The deliberations come as the technology giant reassesses the future of its gaming operations amid persistent challenges in the console market and growing pressure to improve the performance of the Xbox brand.
According to the report, Microsoft is not limiting its review to a single restructuring model. The company is also considering alternatives such as forming a joint venture with external partners, a move that could potentially make the gaming business more flexible and easier to sell in the future if strategic priorities change.
While no immediate decision has been made, sources told The Information that all options remain under consideration as executives evaluate the long-term direction of the Xbox unit.
Pressure Mounts on Xbox Amid Industry Challenges
Xbox has faced a difficult period in recent years. Microsoft's ambitious push into subscription-based gaming services and cloud gaming has yet to fully compensate for weakening console sales and a lack of consistent blockbuster releases capable of driving significant hardware demand.
The gaming landscape has become increasingly competitive, with consumers shifting spending habits and developers facing rising production costs. These challenges have intensified scrutiny on Xbox's business model and future growth prospects.
Industry observers note that Microsoft's broader gaming ambitions expanded significantly following major acquisitions, including Bethesda and Activision Blizzard, placing even greater emphasis on delivering successful first-party titles and maximizing returns on those investments.
Subsidiary Model Under Consideration
One option reportedly being studied would see Xbox operate as a wholly owned subsidiary, similar to Microsoft's management structure for LinkedIn and GitHub.
Such a move could provide the gaming division with greater operational independence while still remaining under Microsoft's corporate umbrella. The model has previously allowed acquired businesses to maintain distinct identities while benefiting from Microsoft's financial backing and resources.
New Leadership Pushes for More Investment
The report also highlighted plans by Asha Sharma, who assumed leadership of the gaming unit in February, to significantly increase investment in game development.
Sharma is reportedly seeking additional funding to accelerate production of new titles from some of Xbox's most valuable franchises, including "Halo," "Fallout," and "The Elder Scrolls."
The initiative reflects Microsoft's belief that stronger first-party content remains critical to revitalizing Xbox's position in the gaming market and attracting both subscribers and console buyers.
Top Executives Back Expansion Plans
Microsoft Chief Executive Officer Satya Nadella and Chief Financial Officer Amy Hood have reportedly approved Sharma's proposal to boost spending on premium game development during the company's next fiscal year, which begins in July.
However, the report noted that the budget has not yet been finalized, meaning adjustments could still be made before the spending plans are formally approved.
The company has not publicly commented on the report. Microsoft did not immediately respond to a Reuters request for comment.
Layoff Reports Add to Uncertainty
The restructuring discussions come shortly after another report suggested significant changes may be on the horizon for the gaming division.
On Wednesday, Bloomberg News reported that Xbox is preparing for major layoffs next month, alongside substantial reductions in marketing expenditures and other operational budgets. If implemented, the measures would represent the first major restructuring effort under Sharma's leadership.
Taken together, the reports indicate that Microsoft is pursuing a delicate balancing act: increasing investment in high-profile game development while simultaneously examining cost-cutting measures and broader organizational changes.
For now, the future structure of Xbox remains uncertain, but the discussions underscore Microsoft's determination to reshape its gaming business as it seeks sustainable growth in an increasingly competitive industry.