Xbox to Lay Off 3,200, Divest Four Studios in Restructuring
The divestment of studios acquired during Microsoft's acquisition spree signals a strategic retreat from the model of owning all first-party studios, as the company admits it is not the best environment for every type of studio.
Key Facts
- Microsoft's Xbox division will lay off approximately 3,200 employees through fiscal year 2027, with 1,600 let go on July 6, 2026.
- Compulsion Games and Double Fine Productions will become independent studios, keeping their IP, catalog, and development funding.
- Ninja Theory and Undead Labs will move to new owners while receiving funding to complete 'Senua' and 'State of Decay 3,' respectively.
- Xbox CEO Asha Sharma stated that the division's profit margin is one-third to one-tenth that of competitors and that Game Pass growth underperformed expectations.
- No announced first-party titles will be canceled as part of the restructuring, and management layers will be reduced from up to 14 to a maximum of five.
Reporting from 3 sources: 4Gamer.net, Denfaminicogamer, GIGAZINE.
On July 6, 2026, Microsoft's Xbox division CEO Asha Sharma announced a major restructuring that will cut approximately 3,200 jobs through fiscal year 2027, with about 1,600 layoffs effective immediately. Four studios will leave the Xbox umbrella: Compulsion Games and Double Fine Productions will become independent while retaining their intellectual property and development funding; Ninja Theory and Undead Labs will move to new owners while receiving funding to complete their current projects, 'Senua' and 'State of Decay 3.' Arkane Studios has entered statutory consultations with its works council. Sharma described Xbox's profit margin as one-third to one-tenth that of competitors, citing underperformance in Game Pass and multiplatform growth as factors. No previously announced first-party titles will be canceled. Management layers will be reduced from up to 14 to a maximum of five, with Helen Chiang promoted to the newly created Chief Operating Officer role. Dave McCarthy, a 17-year veteran, is departing.
Sharma's memo, titled 'Resetting XBOX,' was released on July 6 and marks the most significant restructuring in the division's history. The layoffs affect Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and Xbox Game Studios, though Microsoft stated that no announced games or projects will be canceled. In addition to the workforce reduction, organizational changes include flattening management from as many as 14 layers to no more than five, ideally three, and cutting external vendor spending by 50%. The new COO, Helen Chiang, will have cross-sectional profit-and-loss responsibility across content, hardware, platform, and services. The 4Gamer.net article noted that Compulsion Games and Double Fine will retain their IP, catalog, and funds for new development. GIGAZINE added that Microsoft also laid off about 4,800 people company-wide on the same day, with the Xbox cuts being part of that larger figure. The company's Chief Human Resources Officer Amy Coleman stated that the eliminated jobs are not being replaced by AI. Sharma framed the restructuring as necessary for growth, aiming for a return to a growth trajectory in 2027.
Synthesized by Yomimono from the 3 cited sources below, including Japanese-language reporting where cited, then editorially reviewed before publishing.