Xbox to Cut 3,200 Jobs, Divest Five Studios in New Restructuring Round
Xbox is cutting 3,200 jobs and divesting five of its game studios in what CEO Asha Sharma has called the “most significant restructure in Xbox history.” Microsoft’s Xbox plans to eliminate 3,200 jobs, or around 20% of its staff over the next year, as part of a massive reorganization to spur growth in the struggling gaming division. The cuts, announced Monday, July 6, arrive alongside a wider Microsoft-wide layoff round and mark the fourth straight year the tech giant has trimmed its gaming headcount.
1,600 Jobs Gone Immediately, 1,600 More by June 2027
At Xbox, 1,600 jobs will be eliminated on Monday, the rest over the next 12 months, according to the letter. The staggered timeline runs through the end of Microsoft’s next fiscal year, with an additional 1,600 expected by the end of Microsoft’s 2027 financial year on June 30, 2027, a figure that includes the divested studios.
The Xbox reduction sits inside a much larger Microsoft-wide cut. Xbox will be cutting a total of 3,200 people, Xbox CEO Asha Sharma wrote in an email to division employees, with half of those roles part of the 4,800 jobs being eliminated Monday company-wide. Per CNBC, Microsoft is eliminating around 4,800 positions company-wide, about 2.1% of a global headcount that sits north of 228,000, with the gaming division absorbing the deepest proportional damage.
Double Fine, Compulsion Go Independent; Ninja Theory, Undead Labs Sold
Four studios are confirmed to be leaving Xbox outright, with a fifth following a legal process. Compulsion and Double Fine studios will become independent again, while Undead Labs and Ninja Theory will be sold, and Xbox will also look to sell or spin out Arkane Studios. Both Compulsion Games and Double Fine Productions will become independent again, returning to their original management along with their intellectual properties, catalog, and runway for their next games, while Ninja Theory and Undead Labs have entered terms to join new ownership with funding to complete and grow their upcoming games, Senua and State of Decay 3.
Arkane’s French arm faces a slightly different path due to local labour law. “Our business today is not healthy,” Chief Executive Officer Asha Sharma wrote in a note to staff Monday morning. A fifth studio targeted for divestment, France-based Arkane, is “beginning required consultation with its Works Council to review potential strategic options,” Sharma wrote. Forbes reported that sources familiar with the matter say Bethesda-ZeniMax is absorbing some of the largest cuts among retained studios, while Obsidian remains inside Xbox.
Sharma: “We Must Reset Xbox”
Sharma, who took over as Xbox CEO earlier this year, framed the overhaul as a financial reckoning rather than a routine cost-cutting exercise. “Our business today is not healthy,” Sharma writes. “We are operating at margins that are 3-10x lower than comparable platform and publishing businesses. We entered Gen 9 with a smaller install base and a higher cost structure.”
She pointed to the division’s bet on subscriptions and multiplatform releases as central to the shortfall. “To grow, we bet on Game Pass, multi-platform, and a broader portfolio of content. While those businesses have created meaningful value, they did not grow at the pace we expected. As that happened, our core business weakened, and we added more teams, more investment, and more time, hoping for a better outcome. And now the industry is facing the most severe hardware crisis in its history. We must reset Xbox.”
Despite the scale of the cuts, Sharma insisted the studio shake-up won’t touch existing release plans. In Sharma’s memo, which she posted to X Monday, the Xbox CEO confirmed no previously announced first-party games or projects are being canceled as a result of the staffing reductions.
Minecraft and Candy Crush Now Report Directly to Sharma
Alongside the divestments, Xbox is restructuring how its biggest live-service earners are managed. Two of Microsoft’s crown jewels, Minecraft and King (Candy Crush) will be moved within the company’s gaming organization to report directly to Sharma, instead of to the division’s content and studios chief Matt Booty. Sharma reportedly considers Minecraft to have been massively underinvested, according to a source familiar with Microsoft’s plans. The move signals where the company sees its most reliable margins going forward: evergreen, cross-platform franchises rather than the narrower prestige single-player projects it is now shedding.
Variety reported that the layoffs will touch nearly every corner of the business. The layoffs will affect almost every division at Xbox, according to a source, but will vary in size across developers including Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and Xbox Game Studios. Throughout Xbox’s next fiscal year, which runs July 1, 2026 to June 30, 2027, the company will see approximately the same content spend as it did over the prior year, a record for Xbox, though investment priorities will shift toward titles including Minecraft and the Elder Scrolls franchise.
Read also: Id Software Says Xbox Layoffs Shrank Studio to DOOM 2016-Era Size
A Fourth Straight Year of Cuts Amid a Wider Hardware Slump
This is now the fourth consecutive year Microsoft has reduced gaming headcount, following waves tied to the Activision Blizzard acquisition. The overhaul also lands as Xbox continues to trail on console hardware, a gap Sharma’s memo does not shy away from acknowledging in its framing of margin pressure across the platform business. For Australian and New Zealand players, who have already seen PlayStation dominate regional retail shelves and Game Pass pricing shift repeatedly in the past two years, the divestment of storytelling-focused studios like Ninja Theory, whose Hellblade series built a loyal following locally, and Double Fine, adds fresh uncertainty to Xbox’s single-player pipeline even as Microsoft insists no announced games are being scrapped.
Microsoft’s own chief people officer also addressed staff over the broader company-wide reduction. Amy Coleman, in an internal memo, wrote that “decisions like these are never easy,” underscoring that the Xbox cuts are one piece of a larger belt-tightening exercise inside Redmond as the company navigates slowing Windows and Surface revenue alongside AI-related spending pressures.
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