Xbox CEO Asha Sharma says next-gen console costs have reached a crisis point, with memory and storage prices now tracking at more than double what Microsoft would expect at this stage of a console generation, and projected to reach seven and a half times the normal level. Speaking at a live Fortune event, Sharma warned that mass audiences will be priced out of traditional hardware launches and predicted that “radically different business models” would start emerging before the end of 2026.
The remarks came as Sharma addressed the financial state of Microsoft‘s gaming division, which reported hardware revenue down 33 percent. She also disclosed that Game Pass prices, raised by 50 percent the prior year, had caused a subscriber decline before she cut them back, with the service now returning to growth. Both situations reflect the same underlying concern about next-gen console costs: the cost of participating in the Xbox ecosystem has outpaced what consumers are willing or able to spend.
Next-gen console costs driven by a storage and memory crisis
Sharma put specific numbers on the next-gen console costs problem. At this point in a console generation cycle, memory and storage typically account for around 50 percent of total hardware cost. Instead, those costs are currently running at 2.75 times the expected level, up 50 percent since she took the CEO role. The projection is that they will reach seven and a half times normal before the situation resolves.
“We are in a crisis right now. The entire industry is, there’s a shortage of memory and storage, and the costs are exponential,” she said.
For comparison, the PlayStation 5 launched at $499 in 2020. The PS5 Pro, released in late 2024, carried a $699 price tag without a disc drive. Xbox Series X launched at the same $499 and has not received a meaningful price reduction since. If component costs continue rising at the rate Sharma described, next-generation hardware could carry a significantly higher retail price than anything consumers have seen at the start of a console cycle.
What alternative business models could look like
Sharma outlined several directions Microsoft is exploring to address next-gen console costs. The hardware construction itself may be rethought. “We must think about other ways to think about the cost construction of the console, we must think about how we create different plans, so more people can participate in the console,” she said. Partnerships for distribution and reach, and new experiences for audiences beyond the traditional console buyer, were also cited as areas under consideration.
One path toward lower next-gen console costs points to tiered hardware, where a base model relies more heavily on cloud streaming and AI upscaling rather than expensive local silicon. Microsoft already operates Xbox Cloud Gaming and has the infrastructure to support that approach. A device that delivers high-end output through cloud compute, with less powerful on-device chips, could carry a considerably lower retail price.
Xbox All Access, the existing program that spreads hardware and Game Pass costs across 24 monthly payments, may also be restructured or expanded. Sharma did not name the program directly, but the installment model fits what it already offers.
What Project Helix will include
Sharma provided some detail on Project Helix. The next-generation Xbox will support PC game libraries alongside console titles and will include backward compatibility with the existing Xbox catalog. She also noted that the current Gen 9 hardware already has more demand than supply, and expects the same will be true at the Gen 10 launch.
“It’s a console that’s also going to allow you to play your PC games. It’s going to have backward compatibility. It’s going to have leading-end performance,” she said, while acknowledging that making it available at scale is still a material challenge to solve.
Storage and memory require new approaches
On the technical side of the next-gen console costs problem, storage and memory received detailed attention. Game install sizes have grown substantially this generation, with many titles now exceeding 100GB. Next-generation games at higher resolutions will likely demand more than the 1TB drives that ship with current hardware.
“I think that we have to think very differently about storage and memory going forward. We will have to apply new techniques, so that we can compress that. We will have to empower customers to have very flexible storage offerings,” Sharma said.
Flexible storage could mean cloud-based game libraries, where files sit on remote servers rather than local hardware, modular expansion options with a lower baseline capacity at launch, or software-level compression advances. Each approach reduces per-unit manufacturing cost while introducing trade-offs around internet dependence or local storage limits.
Exclusivity tied to business health
Sharma also addressed game exclusivity. Microsoft’s decision to make Gears of War: E-Day exclusive to Xbox platforms, rather than releasing it on PlayStation 5, marked a departure from the multi-platform approach it used for games like Hi-Fi Rush and Pentiment.
She was candid about the financial reasoning. “Our business isn’t particularly healthy as you noted, and so we’re starting by introducing one to two signature exclusives and, as the business is healthy, we will look to try and do more.”
She also described the tension between being a major publisher and a growing platform holder. “I think that we are the number two publisher in the world, and when you do that, you want your games to be everywhere. You’re stronger when the world plays with you. At the same time, we’re increasingly becoming more of a platform, and it’s hard to find examples of platforms out there that don’t have exclusive services and content.”
The approach makes exclusivity conditional. If Game Pass subscriber numbers and hardware revenue improve, Microsoft may expand its exclusive lineup. If those metrics stay flat, the company could return to wider multi-platform releases.
Project Helix is approximately a year from launch. Sharma’s specific next-gen console cost figures make clear the company does not treat rising component prices as a temporary fluctuation. The 2027 Xbox reveal will have to address those numbers directly, whether through tiered hardware, new pricing structures, or both.