Xbox is not dead by any stretch, but the "I'll wait until it's on Game Pass" mentality is impacting them hard.
Microsoft beleived they were being clever subsidizing this monster idea that would turn the games industry on its head. It was always a risky endeavour because if subscriber growth stalls, or they don't provide enough AAA content, the enterprise becomes unsustainable and their platform is damaged irreparably. They needed ABK to keep feeding the monster—to reach the crucial tipping point and tilt the scales forever in their favour.
So yes, the decision is a massive blow and no wonder senior Microsoft execs are losing composure, as they understand the numbers better than anyone, but they will increase their donations to US senators to turn up the heat on Sony, greasing the rails for a big acquisition in Japan (Sega most likely).
Edit: Also, it's not too late to
contact the CMA expressing agreement with their decision. Be concise, polite, and reinforce why their decision is the correct one. I sent them some overlooked quotations where Satya Nadella admits that Microsoft possess an "incredible competitive advantage" in cloud gaming. The
European Commission for Mergers also (case number: M.10646).