Xbox Announces Major Restructuring With 3,200 Job Cuts and Studio Divestitures

Microsoft is undertaking one of the largest reorganizations in Xbox history, announcing plans to eliminate approximately 3,200 positions during its 2027 fiscal year as the company works to strengthen the long-term performance of its gaming division. The restructuring will begin immediately, with roughly 1,600 employees leaving the company in the first wave, while additional reductions will take place over the coming months.

According to Xbox CEO Asha Sharma, the company must make significant changes after years of heavy investment that failed to generate the expected financial returns. In an internal memo to employees, Sharma explained that Xbox's current business model has produced substantially lower profit margins than comparable gaming platforms and publishers.

"We've invested heavily in studios and Game Pass, but those investments have not delivered the value we anticipated," Sharma said. "For every dollar invested, the business has been losing approximately 64 cents. At the same time, our core business weakened while we continued expanding our teams and spending. With the gaming industry facing one of the most difficult hardware markets in its history, it's time to reset Xbox."

Despite the restructuring, Sharma emphasized that Microsoft's vision for Xbox remains ambitious, with the long-term goal of reaching more than one billion daily players worldwide.

Four Studios Leaving Xbox

As part of the reorganization, Microsoft will divest several of its development studios.

Compulsion Games, known for South of Midnight, and Double Fine Productions, the studio behind Psychonauts and Kiln, will return to independent ownership under their current management teams. Both studios will retain their intellectual property, existing game catalogs, and funding for future projects.

Meanwhile, Ninja Theory and Undead Labs are being transferred to new ownership groups. Both studios are expected to continue collaborating with Xbox on upcoming titles, including Senua and State of Decay 3.

French developer Arkane Studios, currently working on Marvel's Blade, is also under review. Because of France's labor regulations, Microsoft has entered a formal consultation process to evaluate the studio's future. Arkane previously developed titles such as Deathloop and Redfall.

Greater Focus on Major Franchises

The restructuring also affects several of Microsoft's biggest gaming divisions, including Activision, Bethesda, ZeniMax, Blizzard, King, Mojang, and Xbox Game Studios.

According to reports, ZeniMax will increasingly concentrate its resources on blockbuster franchises such as Fallout, The Elder Scrolls, DOOM, Quake, and Wolfenstein, while reducing emphasis on smaller projects.

Sharma noted that Mojang and King will now report directly to her, citing their massive global player communities and strategic importance to Xbox's future growth.

At the same time, Microsoft plans to simplify its management structure by reducing layers of leadership and creating a more streamlined organization.

First Chief Operating Officer for Xbox

Another major leadership change is the appointment of Helen Chiang as Xbox's first-ever Chief Operating Officer.

Previously serving as Corporate Vice President of the Minecraft business, Chiang will oversee company-wide operations, including financial performance across Xbox content, hardware, platform services, and software development.

Investing for the Future

Although the restructuring includes significant layoffs, Microsoft insists the changes are intended to position Xbox for long-term success rather than reduce its presence in gaming.

"These decisions are about building a bigger future for Xbox—not a smaller one," Sharma wrote. "The next decade of gaming will be more global, more creative, and larger than anything we've experienced before. We will continue investing heavily in Xbox, but with greater discipline, sharper focus, and a clearer strategy."

The restructuring follows several recent strategic initiatives by Microsoft, including renewed emphasis on Xbox-exclusive titles such as Gears of War: E-Day, the return of the all-caps XBOX branding, and increased discussion surrounding Project Helix, Microsoft's next-generation gaming console, which is expected to offer deeper integration with PC gaming.

Sharma assumed leadership of Xbox in February after succeeding Phil Spencer, who spent years expanding Microsoft's gaming portfolio through major acquisitions and the rapid growth of the Game Pass ecosystem.