Blizzard was Xbox's top studio last year, even as Xbox itself fell 11%
A leaked internal email verified by Windows Central shows Blizzard ended FY26 as Xbox’s top-performing studio and had its third-highest revenue year ever, driven by Diablo 4 and Overwatch, a bright spot in a year Xbox was down 11% overall.
Blizzard just had one of its best years in a decade, and it happened inside an Xbox division that was otherwise shrinking.
According to a leaked internal email verified by Windows Central, Blizzard ended fiscal year 2026 as “the top-performing studio in Xbox’s studios division.” Blizzard president Johanna Faries wrote that it was also the studio’s third-highest fiscal year for top-line revenue ever, and its first year of consecutive-quarter growth since Overwatch launched in 2016.
The context is what makes it striking: Xbox overall was down 11% for the year.
What drove Blizzard’s year
Two franchises did the heavy lifting, and one of them staged a real comeback.
Faries credited Diablo 4: Lord of Hatred and Overwatch for the “exceptional performance,” with Overwatch delivering its strongest quarter since 2022. She said the game has now grown for multiple consecutive years for the first time since its 2016 release, a notable turnaround for a franchise that spent years being written off after the rocky Overwatch 2 era. Diablo 4‘s latest expansion did the rest.
Faries framed the upcoming BlizzCon 2026, set for September in Anaheim, as “a powerful springboard into a new era of momentum.”
The irony: a bright spot in a bad year
Blizzard’s success is real, but it’s sitting on top of a genuinely rough year for Xbox.
Microsoft’s Xbox division finished FY26 down 11% overall, dragged by big franchises having tough years, Call of Duty: Black Ops 7 underwhelmed and Candy Crush struggled, hitting Activision and King.
And the year was defined by brutal cuts: Microsoft laid off thousands across Xbox, spun off studios like Double Fine as independent (with layoffs following), and gutted others. id Software, the Doom studio, was hit hard enough that a veteran developer publicly said the cuts made big games “impossible.”
Even Blizzard wasn’t fully spared, it faced what’s described as “comparatively minimal” cuts. So the top-performing studio in the division still lost people, which tells you how the year went everywhere else.
Why this matters
The split picture says something about where Xbox is putting its weight.
Blizzard operating as a “limited-integration” entity within Xbox, relatively free from the old Activision structure, and posting its third-best year ever suggests the studios with strong live-service franchises are carrying the division while the rest contracts. Overwatch and Diablo are exactly the kind of recurring-revenue engines that hold up when one-off game sales soften.
The uncomfortable read is that Xbox’s brightest spot arrived in the same year it was cutting thousands of jobs, including some at the very studio celebrating the win. Blizzard’s email is a genuine good-news story for the people who made Overwatch‘s comeback happen. It’s also a reminder that “top-performing studio in the division” meant something very different in a division that spent the year getting smaller.
Article compiled and edited by Derek Gibbs (entertainment editor) and the Clownfish TV newsroom.
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Hat Tips:
Windows Central (Jez Corden) (August 2026), verified for the leaked-email verification, the “top-performing studio in Xbox’s studios division” quote, the FY26 over-delivering framing, Xbox being 11% down overall, the Call of Duty and Candy Crush context, and the BlizzCon 2026 timing
PC Gamer (August 2026), verified for the third-highest-top-line-revenue detail, the “Diablo 4: Lord of Hatred and Overwatch drove exceptional performance” quote, and Overwatch’s strongest quarter since 2022
The Gamer (August 2026), verified for the first-consecutive-quarter-growth-since-2016 detail, the Activision/King slump, the Double Fine spin-off and layoffs, and Blizzard’s own “comparatively minimal” cuts
Vice and VGChartz (August 2026), verified for Overwatch’s multi-year growth, the Overwatch 2 comparison, and Faries’s investment and BlizzCon comments