Xbox CEO Asha Sharma and head of Xbox Game Studios Matt Booty are reportedly planning significant job cuts across the gaming division next month, a move described by Sharma as a "reset the business" initiative. This comes as Xbox faces declining annual revenue despite substantial investments over the past five years.
In an open letter marking her first 100 days, Sharma and Booty stated, "We will end this fiscal year at about a 3% accountability margin, down year-over-year." They noted that excluding the Activision Blizzard King acquisition, Xbox has spent over $20 billion on content, platform, and hardware subsidies in the last five years, yet its annual revenue has decreased by nearly half a billion dollars during the same period. For context, the previous CEO, Phil Spencer, had aimed for a 30% accountability margin, a target Xbox has fallen far short of.
Sharma also highlighted significant increases in component costs, particularly for console storage. "When I joined as CEO in February, the price we paid for console storage components was over 2x as high as we paid last fall," she explained. "These costs have since doubled again. And as we plan for the 2027 holiday season, we expect another significant increase, taking us over 5x the prices we paid only two years earlier." These rising costs are impacting Xbox's ability to produce consoles, with reports suggesting they are "currently unable to make as many consoles as players want to buy." This situation is also influencing plans for the next-generation console, codenamed "Helix," which is rumored to function much like a living room PC.
The leadership also addressed the company's extensive acquisition strategy. "We expanded our studio system when we needed a pipeline of content to meet multiple strategies across subscription, streaming, and devices," Booty and Sharma wrote. "In the process, we have found ourselves over extended as we executed on changing strategies in a landscape of more readily available content." The phrases "over extended" and "reset the business" are seen as key indicators of impending workforce reductions.
Further underscoring the need for change, the letter states, "We are the fortunate stewards of industry-defining franchises that have enormous potential and player demand, but we have not adequately funded them to compete and win." The authors emphasize the critical role of a consistent pipeline of first- and third-party exclusives and new intellectual property for Xbox's success. This suggests a potential focus on bolstering flagship franchises like Halo and Gears of War, while relying more on third-party developers for variety.
The internal platform infrastructure is also described as "not built for the battle ahead" due to its complexity, which hinders the company's agility. This assessment is also interpreted as coded language for streamlining operations by reducing headcount.
While the open letter does not explicitly mention layoffs, sources speaking to Bloomberg have confirmed that significant job cuts are planned to take place shortly after Microsoft's financial year concludes at the end of June. The company's handling of development and publishing over the past decade, marked by numerous studio acquisitions and subsequent difficulties in releasing first-party games—such as the prolonged development and eventual cancellation of titles like Everwild and Perfect Dark—has led to criticism regarding unfocused strategy and wasteful spending. The upcoming "reset" is expected to place the burden of these executive decisions on employees.
Matt Booty's co-authorship of the letter is particularly notable, given his executive tenure within Microsoft during the period of sprawling strategy and studio closures, including that of Tango Gameworks, the developer behind Hi-Fi Rush. The recurring pattern of Xbox announcing workforce reductions and strategic overhauls to coincide with financial reporting periods has drawn skepticism, with hopes that this latest reset will yield sustainable success rather than merely buoying shareholders.