Xbox is undergoing its most significant restructure in history, involving the dissolution of partnerships with five development studios and a reduction of over 3,000 employees. In a message to staff, CEO Asha Sharma described the move as a necessary "reset" to address unsustainable operating margins and a weakened core business.
Sharma stated that Xbox's business is currently operating at significantly lower margins than comparable platform and publishing businesses. She cited a higher cost structure and a smaller install base at the start of the current generation, coupled with business bets on Game Pass and multi-platform releases that did not grow as rapidly as anticipated. This financial pressure, combined with industry-wide hardware challenges, necessitates a strategic shift.
As part of this restructuring, Compulsion Games and Double Fine Productions will once again operate as independent studios, retaining their intellectual property and game catalogs. Both studios were acquired by Xbox in 2018 and 2019, respectively. Ninja Theory and Undead Labs have entered into agreements to join new ownership, with funding secured to continue development on "Senua" and "State of Decay 3," both targeting a 2027 release. The identities of the new owners for Ninja Theory and Undead Labs remain undisclosed. Reports suggest Xbox had already sought potential buyers for Ninja Theory prior to its recent showcase of "Senua."
The status of Arkane Studios in Lyon, France, is less certain. The studio is currently in consultation with its Works Council regarding potential strategic options, as it works on the reportedly troubled "Marvel's Blade."
The widespread layoffs will affect numerous studios, including Activision, Bethesda/Zenimax, Blizzard, King, Mojang, and Xbox Game Studios. Approximately 3,200 employees will be impacted throughout fiscal year 2027, with 1,600 terminations occurring immediately. Despite these reductions, Sharma confirmed that no publicly announced Xbox games or projects will be canceled. Mojang and King will now report directly to Sharma.
To streamline operations, Helen Chiang, corporate vice president at Microsoft and head of Mojang, has been promoted to chief operating officer of Xbox, replacing Dave McCarthy. Sharma also detailed plans to reduce management layers to a maximum of five, and ideally three, citing current complexities that have slowed decision-making and accountability.
Sharma expressed an ambition for Xbox to return to growth by 2027 and to become a leading company in entertainment globally. The message concluded with a stark reminder that "History is full of companies that mistake longevity for inevitability," signaling Xbox's commitment to avoiding such a fate.