Microsoft Confirms Mass Layoffs, with XBOX Losing 3,200 Employees as Studios Are Sold or Become Independent

Microsoft announced this Monday a sweeping round of layoffs that will eliminate 4,800 positions across the company, with the vast majority concentrated within its XBOX gaming division. The cuts mark the beginning of a profound restructuring that leadership says will permanently reshape XBOX Game Studios.

Asha Sharma, head of XBOX, confirmed that the restructuring will involve divesting several internal development teams, while others will be granted independence and separated from the XBOX umbrella. This move is part of a broader operational overhaul designed to confront one of the most severe crises in the company’s history.

Microsoft Will Lay Off 4800 Employees, Mostly from XBOX

According to a statement from Amy Coleman, Microsoft’s executive vice president and chief human resources officer, the layoffs will affect approximately 4,800 employees or 2.1% of the company’s global workforce. While the cuts span multiple departments, the heaviest impact will fall on Microsoft’s sales organization and the XBOX division, with 1,600 positions eliminated effective immediately and the remaining reductions will be carried out over the course of fiscal year 2027.

Sharma did not mince words about the urgency of the situation, stating that XBOX’s current business model is “not healthy” and operates with profit margins three to ten times lower than those of comparable industry peers. She also acknowledged that flagship initiatives such as Game Pass and the company’s multiplatform publishing strategy have underperformed, failing to grow at the pace executives had projected.

To address these shortcomings, XBOX will streamline its organizational structure by drastically reducing the number of management tiers from as many as 14 layers of approval for certain projects down to a maximum of 5 or 3.

The company has also created a new Chief Operating Officer position with full authority over content, hardware, platform, and services, to be filled by Helen Chiang, formerly head of the Minecraft franchise. Chiang’s mandate is to unify XBOX’s diverse business units under a single operating framework, ensuring alignment across all departments toward shared objectives.

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

Which Studios Have Been Affected by Layoffs?

Sharma noted that XBOX had expanded aggressively since 2018, but that growth failed to deliver the anticipated returns, necessitating a recalibration of XBOX Game Studios.

The layoffs will result in significant workforce reductions across major subsidiaries including Activision Blizzard King, Bethesda, and Mojang Studios, though the company stressed that no publicly announced game projects would be canceled. Investments will instead be redirected toward higher-priority initiatives within those organizations.

In a sign of their strategic importance, Mojang Studios and King will now report directly to Sharma, as internal data indicates they offer “a crucial geographic, demographic, and differentiation advantage” for the XBOX brand.

XBOX to Sell Several Studios While Others Will Become Independent

Contrary to earlier reports suggesting studio closures, none of XBOX’s development teams will be shuttered immediately. However, the studio portfolio will shrink: Compulsion Games and Double Fine Productions will revert to independent status, as they no longer align with XBOX’s current strategic vision. Meanwhile, Ninja Theory and Undead Labs will be sold to new owners, who will assume responsibility for funding their upcoming titles, Senua and State of Decay 3, respectively.

The fate of French studio Arkane remains undecided; management is currently consulting with its works council to evaluate potential options, which could include a change of ownership or a full separation from XBOX.

“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,” Sharma explained.

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