Xbox Announces 3,200 Layoffs, Four Studio Divestments Through 2027; Plans Biggest Restructure in Its History

Microsoft announced sweeping restructuring of its Xbox gaming division on Tuesday. As part of what is described as the biggest reset in Xbox's history, the company is laying off approximately 3,200 employees and spinning off four game development studios. Xbox CEO Asha Sharma said the restructuring is aimed at simplifying operations, reducing costs, and returning the business to growth by 2027. The changes come amidst sluggish growth in the core Xbox business, weaker Game Pass adoption, and mounting pressure on the gaming industry.

Layoffs at Xbox

In an internal memo shared with employees and later published on X, Xbox CEO Asha Sharma confirmed that approximately 1,600 positions will be eliminated immediately. There are additional layoffs planned through Microsoft's 2027 fiscal year, which brings the total workforce reduction to around 3,200 employees.

Sharma described the move as "the most significant restructure in Xbox history”. The Microsoft executive also announced that the company would separate Compulsion Games, Double Fine Productions, Ninja Theory, and Undead Labs from Xbox's first-party studio portfolio.

While Compulsion Games and Double Fine will return to independent ownership along with their intellectual property and game catalogues, Ninja Theory and Undead Labs will transition under new ownership with funding to complete projects such as Senua and State of Decay 3. In France, Arkane Studios is also said to have begun consultations over possible strategic options, including a sale or spin-off.

The Xbox chief also explained the rationale behind the restructuring. Sharma admitted that "our business today is not healthy," confirming that Microsoft's gaming division had been operating on margins three to ten times lower than comparable gaming platforms and publishers. Although investments in Game Pass, multi-platform publishing, and studio acquisitions had created value, they had "not grown at the pace we expected”, according to Sharma.

Xbox's core console business also seems to have weakened. Calling it "the most severe hardware crisis in its history," Sharma said that Xbox entered the current console generation with a smaller install base and a higher cost structure. The company also expanded too aggressively through acquisitions.

In addition to workforce reductions, Microsoft also plans to streamline the Xbox organisational structure by reducing management layers from as many as 14 to no more than five. The company has appointed Helen Chiang as Xbox's first Chief Operating Officer to consolidate content, hardware, platform, and services businesses under a single operating model.

Despite the restructuring, however, Sharma emphasised that none of Xbox's publicly announced first-party games or projects is being cancelled.