Microsoft has announced that approximately 3,200 employees will be laid off across Xbox over the current fiscal year, with 1,600 of those reductions occurring immediately on July 6. This significant restructuring will also see four studios move to new management.
In an internal email, Xbox boss Asha Sharma described the situation as the "most significant" restructure in Xbox history, stating plainly that Microsoft's gaming business "is not healthy." The company's gaming division is losing about one-fifth of its staff. Sharma explained that while Xbox bet on Game Pass, multi-platform releases, and a broader content portfolio, these businesses did not grow as expected, weakening the core business.
As part of the changes, Compulsion Games, the developer behind South of Midnight, and Double Fine Productions, known for Psychonauts, will transition to independent studios. They will retain their intellectual property and back catalogs, with support for their next projects.
Hellblade developer Ninja Theory and Undead Labs, creators of the State of Decay series, have entered into agreements to join new ownership. This move is expected to provide the necessary funding to complete and grow Senua's Saga: Hellblade II and State of Decay 3. The identities of these new owners have not yet been disclosed.
Meanwhile, Arkane, the studio developing Marvel's Blade, is entering a mandatory consultation period with its Works Council under French labor law. This process will explore potential strategic options, which could include a sale or spin-out of the studio. The specific impact on the Marvel's Blade project remains unclear.
Beyond these studio-specific changes, layoffs are occurring across various Xbox divisions, including Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and Xbox Game Studios. Microsoft has emphasized that none of its publicly announced first-party games or projects are being canceled as a result of these workforce reductions. Titles such as Fable, Gears of War: E-Day, Clockwork Revolution, Call of Duty: Modern Warfare 4, Minecraft Dungeons 2, and The Elder Scrolls 6 are confirmed to be safe.
These cuts follow a similar round of layoffs at Microsoft in July of the previous year, which affected 9,000 employees company-wide. At that time, several games were canceled, and studios were closed. The current restructuring aims to streamline operations, with Sharma noting that platform teams have grown by 40% this generation despite declining player numbers. The goal is to reduce management layers and simplify work processes.
Sharma also announced the promotion of Helen Chiang to Chief Operating Officer, a new role with end-to-end P&L responsibility across content, hardware, platform, and services. Chiang will aim to unify Xbox's businesses under a single operating model and drive clearer investment decisions and accountability.
The company anticipates a return to growth in 2027, with Sharma asserting a commitment to making Xbox the platform where the world plays and creates, aiming to entertain over a billion people daily.