Xbox cuts 3,200 in biggest restructuring ever, but no studios are being shut down
Xbox is set to cut around 3,200 jobs in what CEO Asha Sharma calls the biggest restructuring in the gaming division’s history. The layoffs will happen throughout Microsoft’s FY2027, with approximately 1,600 employees losing their jobs immediately, while four Xbox-owned studios will also leave the company under new ownership or regain their independence.
The announcement came in an internal email from Sharma that she later shared publicly on X, formerly known as Twitter. In the message, she described the move as a necessary reset for Xbox after years of slowing growth, rising costs and a challenging gaming market.
According to Sharma, Xbox is ‘not healthy’, having apparently operated at margins 3-10x lower than comparable platforms and publishers. While Microsoft’s push into Game Pass, multi-platform publishing and studio acquisitions generated meaningful growth, the business ultimately failed to expand as quickly as expected. To make matters worse, Sharma described the current state of the gaming industry as the ‘most severe hardware crisis in its history’.
It didn’t help of course that Sharma’s predecessors have spent billions since 2018 acquiring game developers including Bethesda and Activision Blizzard. Sharma now states that Xbox realised they aren’t able to house every type of game dev studio, and so are letting go some of them.
As part of the restructuring, Compulsion Games and Double Fine Productions will become independent studios once again, taking their intellectual property, back catalogue and funding for their next games with them. Ninja Theory and Undead Labs will instead move to new owners, with funding already secured to continue developing the Senua franchise and State of Decay 3.
Meanwhile, French studio Arkane, best known for the Dishonored series and currently developing Marvel’s Blade, has begun consultations with its Works Council to explore strategic options, although no final decision has been announced.
The job cuts will also affect teams across Activision, Bethesda/ZeniMax, Blizzard, King, Mojang and Xbox Game Studios, with Microsoft saying resources will be shifted towards projects it considers higher priority.
The restructuring isn’t limited to game development. Sharma said some parts of Xbox currently have as many as 14 layers of management, making decision-making slower and reducing accountability. Going forward, the company aims to reduce that to a maximum of five management layers, and as few as three where possible. Xbox also plans to simplify its internal development tools, consolidate shared services and reduce spending on external vendors by 50%.
Microsoft is also creating a new Chief Operating Officer role for Xbox, with Mojang chief Helen Chiang taking on the position. She will oversee Xbox’s content, hardware, platform and services businesses under a single operating model. At the same time, Xbox veteran Dave McCarthy will retire after spending 17 years with the company.
There is at least some positive news for gamers. Despite the thousands of job cuts and studio reshuffle, Sharma confirmed that none of Xbox’s first-party studios are being shut down as part of the restructuring. She also said none of Xbox’s publicly announced first-party games or projects have been cancelled, meaning the company’s existing slate of upcoming titles remains on track despite one of the biggest shake-ups in Xbox’s history.
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