There is a lot things going wrong with Xbox. It obviously started with the Xbox One, before that they did well and were a strong competitor that had the right pricing, the right games and tried the right things. Sony played catch up during this era.
So with Xbox One they had the wrong price, an underpowered system and were late in a good chunk of areas. They lost all goodwill built up by the 360 in a whim. PS4 soared and simply kept this momentum with PS5. This was according to Phil the gen with full digital distribution and ecosystems. Sony won this by a landslide.
MS pretty much mismanaged their studios and IP too. They failed to release a truly good Halo game since 2010 ish. And they also failed to branch it out well. Look at Uncharted, TLOU, hell, Sonic.. They have succesful movie or serie adaptions. Halo was actually rumoured to have a movie about 20 years ago, but all it has is a mediocre series no one gives a fuck about.
Then the Series consoles. I think they were on time, had the right pricing etc. And during covid it looked like they went head to head since both weren't available. But once the floodgates opened Sony curb stomped MS worse than ever before. So what happened? I think a few key things. Lack of next-gen exclusives. Sony didn't have them in spades either, but they were there. The PS5 DualSense felt like something different. I had both systems at launch and the PS5 did feel like a newer experience to me. Gamepass. The best deal in gaming. But its PC day one too, which means you don't even need an Xbox to play the latest Xbox exclusive like Halo or Starfield. If you wanted to play GoW, Spiderman or GT day one, you were out of luck. Better purchase a PS5. On top of that, I think the ABK deal backfired. The Xbox userbase was far too small to lock these games in. No shareholder not named Riky is going to vouch for this.
Its just that MS likely saw more potential in being a software publisher, but they still have their console on display and its where the lions share of GP subs is. So they are sort of in between a rock and a hard place. I think its telling that they didn't announce a Pro version yet. They aren't in this fight the way they used to be. They're probably content with how Sea of Thieves, Indy, FH5 etc are doing on PS5. Even releasing superior PS5 Pro versions that outmatch their own. MS is a third party publisher that happens to have a console still.
I'm well aware of what Phil said, and I'll reiterate that it is a lie... an excuse...
We've had physical libraries that carried over from generation to generation before. PS3 could play PS1-3 games (at launch), it did not matter. People still chose the cheaper 360 in many cases.
People are not playing their old games in perpetuity especially outside of launch. The biggest impact it has now is in allowing devs easy access forward compatibility and that barely matters either, most games have a native current gen version.
BC has never guaranteed any system a significant marketplace advantage before.
This is a different situation. Digital purchases and cross gen have been bigger and longer ongoing than ever before, Black Ops 6 was still cross gen. I don't think that many people are keen to abandon their 10 year old PS or Xbox account with running subs for a new console. Ditching your 360 or PS3 account wasn't as significant as ditching your current PS or Xbox account.
Going from Xbox One to Series and PS4 to PS5 has been the most seamless hardware transition yet. Everything worked, including peripherals. The only difference was a more powerful system. Especially with so many games being multiplatform I saw little reason to jump ship. The only way to persuade consumers now is to offer something different, like Nintendo does. Sony and MS offer largely similar experiences, had you owned a PS4, chances are you wouldn't abandon it for a Series. And many more owned a PS4 to begin with.