XBOX CEO announces sweeping cut, confronting years of unsustainable growth
Microsoft is undertaking its most significant restructuring of XBOX yet, revealing plans to eliminate around 3,200 positions across its gaming division over the next year, with 1,600 job losses taking effect immediately.
In an internal memo sent to staff Monday, XBOX CEO Asha Sharma described the changes as a necessary reset for a business that has been struggling with an unsustainable model for some time. She pointed to profit margins that are dramatically lower than those of comparable platform and publishing companies, and mounting costs that outpaced revenue growth.
The company also bet heavily on the Game Pass Ultimate subscription service to drive expansion. While the focus on streaming generated value, it didn't deliver the rapid growth executives had anticipated. Instead, the core business weakened even as the company continued to add teams and investment. That approach, combined with a brutal hardware market downturn, has left XBOX in a precarious position.
As part of the overhaul, several studios are moving out from under Microsoft's umbrella. Compulsion Games, the studio behind South of Midnight, and Double Fine Productions, creators of the Psychonauts series, will transition to independent operations. They'll retain their intellectual properties and receive runway to develop their next titles. Ninja Theory and Undead Labs are heading to new owners with funding to complete and expand key projects, including the next Senua adventure and State of Decay 3. In France, Arkane Studios—currently developing Marvel's Blade—has begun consultations that could lead to a sale or spin-off.
The cuts are also affecting teams across Activision, Bethesda, Blizzard, King, Mojang, and XBOX Game Studios. Microsoft has stressed that none of its publicly announced first-party projects, including the new Fable, Gears of War: E-Day, Clockwork Revolution, or The Elder Scrolls 6, are being cancelled.
On the operational side, Sharma outlined efforts to reduce layers of management, which in some areas had ballooned to as many as 14, and create a flatter structure focused on developers and clear decision-makers. Mojang and King, home to massive player communities through Minecraft and Candy Crush, will now report directly to her. Helen Chiang has also been promoted to chief operating officer, giving her end-to-end responsibility across the division.
This latest wave of job losses follows a major round of cuts last year that eliminated thousands of positions and led to several project cancellations. Sharma noted that many affected employees had poured years of creativity into XBOX, whether through acquisitions or by joining because they believed in the platform.
The restructuring is framed as a painful but essential step toward long-term health. Microsoft says it will maintain strong investment in XBOX this year, but with greater discipline and focus, aiming to return to growth in 2027 and position the platform as a leader in a rapidly evolving gaming landscape.
