Microsoft Xbox announces 3,200 job cuts and studio sales

Microsoft has announced a round of redundancies intended to reinvigorate its Xbox division. Several in-house studios will also be sold.

The promise of a major “reset” has been delivered. Asha Sharma, president of the Xbox division, unveiled a sweeping restructuring plan in a lengthy post on X. Thousands of employees will lose their jobs. The aim is as clear as it is pragmatic: to revitalise Microsoft’s gaming business.

Xbox restructuring brings 3,200 job cuts

“After careful consideration, I have made the difficult decision to reduce our workforce by around 3,200 people during the 2027 financial year. This will result in the elimination of around 1,600 roles from today, alongside the departure of four studios that will leave Xbox to pursue a new direction.”

Asha Sharma says the decision has nothing to do with the “talent” or “dedication” of the people being made redundant, but is instead a direct result of the problems facing the company:

“Our business is struggling today. Our margins are 3 to 10 times lower than those of comparable platforms and publishers. We entered the ninth console generation with a smaller installed base and higher costs. To grow, we placed our bets on Game Pass, multiplatform releases and a broader content catalogue. While these initiatives have created significant value, their growth has not met our expectations.”

Microsoft sells four studios, while a fifth faces an uncertain future

Alongside the redundancies, Microsoft will sell some of its studios. Compulsion Games (We Happy Few, South of Midnight) and Double Fine Productions (Psychonauts 2, Keeper) will become independent again while retaining their portfolio of licences. Ninja Theory (Hellblade) and Undead Labs (State of Decay), meanwhile, will be sold to as-yet-unknown buyers. The biggest question mark surrounds Arkane. Sharma says discussions are under way with the Lyon-based French studio to “explore the various strategic options”. The remaining studios will not escape unscathed either, with job cuts also planned at ZeniMax, Bethesda, Activision, Mojang and Blizzard. It is a bloodbath.

Xbox seeks a leaner internal structure

Asha Sharma also refers to a redesigned structure intended to simplify internal operations, with fewer management layers and improved communication. Xbox had become too sprawling for its own good. Is this the beginning of the end for Microsoft’s gaming division? Not according to its president, who believes the cuts are needed to make a fresh start on healthier foundations:

“These changes are intended to build a more ambitious future for Xbox, not constrain it. The next decade of gaming will be broader, more global and more creative than ever. This year, we will invest as much in Xbox as ever before, but with a more focused, more disciplined and clearer strategy, to make Xbox the platform where the world plays and creates.”

Microsoft’s acquisition spree has not paid off

In the late 2010s, Microsoft sought a new way to revive its Xbox division following the failure of the Xbox One. Its answer was Game Pass, a “Netflix for video games” that represented a minor revolution. Games were needed to fill its catalogue. Microsoft therefore bought studios at a rapid pace, beginning in 2018 with Ninja Theory, Playground Games and Obsidian among others. Two acquisitions attracted particular attention: Bethesda in 2021 for $7.5 billion, and above all Activision Blizzard for $69 billion. On paper, the strategy made sense, as the catalogue was appealing enough to draw in as many subscribers as possible. Unfortunately, it did not work out: Microsoft spent too freely and now finds itself forced to cut jobs. Poor decisions by management which, as always, leave ordinary workers to pay the price.

With Sony abandoning physical media and Microsoft making redundancies, the industry is plainly in a sorry state in 2026.