Microsoft is cutting 3,200 jobs from its Xbox division and moving five smaller studios out of the group, a sharp contraction for a business the company spent years expanding through acquisitions.
Xbox CEO Asha Sharma announced the reductions Monday, saying half of the affected employees are being laid off immediately and the rest will depart by the end of Microsoft’s 2027 fiscal year, which ends June 30, 2027. CNBC, citing a person familiar with the matter, reported that the Xbox cuts represent about 20 percent of the division.
Microsoft is also cutting 1,600 jobs elsewhere in the company. Together, the layoffs equal a little more than 2 percent of Microsoft’s workforce. The Seattle Times reported that Microsoft’s total headcount has stayed relatively steady because the company has continued hiring in other areas.
Sharma framed the Xbox cuts as a structural reset after years of adding teams and management. She said some decisions inside the gaming unit have required approval through 14 layers of managers. The new organization, she said, is supposed to use no more than five layers for decisions, and three where possible. Translation: the org chart got fat, and the people losing jobs are being told the diet is strategy.
The platform side of Xbox appears to be a major target. Sharma said that team is 40 percent larger than it was at the start of the current console generation, while Xbox’s player base and playtime have declined. She did not announce cancellations of publicly revealed first-party games, saying no such announced projects are being dropped as part of this round.
Five studios leave Xbox’s orbit
Microsoft is also unwinding part of the studio-buying campaign it began in 2018. Sharma said Compulsion Games, known for We Happy Few, and Double Fine Productions, known for Psychonauts, will return to their management teams and operate independently while retaining control of their intellectual property.
Ninja Theory, the studio behind Hellblade: Senua’s Sacrifice, and Undead Labs, maker of State of Decay, have been sold to unnamed buyers, according to Sharma. Arkane Studios in France, associated with Dishonored and Prey, is considering strategic options to operate outside Xbox.
Sharma acknowledged that Microsoft’s smaller studio acquisitions have not paid off financially. She said a typical year produced a loss of 64 cents for every dollar Microsoft invested in those studios. She also wrote that Xbox has learned Microsoft is not the best owner for every kind of studio and that owning every notable independent developer is neither possible nor desirable.
The studios Microsoft is keeping closest are the ones with the largest audiences. Sharma said Mojang, maker of Minecraft, and King, maker of Candy Crush, will now report directly to her because of their share of monthly players and their importance across regions and demographics. Across Activision, Blizzard, Bethesda and Xbox Game Studios, Microsoft will shift investment toward higher-priority projects, she said.
The move follows several years of cuts across Microsoft’s gaming business. Microsoft eliminated 1,900 gaming jobs after closing its Activision Blizzard deal, cut another 650 roles later in 2024, and made further reductions in 2025 that coincided with cancellations including Perfect Dark and Everwild.
Sharma said prior bets on Game Pass subscriptions and releasing games across multiple platforms created value but did not grow as quickly as Microsoft expected. She said the result was more spending, more teams and more time chasing better outcomes, while Xbox operated at margins three to 10 times lower than comparable platform and publishing businesses.
This story draws on original reporting from Ars Technica.
