Microsoft's gaming division is preparing for a major restructuring that will see Xbox eliminate 3,200 positions—around 20% of its workforce—over the next year, while also parting ways with five game development studios.
Xbox CEO Asha Sharma, who took over the role in February, reportedly told company leadership that the business is currently "not healthy," with profit margins three to ten times lower than those of its competitors.
The layoffs will begin immediately, with 1,600 employees losing their jobs on Monday. The remaining cuts will be carried out over the following 12 months. At the same time, Microsoft is laying off another 3,200 employees outside its gaming division, primarily in sales. In total, 6,400 jobs will be eliminated across the company, representing less than 3% of Microsoft's global workforce of approximately 228,000 employees. Much of the cost-cutting effort is driven by the company's massive investments in AI-focused data center infrastructure.
The restructuring will significantly reshape Xbox's portfolio of studios acquired during former Xbox chief Phil Spencer's expansion strategy. The company has announced the following plans:
- Ninja Theory (Hellblade) and Undead Labs (State of Decay) will be sold to undisclosed buyers. Both studios will continue working with Xbox on their current projects, Senua and State of Decay 3, respectively.
- Double Fine (Psychonauts) and Compulsion Games (South of Midnight) will become independent private studios under their original founders. They will receive transitional funding and retain full ownership of their franchises and previously developed games.
- Arkane Studios Lyon, currently developing Blade, will begin consultations in the coming months regarding a potential sale or spin-off. Due to France's labor regulations, the process is expected to take longer than in other regions.
According to Sharma, none of Xbox's publicly announced projects will be canceled. However, the restructuring will affect the entire organization, including studios that remain under Xbox ownership. ZeniMax will undergo significant changes and focus exclusively on its biggest franchises, including Fallout, The Elder Scrolls, Doom, Quake, and Wolfenstein. Xbox's platform division will also see deep cuts aimed at reducing management layers and accelerating product development.
The company's financial performance was cited as the primary reason behind the overhaul. Xbox's internal reporting margin reportedly fell to 3%, while annual revenue declined sharply. Sharma stated that previously acquired studios failed to deliver the expected growth, adding that, in a typical year, Xbox lost 64 cents for every dollar invested.
As a reminder, Xbox may abandon support for physical discs with Project Helix.