Microsoft's Xbox overhaul cuts 3,200 jobs, makes studios independent

Microsoft is cutting about 3,200 Xbox jobs across fiscal 2027, including roughly 1,600 immediate layoffs that took effect on July 6, while turning four studios into independent or newly owned operations. Xbox chief Asha Sharma called it “the most significant restructure in Xbox history,” a sweeping reset that pairs deeper cost cuts with a claim that the business can still grow again.

The company said its broader reductions total about 4,800 roles, or roughly 2.1% of Microsoft’s global workforce. Compulsion Games and Double Fine Productions will become independent studios and keep their intellectual property and current projects. Ninja Theory and Undead Labs are moving to new owners, with funding to finish and expand their existing games. In France, Arkane is entering a legally required consultation with its works council, reflecting local labor rules that slow any immediate change to staffing.

Sharma defended the overhaul by arguing that Xbox is structurally weaker than its rivals. She said margins are 3 to 10 times lower than comparable platform and publishing businesses and that Xbox loses 64 cents for every dollar invested in its studios in a typical year. She also said Xbox entered the current console generation with a smaller install base and a higher cost structure, and described the gaming market as facing the most severe hardware crisis in its history.

The memo also sets out a sharper management structure. Sharma said Xbox will flatten its organization from as many as 14 layers to no more than five, create a new chief operating officer role, and shift more direct oversight of Mojang and King to her office. The internal logic is straightforward: fewer layers, fewer studios under direct control, and tighter command over the most valuable parts of the portfolio.

Microsoft named Sharma as executive vice president and CEO of Microsoft Gaming in February, after Phil Spencer’s long run at the helm. At that time, Microsoft said gaming had crossed 500 million monthly active users and stretched across nearly 40 studios spanning Xbox, Bethesda, Activision Blizzard, and King. The new plan suggests that scale alone is no longer enough. Microsoft is betting that a smaller, more centralized Xbox can recover after years of spending that did not produce the growth the company wanted, with Sharma now saying the division aims to return to growth in 2027.