Xbox Confirms Massive Layoffs as Company Begins "Most Significant Restructure" in Its History
- Sagar Mankar
- 2 minutes ago
- 8 min read
Key Highlights:
Xbox Begins Massive Reset With 1,600 Layoffs and 4 Studio Sell-Offs
Xbox says its business has faced slower-than-expected Game Pass growth, a smaller install base, and higher operating costs.
Compulsion Games, Double Fine Productions, Ninja Theory, and Undead Labs are transitioning to independent ownership, while Arkane Studios has entered a consultation process.
The company also plans to reduce management layers, cut vendor spending by 50%, and streamline internal operations.
Xbox has officially confirmed what many feared for weeks. The company is cutting 3,200 jobs throughout fiscal year 2027, with 1,600 of those roles disappearing right away. The announcement came straight from Xbox CEO Asha Sharma, and it marks one of the biggest shakeups the division has ever gone through.
This isn't just about layoffs either. Four studios are leaving Xbox entirely, and a fifth is in talks that could change its future too. It's a lot to take in, so let's break down what's actually happening.
How Did Xbox Justify These Changes?
According to the memo sent to staff, Sharma didn't sugarcoat things. She called the decision 'painful,' and admitted the 'business isn't in a healthy' place right now. She said Xbox is currently losing 64 cents for every dollar it invests, which is a rough number by any standard.
"Our business today is not healthy. We are operating at margins that are 3 to 10x lower than comparable platform and publishing businesses."
She went on to say that Xbox entered this console generation with 'a smaller install base and higher costs', and that bets on Game Pass and multiplatform releases didn't grow fast enough to offset that.
Add in what she described as the worst hardware crisis the industry has ever seen, and you get the full picture of why Xbox felt forced to act now.
Which Studios Are Leaving Xbox?
Four studios are officially parting ways with Microsoft. Compulsion Games and Double Fine Productions are both going independent, keeping their IP and catalog intact. Ninja Theory and Undead Labs are being acquired by new ownership instead, with funding attached to finish the games they're currently working on (Senua and State of Decay 3).
Double Fine, founded by Tim Schafer and a handful of former LucasArts developers, will now be led by Schafer as an independent studio once again. The team has stayed busy over the years, releasing Psychonauts 2 in 2021, followed by Keeper in 2025 and Kiln in 2026.
Compulsion Games, founded in Montreal by Guillaume Provost, a former Arkane Studios developer, is best known for creating Contrast (2013), We Happy Few (2018), and the award‑winning South of Midnight (2025).
Undead Labs gets to keep working on State of Decay 3, which is honestly a relief for fans who've been following the game since its reveal in 2020.
Ninja Theory's situation is a bit more bittersweet. Senua was only just revealed to the world at June's Xbox Games Showcase, and now the studio is heading toward new publishers instead of staying under the Xbox banner. Still, the game isn't cancelled, so there's that silver lining.
Is Arkane Also Being Sold?
Not exactly. Arkane's situation is different from the other four studios. According to Sharma's statement, "In France, Arkane's management is beginning required consultation with its Works Council to review potential strategic options."
That's corporate speak for uncertainty. Microsoft is in talks with the French government to figure out what happens next, with the hope of keeping Arkane alive and its upcoming Blade project in development. Todd Howard actually praised the team just last month, saying the folks at Arkane were doing "a really, really great job" on the project. Fans are hoping that praise translates into a real future for the studio.
Will Any Announced Games Get Cancelled?
This is probably the question on most players' minds, and thankfully the answer is NO. Sharma made this point clear in her statement. "None of our first-party publicly announced games or projects are being cancelled as part of these reductions."
That covers titles like Senua, State of Decay 3, and Marvel's Blade, all of which had only recently been shown off at the Xbox Games Showcase. Given the timing, it would have stung badly if any of these were suddenly pulled from the lineup. For now, players can breathe a little easier on that front, even if the bigger picture around Xbox still feels shaky.
What Changes Are Coming to Xbox's Structure?
Beyond the studio sales, Xbox is also planning a serious internal overhaul. Sharma pointed out that some parts of the company currently have as many as 14 layers of management, which slows everything down. Moving forward, Xbox wants to cut that down to a maximum of five layers, and ideally just three in most areas.
The plan is to build teams around what Sharma calls makers, player coaches, and directly responsible individuals, essentially aiming for leaner and faster decision making. Vendor spending is also getting slashed by 50% as part of the same cost-cutting push.
On top of that, Xbox is creating a brand new Chief Operating Officer role with full responsibility across content, hardware, platform, and services. Helen Chiang has been promoted into that position and will report directly to Sharma. She's been with Xbox for nearly two decades, having helped build everything from Xbox Live to the Minecraft franchise under Mojang.
Speaking of Mojang, both Mojang and King will now report straight to Sharma going forward, a move that highlights just how important those two studios have become for player numbers and revenue.
What Happens Next for Xbox?
There's also a farewell mentioned in the memo. Dave McCarthy, who spent 17 years at Xbox, is retiring as part of these changes.
Despite everything, Sharma tried to frame this as a step toward growth rather than decline. "These changes are about a bigger future for XBOX, not a smaller one. The next decade of gaming will be larger, more global, and more creative than anything we've seen before."
More cuts are expected before the fiscal year wraps up, so this story is far from over.
Read the full memo from Asha Sharma that was sent today to all Xbox employees:
Team,
We are beginning the most significant restructure in XBOX history. After careful consideration, I've made the difficult decision to reduce our team by approximately 3,200 throughout FY27. This will include approximately 1,600 role eliminations today, and in addition, four studios will leave XBOX to new management. I recognize that a year-long restructuring creates additional challenges. Unfortunately, it is not possible to make all the necessary changes in a single day, and I wanted to be direct about the scale.
I know this is painful. These changes will directly affect people who have poured their creativity into building XBOX. Many joined us through acquisitions, while others were recruited here, or sought us out because they loved this industry and loved XBOX. Today's decisions do not reflect their talent or dedication.
Our business today is not healthy. We are operating at margins that are 3–10x lower than comparable platform and publishing businesses. We entered Gen 9 with a smaller install base and a higher cost structure. To grow, we bet on Game Pass, multi-platform, and a broader portfolio of content. While those businesses have created meaningful value, they did not grow at the pace we expected. As that happened, our core business weakened, and we added more teams, more investment, and more time, hoping for a better outcome. And now the industry is facing the most severe hardware crisis in its history. We must reset XBOX.
First, we will reset our content portfolio.
Since 2018, we have aggressively expanded our studio portfolio while the number of games created each month across the industry now outpaces the last ten years combined. We now find ourselves competing not only with the largest publishers, but also with smaller independent studios. It is neither possible nor desirable to own every great independent studio. We have also learned that we are not the best home for every type of studio; in a typical year, we lost 64 cents for every dollar we invested. As we reset XBOX, we will help independent creators succeed by providing open development tools and audiences to realize their vision.
Compulsion Games and Double Fine Productions will return to management and transition to independent studios with their IP, catalog, and runway for their next games. Ninja Theory and Undead Labs have entered terms to join new ownership with funding to complete and grow Senua and State of Decay 3. In France, Arkane’s management is beginning required consultation with its Works Council to review potential strategic options.
We are also making reductions across other units, and in some cases, shifting investment to focus on higher priority projects. These changes vary in size across Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and XBOX Game Studios. None of our first party publicly announced games or projects are being cancelled as part of these reductions.
In addition, Mojang and King will now report directly to me. These two studios have increasingly become platforms and are our largest by monthly active players. They bring critical geographic, demographic, and differentiation to XBOX.
Second, we will reset our platform.
We know that great technology gets better when it gets simpler, not bigger. Today, in some parts of the company, work passes through as many as 14 layers of management. Our platform teams are 40% larger than they were at the start of this generation, even as our player base and playtime have declined. That complexity has slowed decisions, blurred accountability, and made it harder to deliver for players. As we reset XBOX, we will simplify.
We will reduce management layers to no more than 5, and where possible, 3. We will deliver success through a flatter organization that is built around makers (individual contributors focused on building), player-coaches (leaders who remain deeply involved in the work while developing their teams), and directly responsible individuals (DRIs) who own key decisions and outcomes. And we will streamline how we work across our tools, with a cleaner code base, shared services, and 50% reduced vendor spend.
Third, we are resetting how we operate.
As XBOX grew our headcount, we became more fragmented. Teams, studios, and functions often operate independently, and it became harder to work towards a shared goal, make the right tradeoffs, and get things done.
For the first time, we are establishing a Chief Operating Officer with end-to-end P&L responsibility across content, hardware, platform, and services. Helen Chiang has been promoted to this role and will report directly to me. Over nearly two decades at XBOX, Helen has helped build some of our most important businesses, from XBOX Live to leading Mojang and the Minecraft franchise. She will bring our businesses together under one operating model, making sure we make clear investment decisions, learn from our successes and failures, and hold ourselves accountable for results.
Thank you, Dave McCarthy, who is retiring after 17 years with XBOX. Dave has played a defining role in building the platform that millions of players rely on every day and has been a trusted partner through many of the biggest moments in XBOX's history. We wish him all the best.
These changes are about a bigger future for XBOX, not a smaller one. The next decade of gaming will be larger, more global, and more creative than anything we've seen before. This year, we'll invest as much in XBOX as we ever have, but we'll invest with greater focus, greater discipline, and greater clarity, all in service of making XBOX where the world plays and creates.
I want XBOX to be one of the few companies that entertains more than a billion people each day and gives everyone the opportunity to create and connect. I know we can achieve this goal. XBOX has many of the most beloved franchises in entertainment history, talented studios around the world, and we will return to growth in 2027.
History is full of companies that mistake longevity for inevitability. We will not be one of them.
Whether that optimism holds up remains to be seen. For now, thousands of employees are dealing with the fallout of a business trying to right itself, while players wait to see how these changes shape the games and platforms they've come to rely on.
