Xbox Lays Off 20% of Staff and Spins Off Multiple Studios in Major Restructuring

Microsoft officially confirmed plans to restructure its gaming division following a letter sent to employees by Head of Xbox Asha Sharma. The company will lay off 3,200 employees, representing 20 percent of its staff, during the 2027 fiscal year ending on June 30, 2027. Half of those affected will leave the corporation immediately. Sharma cited the division's dire financial state as the primary reason for the restructuring, noting that profitability is significantly lower than comparable platforms and that Xbox has been losing an average of 64 cents on every dollar invested in games.

Alongside the layoffs, several internal studios are separating from Microsoft. Compulsion Games and Double Fine Productions have regained their independence, taking their intellectual property with them alongside severance funding to assist in finding new publishers or investors. Ninja Theory and Undead Labs will also depart, with unknown market players agreeing to purchase them, though those studios will continue working on Senua and State of Decay 3 with financial backing from Xbox. The future of Arkane Lyon remains uncertain due to French labor law requirements, putting the status of Marvel's Blade into question.

Management structures are shrinking from 14 levels down to 3 to 5 levels, while Helen Chiang steps into a newly established Chief Operating Officer role. Mojang Studios and King will now report directly to Sharma to manage their massive daily active audiences. Despite the cutbacks, Microsoft does not plan to cancel previously announced games. Xbox is maintaining its Game Pass subscription service, which currently sits at 30 million subscribers, while targeting an ambitious long-term goal of growing the daily active audience across the entire Xbox ecosystem to one billion people.