Microsoft has announced a sweeping restructuring of its Xbox division, confirming the departure of five prominent game development studios and a significant workforce reduction. The company plans to lay off approximately 3200 employees over the next fiscal year, with an initial round of 1600 redundancies beginning immediately. This shake-up affects well-known studios such as Double Fine, Arkane, Undead Labs, Compulsion, and Ninja Theory.
Under the new arrangement, Compulsion Games and Double Fine Productions will transition back to independent operations, retaining their intellectual property and existing game catalogs. Ninja Theory and Undead Labs have reportedly found new ownership that will provide funding to continue development on their respective franchises, Senua and State of Decay 3. The future of Arkane, the studio behind the Dishonored series, remains uncertain as its management consults with employee works councils regarding potential strategic options.
These studio changes are part of broader reductions across various Microsoft divisions, including Activision, Bethesda/ZeniMax, Blizzard, King, and Mojang. Company CEO Asha Sharma stated that no first-party publicly announced games or projects are being cancelled as a direct result of these reductions. The studio spin-outs are expected to account for around 300 of the total redundancies.
Sharma attributed these significant changes to a business model that is currently unprofitable, operating at much lower margins compared to industry peers. She cited the high cost structure established at the beginning of the current console generation and the slower-than-expected growth of key initiatives like Game Pass and multi-platform releases. Sharma also acknowledged that Xbox has made substantial investments in acquisitions that have not yielded sufficient returns, noting that the company has "lost 64 cents for every dollar we invested" in certain studios.
Furthermore, Sharma indicated that Xbox's platform teams have grown excessively large relative to its player base and playtime, leading to slower decision-making. The company plans to address this by flattening the organizational structure, reducing management layers, and promoting a more direct approach to decision-making and accountability among development teams. Efforts will also be made to streamline the company's codebase and reduce spending on third-party vendors by 50%.
In line with these efforts, Helen Chiang, formerly head of Mojang, has been appointed Chief Operating Officer for Xbox, tasked with overseeing content, hardware, platform, and services to foster greater cohesion across the division. This strategic realignment reflects Microsoft's reevaluation of its expansion strategy and its approach to managing its extensive portfolio of development studios.