XBOX Layoffs Begin with Over 3,000 Jobs Cut and Major Company Restructuring

In recent weeks, numerous rumors and reports have surfaced about a major restructuring planned for XBOX. Today we officially know what that change looks like and it has already begun. Asha Sharma, XBOX CEO, announced a short time ago a major overhaul at XBOX that includes changing the business model, a wave of extensive layoffs, and spinning off four studios from the company in order to redirect resources to the company's flagship franchises.

On the workforce front, we're seeing a reduction of approximately 15% of the workforce with over 3,000 employees being laid off during the current year, with half of them already being let go immediately. Alongside the extensive layoffs, cuts to existing management layers at XBOX were also announced, reduced spending with external vendors, and optimization of internal tools, though these were presented in a more vague manner, making it difficult to assess their impact. Alongside the employee layoffs, about four studios are spinning off from XBOX. The good news here is that the studios are not being shut down completely, though this doesn't save them from rounds of layoffs that have come and will continue to come as a result of the spin-off. The four studios are:

• Ninja Theory - Moving to new owners who will fund the studio's operations, with Senua, which was only announced a month ago, no longer being XBOX exclusive.
• Undead Labs - Moving to new owners who will fund the studio's operations and development of State of Decay 3.
• Compulsion Games - Becoming an independent studio.
• Double Fine - Returning to being an independent indie studio.

Another name that came up in recent weeks as a candidate for closure is Arkane Lyon, which is currently working on Marvel's Blade. As of now, the studio has not been closed but has been significantly affected by the wave of cuts, and the studio is currently in legally required consultation processes with the workers' council and the French government in hopes of finding a solution that will prevent the studio's closure. Despite the wave of cuts, Sharma announced that no game from the company that has already been revealed has been canceled.

One of the reasons for this extensive change according to Sharma is Microsoft's bet on Game Pass and the multi-platform strategy (instead of exclusivity) that did not grow at the planned pace. According to her, on one hand Game Pass had a significant value proposition, but the enormous investments in adding content to it together with acquiring many studios, combined with a slowdown in subscriber growth, eroded the company's core operations, led to profit margins 3 to 10 times lower compared to competitors, and forced the company to reach the current point where it is recalculating its course. Finally, it was stated that from now on XBOX will redirect resources and budgets toward higher priority and more profitable projects from Activision, Bethesda, Blizzard, King, and Mojang in order to accelerate the development of the massive franchises these companies hold such as Call of Duty, Fallout, and The Elder Scrolls.

Finally, I think it's worth reading the full message that Asha wrote and sent to company employees. It is presented here in full after automatic translation:

Dear Team,

We are beginning the most significant organizational change in XBOX's history. After deep consideration, I have made the difficult decision to reduce our team by approximately 3,200 employees throughout fiscal year 2027 (FY27). This move will include the elimination of approximately 1,600 positions today, and in addition, four studios will leave XBOX for new management. I recognize that an organizational change that spans a year creates additional challenges. Unfortunately, it is not possible to make all the required changes in a single day, and it was important to me to be direct and transparent about the scope of the move.

I know this hurts. These changes will directly impact people who have invested all their creativity in building XBOX. Many joined us through acquisitions, while others were recruited here, or approached us on their own initiative out of deep love for the industry and for XBOX. Today's decisions do not reflect their talent or their dedication.

Our business today is not healthy. We operate at profit margins 3 to 10 times lower than comparable platform and distribution businesses. We entered Gen 9 with a smaller user base and a higher cost structure. To grow, we bet on Game Pass, on Multi-platform, and on a broader content portfolio. While these businesses created significant value, they did not grow at the rate we expected. As this happened, our core business weakened, and we added more teams, more investments, and more time, hoping for a better outcome. Now, the industry faces the most severe hardware crisis in its history. We must Reset XBOX.

1. Resetting Our Content Portfolio

Since 2018, we have aggressively expanded our studio portfolio, while the number of games developed per month in the industry now exceeds the last ten years combined. We now find ourselves competing not only with the largest publishers, but also with small independent studios. It is neither possible nor desirable to own every excellent independent studio. We have also learned that we are not the best home for every type of studio; in an average year, we lost 64 cents on every dollar we invested. As part of XBOX's reset, we will help independent creators succeed by providing open development tools and audience access so they can realize their vision.

• Changes to studio structure: The studios Compulsion Games and Double Fine Productions will return to their original management and operate as independent studios, along with the IP, catalog, and operating budget for their next games.
• New ownership: The studios Ninja Theory and Undead Labs have entered negotiations to join new ownership, with funding for completion and expansion of Senua and State of Decay 3.
• Arkane (France): Studio management is beginning the required consultation with the Works Council to examine potential strategic options.

We are also making reductions in other units, and in some cases redirecting investments to focus on higher priority projects. These changes vary in scope across Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and XBOX Game Studios. None of the games or projects from First-Party studios that have been announced publicly are being canceled as part of these reductions.

In addition, Mojang and King will now report directly to me. These two studios have increasingly become platforms, and they are our largest in terms of monthly active players. They bring XBOX critical advantages in geographic, demographic, and differentiation aspects.

2. Resetting Our Platform

We know that great technology improves when it becomes simpler, not bigger. Today, in some parts of the company, work goes through no less than 14 management layers. Our platform teams are 40% larger than they were at the beginning of the current generation, despite our player base and playtime having declined. This complexity has slowed decision-making, blurred accountability, and made it harder for us to deliver results for players. As part of XBOX's reset, we will simplify processes.

We will reduce management layers to at most 5, and where possible to 3. We will achieve success through a flatter organization built around:

• "Makers": Individual Contributors focused on actual building and development.
• "Player-Coaches": Managers who remain deeply involved in the work while developing their teams.
• "DRIs" (Directly Responsible Individuals): Parties carrying clear responsibility for key decisions and outcomes.

We will also optimize how we work with various tools, through a cleaner codebase, shared services, and a 50% reduction in spending on external vendors.

3. Resetting How We Operate

As XBOX has grown its workforce, we have become more fragmented. Teams, studios, and functions often operate independently, and it has become more difficult to work toward a common goal, make the right tradeoffs, and execute.

For the first time, we are appointing a Chief Operating Officer (COO) with full end-to-end responsibility for profit and loss (P&L) across content, hardware, platform, and services. Helen Chiang has been promoted to this role and will report directly to me. Over nearly two decades at XBOX, Helen has helped build some of our most important businesses, from XBOX Live to managing Mojang and the Minecraft franchise. She will unite our businesses under one operating model, and ensure we make clear investment decisions, learn from our successes and failures, and take full responsibility for results.

Thank you, Dave McCarthy, who is retiring after 17 years at XBOX. Dave played a critical role in building the platform that millions of players rely on daily, and has been a trusted partner in some of the biggest moments in XBOX's history. We wish him all the best.

Looking Forward

These changes are intended to ensure a bigger future for XBOX, not a smaller one. The next decade of gaming will be bigger, more global, and more creative than anything we've seen before. This year, we will invest in XBOX the same level of resources as our past peaks, but we will do so with greater focus, higher discipline, and greater clarity, all with the goal of making XBOX the place where the world plays and creates.

I want XBOX to be one of the few companies that entertains more than a billion people daily, and gives everyone the opportunity to create and connect. I know we can achieve this goal. XBOX has some of the most beloved franchises in entertainment history, talented studios around the world, and we will return to growth in 2027.

History is full of companies that confuse longevity and tenure with Inevitability. We will not be one of them.