Very much this. I bet the Xbox/games division would be up in arms about it, but they got told to spend less money and also not to bother the important people. The Windows people might care, but with how bad they've been shepherding the OS I'm not so sure.
Nadella is focused on AI and Azure. Bet he could hardly care less.
Honestly I get the Xbox apathy. There's not that much profit in being what, third or fourth place? After Steam, Playstation and Nintendo? Depends how you define it, I guess, but to me they're in fourth place. Microsoft needs to either cut their losses or invest a ton of money. It looks like they will pick some weird thing in the middle, keeping Xbox on life support. Probably some unhappy compromise internally.