Xbox is preparing to lay off approximately 3,200 of its employees and part ways with four of its studios to new management in what CEO Asha Sharma called in an email to employees “the most significant restructure in Xbox history.”
This email, shared with Kotaku, says that 1,600 of those layoffs will take place today, while the other will take place later. Compulsion Games and Double Fine will become independent studios, while Ninja Theory and Undead Labs “have entered terms to join new ownership with funding to complete and grow Senua and State of Decay 3,” though the specifics of that have not yet been disclosed. Arkane Lyon is entering legally required “consultation” in France to review its options, and its fate remains unclear.
Layoffs will also take place in varying sizes across Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and Xbox Game Studios, though Sharma stated that none of Xbox’s first-party publicly-announced games or projects are being canceled as a part of these cuts. Mojang and King will now report directly to Sharma.
Sharma wrote the following in her email as the reasoning behind the cuts:
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.
Other layoffs will take place across the company’s platform teams, with Sharma aiming to “reduce management layers to no more than 5, and where possible, 3.” Sharma says the company will “streamline how we work across our tools” and reduce its vendor spend by 50%. The company is also promoting Helen Chiang, current corporate VP at Microsoft and head of Mojang, to the role of COO as current COO Dave McCarthy retires.
Last month, Sharma and Xbox Game Studios head Matt Booty sent an email out to all employees in preparation for these cuts, highlighting that the division ended its last fiscal year at about a 3-percent profit margin, had spent $20 billion on studio investments in five years not including its $69 billion purchase of Activision Blizzard King, and seen its annual revenue decline nearly half a billion even as the price of components skyrocketed. The email went on to say its studio system had “over extended” and was “not adequately funded” to be competitive.
Previously, Kotaku also learned that Xbox’s cost-saving operations also included cutting contracts with a number of third-party vendors in a move that had already resulted in job losses at those vendors.
All these layoffs are occurring almost one year to the date of another wave of huge cuts at Microsoft that impacted 9,100 individuals company-wide and which resulted in 200 individuals laid off from Candy Crush maker King, a canceled Perfect Dark reboot and the closure of studio The Initiative, a canceled MMORPG at ZeniMax, and a canceled Everwild amid restructuring at Rare. That layoff was less than a year after another mass layoff of 650 across Xbox, which itself was only nine months after a layoff of nearly 2,000 across the gaming division in January 2024.