Microsoft is laying off 4,800 employees today, with more than 30 percent of the job losses concentrated in its Xbox division. The cuts, described as an Xbox "reset" moment, will affect approximately 1,600 Xbox employees, according to an internal memo from Xbox CEO Asha Sharma. The restructuring extends through the end of the fiscal year in July 2027, with plans to eliminate about 20 percent of Xbox jobs overall.
Four Xbox Studios Return to Independence
As part of the cuts, four game studios are being spun off to operate independently from Microsoft. Double Fine and Compulsion Games are returning to their founders: Tim Schafer will take Double Fine back to independence, and Guillaume Provost will make Compulsion Games an indie studio again. Ninja Theory, the developer of Hellblade, and Undead Labs, the creator of State of Decay, are being sold to new owners, with agreements ensuring that Senua and State of Decay 3 continue development.
Sharma acknowledged the difficulty of the year-long restructuring: "I recognize that a year-long restructuring creates additional challenges. Unfortunately, it is not possible to make all the necessary changes in a single day, and I wanted to be direct about the scale." She added, "I know this is painful. These changes will directly affect people who have poured their creativity into building Xbox. Many joined us through acquisitions, while others were recruited here, or sought us out because they loved this industry and loved Xbox. Today's decisions do not reflect their talent or dedication."
Arkane Studios Under Review
Microsoft is also weighing the sale or closure of another studio: Arkane Studios, currently working on a Blade game under Xbox management. The project has been delayed and is running over budget. "In France, Arkane's management is beginning required consultation with its Works Council to review potential strategic options," said Sharma. These discussions could take months, leaving the fate of Blade and Arkane Studios uncertain.
Broader Impact Across Bethesda and Other Studios
Other Xbox studios will face layoffs across the board, with larger cuts expected at Bethesda studios in particular. Minecraft maker Mojang and Candy Crush developer King will now report directly to Sharma. "These changes vary in size across Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and Xbox Game Studios," said Sharma. "None of our first party publicly announced games or projects are being cancelled as part of these reductions."
Strategic Shift Away from Indie Acquisitions
The cuts appear aimed at reversing some of the smaller studio acquisitions made by former Xbox chief Phil Spencer to compete with Xbox Game Pass. Microsoft is now aligning around bigger franchises instead of competing with indies. "We now find ourselves competing not only with the largest publishers, but also with smaller independent studios," said Sharma. "It is neither possible nor desirable to own every great independent studio. We have also learned that we are not the best home for every type of studio; in a typical year, we lost 64 cents for every dollar we invested. As we reset Xbox, we will help independent creators succeed by providing open development tools and audiences to realize their vision."
Full Memo from Xbox CEO Asha Sharma
Sharma's full memo outlines the three-part reset: content portfolio, platform, and operations. The memo notes that Xbox's business is "not healthy," with margins 3-10 times lower than comparable platform and publishing businesses. The company plans to reduce management layers to no more than five, streamline tools with a 50 percent reduced vendor spend, and establish a Chief Operating Officer role, filled by Helen Chiang. Dave McCarthy is retiring after 17 years at Xbox. Sharma concluded, "History is full of companies that mistake longevity for inevitability. We will not be one of them."
