Xbox axes 3,200 jobs and spins off four studios in historic overhaul

Microsoft announces sweeping Xbox cuts on Monday 7 July 2026

Microsoft confirmed on Monday that it is immediately eliminating 4,800 jobs across the company — 2.1% of its global workforce — in its latest round of cost-cutting. Of those, 3,200 roles sit inside the Xbox division, representing 20% of its entire headcount and making this the largest single restructure in the gaming unit's history.

Xbox CEO Asha Sharma, who took over from Phil Spencer in February this year, sent a memo to division staff — subsequently published on Xbox Wire — describing the scale of what is under way. Half the Xbox job losses, around 1,600 positions, took effect immediately. The remaining 1,600 will follow across fiscal year 2027, which runs from 1 July 2026 to 30 June 2027. Sharma also noted that up to a further 1,250 employees could be let go over the next twelve months, bringing the projected total to 3,200. A separate 3,200 layoffs at Microsoft outside Xbox — largely in sales divisions — are happening concurrently.

Four studios sold or returned to independence

Beyond the headcount reductions, four Xbox-owned studios employing roughly 350 people between them are being divested. Ninja Theory, the Cambridge studio behind the Hellblade series, and Undead Labs are both due to be sold to as-yet-unnamed buyers, with contracts still pending. Compulsion Games and Double Fine Productions will be returned to their existing management teams, regaining independence along with their game catalogues and future revenue.

The news about Ninja Theory carries a particular sting. The studio had already been informed on 15 June — just nine days after its developers appeared at the Xbox Games Showcase to announce a new Hellblade entry — that it was being closed. The divestment process now means it could survive under new ownership, but the outcome remains uncertain.

Arkane Studios is also in the frame, though Microsoft has not confirmed specifics. Sharma stated that "in France, Arkane's management is beginning required consultation with its Works Council to review potential strategic options." Separate reporting, which Microsoft has not verified, suggests Arkane Lyon — the team behind Dishonored and Deathloop — could face closure, with the superhero action game Marvel's Blade, already delayed from 2026 to late 2027, potentially cancelled outright.

The cuts continue a brutal run for Xbox-owned studios. Tango Gameworks, Alpha Dog Games, Roundhouse Studios, Toys for Bob and Arkane Austin were all shuttered or spun out in 2024. Counting those earlier closures alongside this latest wave, around 32% of the studios acquired under Phil Spencer's tenure have now gone.

Sharma's diagnosis: "Our business today is not healthy"

Sharma's memo was unusually candid. "Our business today is not healthy," she wrote, adding that Xbox is operating at margins three to ten times lower than comparable businesses. She attributed the crisis to a confluence of factors: a bet on Game Pass and multi-platform that did not grow as projected, an accumulation of teams and investment that worsened rather than reversed the decline, and what she called "the most severe hardware crisis in its history" — a shortage of DRAM memory chips driven by AI infrastructure buildout that has pushed console component costs to multiples of their 2025 levels.

"In a typical year, we lost 64 cents for every dollar we invested," she wrote. The figures behind that admission are stark: despite investing over £20 billion in content and hardware over five years (excluding Activision Blizzard), annual revenue reportedly declined by nearly half a billion dollars. Microsoft's most recent financial results showed a 7% fall in quarterly gaming revenue, including a 33% drop in Xbox hardware sales.

Game Pass is central to the story. The subscription service stands at around 30 million subscribers — having shed 4 million users since 2024 — against a target of 77 million by 2026. Two successive price increases, the most recent adding $10 a month or $120 a year, did not help. Xbox chief strategy officer Matthew Ball acknowledged the hikes decreased subscriber numbers by millions "over a span of a few months."

Leadership shake-up and a leaner structure

Alongside the job cuts, Sharma is restructuring how Xbox is run. Helen Chiang has been promoted to chief operating officer — the first time Xbox has installed someone in that role — taking "end-to-end P&L responsibility across content, hardware, platform and services." Existing COO Dave McCarthy is leaving the company. Leadership at Mojang and King will now report directly to Sharma.

Management layers are also being cut hard. In some cases, work at Xbox currently passes through up to 14 layers of management, with platform teams 40% larger than at the start of this console generation. Sharma said Xbox "will reduce management layers to no more than 5, and where possible, 3."

The content strategy is being tightened around a smaller set of franchises: Halo, Gears, Forza, Fallout, Call of Duty and The Elder Scrolls will receive increased investment and be held to explicit commercial standards. Sharma confirmed that "none of our first party publicly announced games or projects are being cancelled as part of these reductions," with Fable, Gears of War: E-Day, Clockwork Revolution, Call of Duty: Modern Warfare 4, Minecraft Dungeons 2 and The Elder Scrolls 6 all continuing in development.

Gears of War: E-Day remains on course for 6 October — confirmed as an Xbox and PC exclusive after a last-minute reversal from a planned PlayStation 5 release — and the limited-edition translucent Xbox Series X25 console is still scheduled for November 2026.

"History is full of companies that mistake longevity for inevitability," Sharma wrote. "We will not be one of them."