Microsoft Xbox cuts 3,200 jobs as gaming division resets strategy

Microsoft Corp.'s Xbox division will eliminate approximately 3,200 roles, or 20 percent of its workforce, and divest five game studios as Chief Executive Officer Asha Sharma moves to reverse years of underperformance in the company's gaming business. The cuts, affecting every studio and function within Xbox, include 1,600 immediate layoffs with the remainder phased through fiscal 2027, according to a memo from Sharma published Monday.

"These changes will directly affect people who have poured their creativity into building Xbox," Sharma, who took over as Xbox CEO in February, said in the memo. "Our business today is not healthy. We are operating at margins that are 3 to 10 times lower than comparable platform and publishing businesses."

Xbox loses 64 cents for every dollar it invests in a typical year, Sharma disclosed, while its platform teams have grown 40 percent larger since the start of the current console generation even as player base and playtime declined. The division's "accountability margin" — an internal profitability metric — has fallen to just 3 percent, according to a previous internal memo. Combined with separate cuts in Microsoft's sales organization, total reductions across the company reach approximately 6,400 positions, or less than 3 percent of its 228,000 global headcount.

The restructuring represents a strategic retreat from the aggressive studio acquisition strategy pursued under former Xbox head Phil Spencer, who spent $69 billion to acquire Activision Blizzard in 2023 and bought multiple independent studios to fuel Game Pass subscriptions. That bet failed to deliver the expected returns: Game Pass lost subscribers after a 50 percent price increase, and Xbox hardware sales have lagged behind Sony's PlayStation throughout the current generation. Sharma's plan shifts focus to large-scale franchises — Halo, Elder Scrolls, Fallout, Wolfenstein — while shedding studios that produced smaller-scale titles.

Five studios depart Xbox

The five studios being divested include Ninja Theory, known for the Hellblade series, and Undead Labs, developer of State of Decay, both of which have entered talks to be sold with funding to complete their current projects. Double Fine Productions and Compulsion Games will return to independent status under their original management, retaining their intellectual property and game catalogs. Arkane Studios, the Lyon-based developer behind Dishonored and the upcoming Marvel's Blade, has begun a strategic review that could result in a sale, closure, or spin-off, with French labor regulations extending the timeline.

MachineGames co-founder Jerk Gustafsson has taken over leadership of Arkane following the resignation of its president, Leonard Bendel, according to French business records. The move signals potential consolidation between the two studios, with Microsoft investing heavily in MachineGames after the success of Indiana Jones and the Great Circle. A Wolfenstein television series is in development with the producers of Amazon's Fallout adaptation, aligning with Sharma's trans-media strategy.

Platform reset and cost cutting

Sharma is flattening Xbox's management structure to no more than five layers, down from as many as 14 in some divisions, and cutting vendor spending by 50 percent. Helen Chiang, who previously led Mojang and the Minecraft franchise, has been promoted to chief operating officer with end-to-end profit-and-loss responsibility across content, hardware, platform, and services. Dave McCarthy, a 17-year Xbox veteran, is retiring.

Mojang and mobile gaming unit King will now report directly to Sharma, reflecting the importance of Minecraft and mobile platforms to Xbox's future. Minecraft has fallen behind Roblox in engagement, according to people familiar with the matter, and Sharma has identified the franchise as a priority for revitalization.

No publicly announced games have been canceled as part of the restructuring, including Marvel's Blade, Senua, and State of Decay 3. But the scale of the cuts — among the largest in video game industry history — highlights the depth of Xbox's challenges as it enters a new console generation with declining hardware sales and intensifying competition from Sony, Nintendo, and cloud gaming platforms.

Microsoft shares have declined 4.2 percent this year through Friday's close, underperforming the S&P 500's 8.1 percent gain, as investors weigh the company's massive AI infrastructure spending against the drag from underperforming business units. The Xbox restructuring is expected to save the company several hundred million dollars annually, though Sharma cautioned that returning the division to growth will take many years.

This article is for informational purposes only and does not constitute investment advice.