounting challenges in recent years as Microsoft's push into subscriptions and cloud gaming failed to make up for falling console sales and a lack of blockbuster titles.

In an internal email to employees cited by Bloomberg, Sharma said Xbox's margin had fallen to 3%. She added that the company had spent more than $20 billion on content, platforms, and hardware subsidies over the past five years, even as annual revenue declined by nearly half a billion dollars during the same period.

In the podcast, Nadella also said the gaming business is dealing with two major pressures.

The first is a global shortage of microchips and computer memory, which has pushed up manufacturing costs for PCs, smartphones, and gaming consoles. He said Microsoft is confident it can navigate the situation and views it as a temporary challenge.

The second is a longer-term question around how Xbox will generate revenues in the future.

Asked whether games and consoles would become more expensive for consumers, Nadella did not provide details but stressed the need to strike a balance.

“I think we have to find ways to deliver the games in which it’s economically relevant for the customer and for us,” he said.

Meanwhile, The Information reported on Saturday that Microsoft is considering several options for its Xbox gaming unit, including a potential spinoff or a restructuring into a wholly owned subsidiary.

The report added that the company is also evaluating alternatives such as forming a joint venture with external partners as part of a broader overhaul of the business. Such a move could make the gaming unit easier to sell in the future.