Microsoft cuts 3,200 Xbox jobs and sheds five game studios

Microsoft is cutting 3,200 jobs from its Xbox division and separating five studios from the gaming business, Xbox CEO Asha Sharma said Monday. The move marks a sharp pullback after years of acquisitions and comes as Microsoft says parts of Xbox have grown too costly for the results they produce.

Sharma said half of the Xbox layoffs take effect immediately, with the remaining cuts due by the end of Microsoft’s 2027 fiscal year, which ends June 30, 2027. CNBC, citing a person familiar with the matter, reported that the reductions represent about 20% of Xbox staff.

Microsoft is also cutting 1,600 jobs elsewhere in the company, bringing the total announced reductions to just over 2% of its workforce. The Seattle Times reported that Microsoft’s overall headcount has stayed relatively steady because the company has continued hiring in other areas.

Management layers targeted

Sharma described the Xbox cuts as an effort to simplify the division and reduce management layers. She said some decisions now go through 14 levels of review and that Xbox will aim for no more than five layers, and where possible three.

The layoffs also focus on the Xbox platform team, according to Sharma, who said that group has become 40% larger since the start of the current console generation while player counts and playtime have fallen. Ars Technica reported that such cuts could affect work on Project Helix, Microsoft’s announced hybrid console intended to run both Xbox and PC games.

Sharma said the latest reductions will not cancel any publicly announced first-party games or projects. That contrasts with an earlier round of Xbox layoffs in July 2025, when GamesIndustry.biz reported that projects including Perfect Dark and Everwild were canceled.

The new cuts follow other reductions in Microsoft’s gaming business. Ars Technica reported that Microsoft cut 1,900 jobs after buying Activision Blizzard, and Game File reported that the company cut another 650 gaming jobs later in 2024.

Smaller studios leave Xbox

Microsoft is also unwinding part of its studio-buying push. Sharma said Compulsion Games, known for We Happy Few, and Double Fine Productions, known for Psychonauts, will become independent and keep control of their intellectual property.

Ninja Theory, the studio behind Hellblade: Senua’s Sacrifice, and Undead Labs, the studio behind State of Decay, have been sold to unnamed buyers, Sharma said. Arkane Studios in France, known for Dishonored and Prey, is reviewing options that would move it outside Xbox.

Sharma said Microsoft’s smaller studio acquisitions have not paid off financially, writing that in a typical year the company lost 64 cents for every dollar invested in them. She said Xbox has concluded that Microsoft is not the right owner for every studio and should not try to own every strong independent developer.

Microsoft is keeping its largest gaming assets closer to Xbox leadership. Sharma said Mojang, maker of Minecraft, and King, maker of Candy Crush, will report directly to her because of their role in Microsoft’s monthly player base and their demographic and geographic reach.

Sharma also said Microsoft will shift spending across Activision, Blizzard, Bethesda and Xbox Game Studios toward higher-priority projects. She said recent bets on Game Pass subscriptions and broader multiplatform releases created value but did not grow as quickly as expected.

According to Sharma, those choices contributed to an Xbox business running at margins three to 10 times lower than comparable platform and publishing companies. She said the decisions do not reflect the talent or dedication of the employees affected by the cuts.

This story draws on original reporting from Ars Technica.