Xbox cuts 3,200 jobs and sells five studios in biggest ever shake-up

Xbox announces largest restructure in its history

Xbox CEO Asha Sharma confirmed on 6 July 2026 that the gaming division is undergoing what she described as "the most significant restructure in Xbox history," cutting approximately 3,200 jobs and offloading five studios as it attempts to return to profitability by 2027.

The announcement, made via a memo sent to all Xbox employees globally and simultaneously published on Xbox Wire, confirmed that 1,600 of those redundancies took effect immediately, with the remainder scheduled across the following quarters of fiscal year 2027. The Xbox cuts form part of a wider Microsoft reduction of 4,800 roles — roughly 2.1% of the company's global headcount — with a further 3,200 roles outside Xbox, largely in Microsoft's sales divisions, also affected.

In stark terms, the 3,200 Xbox job losses amount to around one in five of the division's entire workforce.

Five studios face sale or independence

Four studios will be sold or returned to independent management: Ninja Theory, Undead Labs, Compulsion Games, and Double Fine Productions, which collectively employ approximately 350 people.

Cambridge-based Ninja Theory — creator of the Hellblade series, and the only Xbox studio based in the UK — finds itself in a particularly turbulent position. The studio had already been told on 15 June that it was closing outright, just nine days after its developers appeared at the Xbox Games Showcase to announce a new entry in the series called Senua. Microsoft has since arranged a deal with a new owner, though that buyer has not yet been named and is expected to be revealed later this year.

Undead Labs, developer of the State of Decay series, is in a similar situation: a sale to an undisclosed buyer is pending, and Xbox says it has arranged dedicated funding specifically so the studio can finish State of Decay 3 under its new ownership. Whether that title will remain an Xbox and Game Pass exclusive once the handover is complete has not been confirmed.

Compulsion Games, which made South of Midnight, and Double Fine Productions, the Psychonauts studio founded by Tim Schafer, will be returned to their respective management teams as independent studios. Both will retain their intellectual property and current projects.

A fifth studio, Arkane Lyon in France — best known for Deathloop and currently developing Marvel's Blade — is subject to a separate process. Due to French labour law, Microsoft was required to begin a formal consultation with the studio's Works Council before any divestment can proceed. Sharma's memo stated the studio is "beginning required consultation with its Works Council to review potential strategic options." The fate of Marvel's Blade, already delayed from 2026 to late 2027, remains uncertain and has not been officially confirmed either way by Microsoft.

What Sharma's memo actually said

The candour of Sharma's public memo was striking. She did not dress the announcement up in corporate euphemism:

"Our business today is not healthy. We are operating at margins that are [three to 10 times] lower than comparable platform and publishing businesses… We must reset Xbox."

"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."

Despite that bluntness, Sharma was emphatic that the restructure is not a managed decline: "These changes are about a bigger future for Xbox, not a smaller one," she wrote, adding: "We will return to growth in 2027."

Management overhaul: from 14 layers to five

The restructure goes well beyond headcount. Xbox will cut vendor spending by 50% and dramatically flatten its management structure, reducing layers from as many as 14 to no more than five. Helen Chiang, a nearly two-decade Xbox veteran who led Mojang and the Minecraft franchise, has been appointed to the newly created role of Chief Operating Officer. Dave McCarthy, a 17-year Xbox veteran instrumental in building the platform, is retiring.

In a notable internal signal about strategic priorities, both Mojang Studios and mobile games giant King will now report directly to Sharma. Internal data, according to the memo, indicates the two studios offer "a crucial geographic, demographic, and differentiation advantage" for the Xbox brand.

The financial picture behind the cuts

The numbers underpinning the restructure are sobering. Despite investing over $20 billion in content and hardware across the past five years — excluding the Activision Blizzard acquisition — Xbox's annual revenue fell by nearly half a billion dollars. Microsoft's latest quarterly report showed a 7% drop in overall gaming revenue, including a 33% collapse in Xbox hardware sales and a 5% decline in content and services.

Xbox is on course to close fiscal year 2026 at a profitability margin of around 3% — well short of the roughly 30% Microsoft expects from its major divisions. Sharma also cited a DRAM shortage driven by AI infrastructure demand, which has pushed key hardware component costs to multiple times their 2025 levels, hampering the company's ability to manufacture enough consoles for the coming holiday season.

Xbox chief strategy officer Matthew Ball separately noted that a Game Pass price hike cost the service millions of subscribers in a matter of months. Sharma subsequently reversed course, cutting prices, scrapping the AI Gaming Copilot feature for consoles, and reviving exclusives such as Gears of War: E-Day.

A narrower, more focused Xbox going forward

Going forward, Xbox will concentrate investment on a tighter roster of flagship franchises: Halo, Gears, Forza, Fallout, Call of Duty, The Elder Scrolls, and Minecraft. Sharma's memo stated that no first-party publicly announced games or projects are being cancelled as part of these reductions — though Arkane Lyon's situation means that assurance carries an asterisk.

The restructure is the fifth distinct wave of Xbox job losses since Microsoft completed the Activision Blizzard acquisition in October 2023. Xbox has moved progressively from broad efficiency cuts to shuttering whole studios, and now to actively selling off parts of the business it spent years and billions of dollars assembling. Whether the reset delivers the growth Sharma is promising by 2027 remains, for now, an open question.