Microsoft plans to eliminate about 3,200 positions from its gaming division over the next year, including 1,600 immediate layoffs. Xbox CEO Asha Sharma confirmed the move in a memo made public on Monday. The reductions are part of a wider company-wide workforce cut affecting 4,800 employees, representing about 2.1% of Microsoft’s global workforce, as the company closed its fiscal year on June 30.
The restructuring affects every major studio under the Xbox umbrella, including Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and Xbox Game Studios. According to The Game Business, roughly 350 of the impacted employees are based at four studios Microsoft is selling. Those teams will remain in place and continue working under new ownership.
Compulsion Games, the developer of South of Midnight, and Double Fine Productions will become independent studios while keeping ownership of their intellectual property, game catalogs, and funding for their next projects, Sharma said. In a statement on X, Compulsion confirmed it would retain the rights to its games and said its immediate focus is supporting employees during the transition. Double Fine also addressed the change, saying it would share more details about its future plans soon.
According to Sharma, Ninja Theory and Undead Labs are set to transition to new ownership, with funding in place to complete and further develop Senua and State of Decay 3. Microsoft has not disclosed the identities of the potential buyers. Arkane Studios in Lyon is not part of the planned sales. Instead, the studio has begun consultations with its Works Council to consider strategic options, a process required under French labor law. Reports also suggest that Blade has been delayed internally and is now scheduled for a late 2027 release.
Sharma said the changes are really about rethinking what Xbox should own and what it shouldn’t. She noted that Microsoft has added studios at a rapid pace since 2018, but the gaming industry has changed just as quickly, with more games being released than ever before. According to her, Xbox is now competing with both big publishers and smaller indie teams, and trying to own every promising studio no longer makes sense. She also admitted that many acquisitions haven’t delivered the expected returns, saying the company typically lost 64 cents for every dollar invested. Instead, Xbox wants to help independent developers by giving them better tools and access to its audience.
Microsoft is not cancelling any publicly announced first-party games or projects as part of the restructuring. However, Sharma said some resources will be redirected toward higher-priority initiatives. The reorganization also places Mojang and King under her direct leadership, removing an extra layer of management. In the memo, Sharma said Xbox’s platform teams have grown by 40% since the start of the current console generation, even as player numbers and total playtime have fallen. She argued that the larger structure has slowed decision-making, reduced accountability, and made it more difficult to meet player expectations.
The restructuring also includes a leadership change. Chief operating officer Dave McCarthy is retiring, with longtime Minecraft executive Helen Chiang stepping into the role. After a decade in Minecraft leadership, Chiang will oversee profit and loss across Xbox’s content, hardware, platform, and services businesses. Sharma said her appointment is intended to unify operations, improve investment decisions, and strengthen accountability across the division.
Sharma offered an unusually candid assessment of Xbox’s financial position. She said the business is operating with profit margins that are three to ten times lower than those of comparable gaming platforms and publishers. According to Sharma, Xbox entered the current console generation with a smaller install base and higher operating costs, prompting the company to invest heavily in Game Pass, multi-platform releases, and a broader content lineup. While those efforts generated value, she said they failed to grow as quickly as expected. At the same time, Xbox expanded its workforce and spending even as its core business weakened. Sharma added that the gaming industry is now facing what she described as its most severe hardware downturn, making a reset unavoidable.
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