Microsoft CEO Nadella Backs Xbox Streamlining as Layoffs Continue

Microsoft CEO Satya Nadella has expressed confidence in Xbox's current direction, praising the division's restructuring even as layoffs continue to reshape the company's gaming operations.

Speaking on the Sources podcast with Alex Heath, Nadella said he felt "fantastic" about Xbox's intellectual property portfolio and studio lineup. "If I look at the studios, the IP portfolio we have, and our ability to then take that and produce great games going forward, I feel fantastic," he said. "There's some amount of streamlining the team is doing, and Asha is doing, which is great to see."

Nadella acknowledged that finding the right business model remains critical. "We have to invent the right sustainable business model that allows us to deliver gaming to more and more people," he said. "That has always been the goal, which is we want to be a great publisher and a great platform provider for games across both PCs and Xboxes."

He expressed confidence that Xbox would return to growth in the coming fiscal year under Sharma's leadership, saying the team is "executing on" that plan "and in that process, do a bang-up job of producing some great games."

Nadella's comments arrived days after Xbox announced another 268 layoffs in September, marking the latest round of cuts since July when Sharma announced the division's largest restructuring ever, affecting 3,200 employees. That July announcement resulted in 1,600 immediate layoffs, though some studios including Double Fine and Compulsion Games were permitted to go independent.

The September cuts involved positions across studios and central teams. Microsoft said the changes, combined with studio divestitures and organizational moves, put the company roughly three-quarters through its previously announced restructuring. The changes included moving the Halo franchise under Activision's control, merging Playground Games and Turn 10, moving Obsidian under Bethesda, spinning off Undead Labs as independent, and moving Rare, World's Edge, and Halo under Activision.

Reports indicate Ninja Theory may also be closing, with significant layoffs affecting studios including World's Edge. Halo Studios has been hit particularly hard, with claims that only around 20 developers remain.

The restructuring reflects broader financial pressures on Xbox. In June, Microsoft said it expected to finish the fiscal year with an accountability margin of about 3%. Excluding Activision Blizzard King, the company stated it had invested more than $20 billion across content, platform, and hardware subsidies over five years while annual revenue declined by nearly $500 million.

Sharma said in July that the Xbox business was "not healthy" and was operating at margins 3 to 10 times lower than comparable platform and publishing businesses. She also noted that Game Pass, multi-platform distribution, and the wider content portfolio had not grown as quickly as Microsoft expected.

As part of finding sustainable economics, Xbox is making concrete changes to how services operate. Starting in November, Game Pass Ultimate will include 15 cloud gaming hours per month, Premium will include 10 hours, and Essential will include 5. Microsoft expects these limits to affect around 4% of Game Pass subscribers. Additional cloud hours can be purchased separately.

Xbox is also testing ad-supported cloud streaming for select owned games with one-hour session limits. The company said advertising can lower the cost of cloud access and described the test as a way to make gaming more affordable.

Following the July reset, Sharma told staff that Xbox targets returning to growth in both audience and revenue by the end of fiscal year 2027, which runs through June 2027. Microsoft also wants profitability to move closer to industry averages.