Microsoft is making deep cuts across Xbox, and for some of its acquired game studios the plan is exit rather than another org chart shuffle. The Verge reported that Microsoft is laying off 4,800 employees today, with more than 30 percent of those cuts falling inside Xbox.
In an internal memo reported by The Verge, Xbox CEO Asha Sharma told employees that roughly 1,600 Xbox roles are being cut now. Sharma said the broader restructuring will remove about 3,200 positions through Microsoft’s 2027 fiscal year, which ends in July 2027.
The studio piece is the part players will actually see. Double Fine Productions and Compulsion Games are being moved back out of Microsoft and returned to their founders, according to Sharma’s memo. That means Tim Schafer’s Double Fine and Guillaume Provost’s Compulsion will operate as independent studios again, with their intellectual property, existing catalogs and support for their next games, according to the memo.
Microsoft is also selling Ninja Theory, known for Hellblade, and Undead Labs, the studio behind State of Decay. Sharma said both have terms to join new owners, with funding attached for Senua and State of Decay 3. The Verge reported that agreements are in place so those projects continue toward release.
Arkane is still unresolved
Arkane Studios is not yet in the same bucket, at least publicly. Sharma said Arkane’s management in France is starting the required consultation process with its Works Council to examine “strategic options.” The Verge’s Tom Warren previously reported that Microsoft had been considering selling or closing another Xbox studio and that Arkane’s Blade project had slipped and gone over budget.
That process can take months, so the fate of Arkane and Blade remains unsettled. Sharma’s memo says no publicly announced first-party games or projects are being canceled as part of the reductions, a claim worth reading narrowly: it covers this round of cuts, not every decision Microsoft may make after a French labor consultation grinds through its legally required steps.
The layoffs are not confined to the studios leaving Xbox. Sharma said reductions will hit Activision, Bethesda/ZeniMax, Blizzard, King, Mojang and Xbox Game Studios, though the size of the cuts will differ by group. The Verge reported larger reductions are expected at Bethesda studios in particular.
Microsoft says Xbox’s math stopped working
Sharma’s explanation is blunt by corporate memo standards. She said Xbox is running at margins “3-10x lower” than comparable platform and publishing businesses, entered the current console generation with a smaller install base and carried a higher cost structure. She also said Xbox’s bets on Game Pass, publishing across more platforms and a wider content slate produced value, but did not grow as quickly as Microsoft expected.
The memo also says Xbox lost 64 cents for every dollar invested in a typical year across the kind of studio ownership model Microsoft built after 2018. That is the spreadsheet version of the message: buying quirky studios to feed Game Pass looked better before growth slowed and the bill came due.
Sharma is also changing the management machinery. Mojang, the Minecraft studio, and King, the Candy Crush maker, will report directly to her. She described both as Xbox’s largest studios by monthly active players.
Helen Chiang has been promoted to a new chief operating officer role with profit-and-loss responsibility across content, hardware, platform and services, according to the memo. Dave McCarthy, a 17-year Xbox veteran, is retiring.
Inside Xbox’s platform teams, Sharma said some work currently passes through as many as 14 management layers. The new target is no more than five layers, and three where possible. The memo also calls for a cleaner code base, shared services and a 50 percent reduction in vendor spending. That is the unglamorous part of the reset, but it is also where big platform companies usually discover how much process they have been paying people to route around.
This story draws on original reporting from The Verge.
