Following speculation surfacing in June, Xbox has officially initiated a sweeping workforce reduction. Prior reports indicated that several prominent studios—including South of Midnight developer Compulsion Games, Double Fine, Ninja Theory, Undead Labs, and Arkane—were facing potential closure or divestment under a broad restructuring plan.
The transition into July has confirmed these projections. On Monday, CEO Asha Sharma announced that Xbox is cutting over 1,600 positions, with a total of 3,200 layoffs planned throughout the current fiscal year. Describing the move as the most significant reorganization in the company’s history, Sharma admitted in an internal memo that the business is currently “not healthy.” Microsoft, the parent company, confirmed a total reduction of 4,800 staff members on Monday alone.
As part of this shift, Compulsion Games and Double Fine are transitioning into independent entities, retaining their respective intellectual property and back catalogs. Similarly, Ninja Theory and Undead Labs are being moved to new ownership, with secured funding intended to ensure the completion of Senua’s Saga: Hellblade 2 and State of Decay 3. Specific details regarding which entities will acquire these studios remain undisclosed.
Meanwhile, the future of Arkane remains uncertain, as leadership has entered mandatory consultations with its Works Council to evaluate strategic alternatives. Speculation persists that the studio could face closure, potentially jeopardizing the development of Marvel’s Blade, which is reportedly struggling with budget overruns and timeline delays.
These cuts extend across the entire organization, affecting Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and the broader Xbox Game Studios division. Despite these reductions, Sharma stated that no previously announced first-party titles are being canceled.
“We are currently competing against both industry giants and nimble independent studios; it is neither feasible nor desirable to hold onto every developer,” the memo read. This marks a radical departure from the aggressive acquisition strategy pursued under former CEO Phil Spencer. “We’ve learned that we aren’t the ideal home for every studio—in a standard year, we have been losing 64 cents for every dollar invested.”
Management structures are also being pruned, with the company consolidating 14 layers of management down to three or five to address what Sharma identified as bloated platform teams that have hindered decision-making and accountability.
Despite the current instability, Sharma maintains an ambitious long-term vision, aiming to reach over a billion daily users. “I am confident we can reach this objective,” Sharma noted, citing the strength of Xbox’s storied franchises and its global studio talent as drivers for a return to growth by 2027.
Image: Ninja Theory/Xbox Game Studios
These layoffs represent a stark reversal of the optimism that followed Sharma’s appointment. The new CEO initially attempted to build rapport with the community through initiatives like “Player Voice,” a rebranding effort, and the firm commitment to keeping major titles as console exclusives. However, those gestures have been overshadowed by recent news, alongside a third round of hardware price hikes in just 13 months. Effective August 1, the entry-level Xbox Series S will rise to $499, while the Series X will climb to $799—a significant increase from their 2020 launch prices.
The current turbulence follows the company’s “Next 100 Days: Xbox Reset” memo, which warned employees that “we won’t succeed by hiding hard truths.” One month later, the reality of that reset is being felt across the entire gaming division.
Microsoft should get out of games before it does more damage
Xbox should never have bought the studios it keeps closing
Source: Polygon
