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After weeks or rumours and speculation Xbox have announced major layoffs and changes to how it operates. Xbox CEO Asha Sharma calls these the most significant restructure in the organisation's history.
In a memo to staff, she confirmed the division will cut around 3,200 roles across the 2027 financial year, beginning with roughly 1,600 eliminations today. Four studios will also leave Xbox for new management, with a fifth under review.
Which studios are affected
Compulsion Games (We Happy Few, South of Midnight) and Double Fine Productions (Psychonauts) will return to independent status, taking their IP, back catalogues and funding for their next games with them. Hellblade developer Ninja Theory and Undead Labs have entered terms to move to new ownership, with Sharma stating that recently announced Senua and highly anticipated zombie survival co-op adventure State of Decay 3 will be funded to completion.
In France, Arkane's management is entering the required Works Council consultation to review its options, making it the fifth studio in question.
Crucially, Sharma stated that none of Xbox's first-party publicly announced games are being cancelled as part of these changes. Reductions are also happening across Activision, Bethesda/ZeniMax, Blizzard, King, Mojang and Xbox Game Studios, though these vary in scale.
Xbox business not healthy
Sharma was once again clear that Xbox business is struggling and can't continue as it is. She wrote that "our business today is not healthy", pointing to margins she said are three to ten times lower than comparable platform and publishing businesses.
She acknowledged Xbox entered the current console generation with a smaller install base and a higher cost structure, and that bets on Game Pass, multiplatform releases and a broader content portfolio "did not grow at the pace we expected".
Sharma revealed that in a typical year, Xbox lost 64 cents for every dollar it invested in studios, and that the company had "learned that we are not the best home for every type of studio".
That's a remarkable thing to put in writing after years of aggressive acquisitions, and it reframes the buying spree that swallowed ZeniMax and Activision Blizzard as something Microsoft is now actively unwinding at the edges.
Flattening the structure
A large chunk of the memo deals with internal bloat. Sharma noted that some parts of the company have as many as 14 layers of management, and that platform teams are 40 percent larger than at the start of the generation despite declining player numbers and playtime. The plan is to cut management layers to no more than five, and ideally three, alongside a 50 percent reduction in vendor spend.
The restructure also brings leadership changes. Mojang and King will now report directly to Sharma, Helen Chiang has been promoted to a new chief operating officer role with end-to-end responsibility across content, hardware, platform and services, and long-serving Dave McCarthy is retiring after 17 years.
The bottom line
Sharma closed by insisting the changes are "about a bigger future for Xbox, not a smaller one", promising a return to growth in 2027 and signing off with the line that "history is full of companies that mistake longevity for inevitability. We will not be one of them."
