Xbox has initiated a sweeping restructuring that includes the divestment of four development studios and the elimination of over 3,000 jobs. CEO Asha Sharma detailed these changes in a company-wide message, citing an "unhealthy" business that is operating with significantly lower margins compared to industry peers. Sharma attributed the decision to a strategic shift that did not yield expected growth, compounded by the current severe hardware crisis in the industry.
Compulsion Games, developers of "South of Midnight," and Double Fine Productions, known for "Psychonauts," will transition back to independent studio status. Both studios will retain their intellectual property and game catalogs. They were originally acquired by Xbox in 2018 and 2019, respectively.
Ninja Theory, the studio behind "Hellblade," and Undead Labs, creators of the "State of Decay" series, have entered into agreements to join new ownership. This new funding is intended to support the completion and continued development of "Senua" and "State of Decay 3," both of which are reportedly targeting a 2027 release. Details regarding the specific entities acquiring these studios remain undisclosed.
The future of Arkane Studios in Lyon, France, which is currently developing Marvel's "Blade," is also uncertain. The studio has entered a required consultation period with its Works Council to "review potential strategic options," with reports suggesting "Blade" may have been cancelled.
The workforce reductions extend to Activision, Bethesda/Zenimax, Blizzard, King, Mojang, and Xbox Game Studios. A total of approximately 3,200 employees are slated for layoffs throughout fiscal year 2027, with 1,600 terminations occurring immediately. Despite these significant cuts, Sharma assured that no publicly announced Xbox games or projects will be canceled. Mojang and King will now operate under Sharma's direct oversight.
As part of the operational reset, Helen Chiang, corporate VP at Microsoft and head of Mojang, has been promoted to chief operating officer (COO) of Xbox, succeeding Dave McCarthy. Sharma also outlined plans to streamline management structures, reducing layers to a maximum of five, and ideally three, in an effort to accelerate decision-making and improve accountability. The company aims to entertain over a billion people daily by 2027, a goal Sharma stated requires a fundamental reset to avoid complacency.