Xbox is undergoing a significant organizational overhaul, which will result in approximately 3,200 employee layoffs, equating to about 20% of the division's workforce. The company is also parting ways with four of its studios as part of what CEO Phil Spencer described in an internal email as "the most significant restructure in Xbox history."
Of the 3,200 affected employees, 1,600 layoffs are scheduled to occur immediately, with the remainder to follow. Compulsion Games and Double Fine will transition to become independent studios. Ninja Theory and Undead Labs have entered into agreements to be acquired by new ownership, with their funding focused on the completion and growth of "Senua" and "State of Decay 3," respectively. The future of Arkane Lyon remains uncertain as it enters a legally mandated consultation period in France to explore its options.
Layoffs will also impact Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and Xbox Game Studios. Spencer assured employees that none of Xbox's first-party, publicly announced games or ongoing projects will be canceled due to these cuts. Mojang and King will now report directly to Spencer.
Spencer attributed the restructuring to the division's current financial health, stating, "Our business today is not healthy. We are operating at margins that are 3–10x lower than comparable platform and publishing businesses." He pointed to challenges entering the current generation with a smaller install base and higher cost structure, despite bets on Game Pass, multi-platform releases, and a broader content portfolio. While these initiatives have generated value, they did not meet expected growth targets, leading to a weakening of the core business and increased investment in an attempt to improve outcomes.
The industry's current hardware crisis was also cited as a contributing factor. Spencer emphasized the need to "reset Xbox" by refocusing the content portfolio. He noted that since 2018, Xbox has aggressively expanded its studio acquisitions while industry game creation output has surged. This has led to increased competition not only from major publishers but also from smaller independent studios. The company has concluded that "it is neither possible nor desirable to own every great independent studio" and that "we are not the best home for every type of studio," citing an average investment loss of 64 cents for every dollar invested in studios.
Moving forward, Xbox aims to support independent creators by providing open development tools and access to audiences. The restructuring will also involve streamlining management layers to no more than five, and ideally three, and reducing vendor spend by 50 percent. Helen Chiang, currently corporate VP at Microsoft and head of Mojang, will assume the role of COO following the retirement of Dave McCarthy.
These workforce reductions follow a period of significant investment, including $20 billion in studio acquisitions over five years, separate from the $69 billion purchase of Activision Blizzard King. Despite this, the division's last fiscal year ended with approximately a 3% profit margin, and annual revenue declined by nearly half a billion dollars, even as component costs rose. The existing studio system was described as having "over extended" and being "not adequately funded" to remain competitive.
This wave of layoffs at Xbox occurs nearly a year after a broader company-wide reduction of 9,100 employees, which affected 200 individuals at King, led to the cancellation of a Perfect Dark reboot, the closure of The Initiative studio, the cancellation of an MMORPG at ZeniMax, and restructuring at Rare impacting Everwild. Prior to that, Xbox experienced a layoff of 650 employees nine months earlier, following a January 2024 reduction of nearly 2,000 across the gaming division.
Reports indicate that the studio divestitures alone will lead to over 300 jobs leaving Microsoft's gaming division. Additionally, Spencer reportedly believes "Minecraft" has been "massively underinvested" in, with estimates suggesting Roblox has invested over five times more in its business than Microsoft has in Minecraft.
Across all of Microsoft, planned cuts total 6,400 people, less than 3% of the company's overall headcount. Of these, 4,800 are expected today, with the remainder scheduled within the next year. Previous cost-saving measures at Xbox also included cutting contracts with numerous third-party vendors, which had already resulted in job losses at those companies.