Microsoft is laying off 1,600 game developers today and it is additionally also separating from five game studios as it makes cuts across the entire Xbox portfolio to deal with sinking sales. Over 3,200 positions will be eliminated in total in the fiscal year ending June 30, 2027.
Asha Sharma, CEO of Xbox, made the announcement on Twitter (X) today as the teams were told about the news.
“I recognize that a year-long restructuring creates additional challenges. Unfortunately, it is not possible to make all the necessarychanges in a single day, and I wanted to be direct about the scale,” Sharma said in the tweet.
She added, “I know this is painful. These changes will directly affect people who have poured their creativity into building XBOX. Many joined us through acquisitions, while others were recruited here, or sought us out because they loved this industry and loved XBOX. Today’s decisions do not reflect their talent or dedication.”
The studios separating include Arkane (Marvel Blade, Dishonored), Double Fine (Kiln, Keeper), Undead Labs (State of Decay 3), Compulsion Games (South of Midnight) and Ninja Theory (Senua). We also heard that Obsidian was also considered as a candidate for possible sale or closure, but we also heard that this decision was reversed, meaning Obsidian is not a candidate for closure.
Regarding the studios, Compulsion Games and Double Fine Productions will return to management and transition to independent studios with their IP, catalog, and runway for their next games. Ninja Theory and Undead Labs have entered terms to join new ownership with funding to complete and grow Senua and State of Decay 3. Those studios have 350 employees.
In France, Arkane’s management is beginning required consultation with its Works Council to review potential strategic options. We don’t have a head count number for Arkane’s total workforce.
In addition to the 1,600 Xbox layoffs today, Microsoft chief people officer Amy Coleman said there will be 3,200 more layoffs across all of Microsoft today. The total of 4,800 employees affected will be about 2.1% of Microsoft’s total workforce, which was 228,000 in the last filing.
In a statement, Coleman said, “Whenever possible, our priority is to place people into new roles aligned to the company’s highest priorities and greatest areas of opportunity. Over the past year, we have redeployed more than 4,000 employees into new roles, including another 500 this month. We will also transition four of our gaming studios to operate independently under new management, with the goal of preserving both their intellectual property and ongoing projects. In addition, more than 30% of eligible employees chose to participate in our recent voluntary retirement program, and we will continue exploring similar approaches in the future. While this doesn’t change the difficulty of today’s news, we will continue to do everything we can to create opportunities for our people, reduce the need for job eliminations where possible, and responsibly support those affected with care and respect.”
The affected employees will receive severance pay, healthcare will continue, and the company will try to find roles for those affected. Amir Satvat, the game jobs champion, said on LinkedIn he will host a job-hunting session on Wednesday from 9:00 to 11:00 PM ET for anyone who wants to join. He will walk through 50+ free job resources and take questions. You can attend on LinkedIn or Discord and hundreds have signed up already:
Sharma said the company tried to invest in indie game companies but foundered.
Sharma wrote, “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 said Xbox COO Dave McCarthy is retiring after 17 years with XBOX, and Helen Chiang of Minecraft management will now be COO, reporting directly to Sharma. Xbox currently has up to 14 management layers, and that is expected to be reduced to three.
On top of the separation from the five mentioned game studios, there are percentage cuts across the portfolio. It’s a consequence of Xbox’s slip in the games market amid a flurry of negative trends.
There were across-the-board cuts at a number of game studios among the 40 or so that the company owns. Overall, Xbox had perhaps 20,000 Xbox employees. Despite these job cuts, Xbox will still have a huge game business, with over 20 franchises that have made a billion dollars over their lifetimes. Since 2023, Xbox has already had more than 5,000 jobs eliminated in four different layoffs.
In her first hundred days, Sharma took decisive action on matters like getting rid of an unpopular ad campaign (“This is an Xbox”), cutting subscription prices and taking Call of Duty out of it, and keeping more exclusives for the the dedicated Xbox fans. But she saw a need to address bigger problems, hence the “reset” that is taking place today.
As word surfaced of big Xbox layoffs coming, Microsoft told studios that they were candidates for closure if they did not find an outside buyer or make their own bids to buy themselves out. If they did not succeed, their studios would be shut or severely cut. Luckily, the studios found alternatives, though the process with Arkane had to be based on French law so it’s just getting started.
Sharma said, “Our business today is not healthy. We are operating at margins that are 3–10x lower than comparable platform and publishing businesses. We entered Gen 9 with a smaller install base and a higher cost structure. To grow, we bet on Game Pass, multi-platform, and a broader portfolio of content. While those businesses have created meaningful value, they did not grow at the pace we expected. As that happened, our core business weakened, and we added more teams, more investment, and more time, hoping for a better outcome. And now the industry is facing the most severe hardware crisis in its history. We must reset XBOX.”
The job losses are happening as a result of multiple convergences of bad trends in games. First, Microsoft remains in distant third place in the console race, selling only 35 million Xbox Series X/S consoles since 2019, compared to 175 million for Nintendo’s Switch and Switch 2 and 93 million for Sony’s PlayStation.
In its previous quarterly report, Microsoft said revenues for Xbox were down 7%, but it also noted it was setting records for monthly active users. It foresaw a revenue decline in content and services in the low teens.
One of the big reasons for viewing this in a negative way is that Microsoft leaders probably expected better results from strategies that haven’t panned out yet, like the Xbox Game Pass subscription, which had to face a price cut and pull Call of Duty out of the base subscription. The results for cloud gaming and mobile games also haven’t moved the needle. At the same time, Microsoft has had to raise engineering costs to get Project Helix ready, and it has even taken the unheard of step (like Sony and Nintendo in the tariff era) of raising hardware prices, most recently by up to $150 — the third time it has done so.
You can expect that AI will change much of the picture for game development, with improvements in productivity that could speed creation and lead to permanent reductions in team size. But few believe that time is already here.
Activision had a weak year with Call of Duty: Black Ops 7 year, as it faced serious competition from Battlefield 6 and the brand-new franchise ARC Raiders. It won’t face the same competition this year on that front, and this year’s Call of Duty: Modern Warfare 4 is expected to be a much better game coming from the Infinity Ward studio as the lead. Call of Duty needs sustained investment as it takes around 3,000 or more people a year to make annual games. And this year, Activision is adding Call of Duty to the Nintendo Switch 2 platform. My impression is that Activision will get hit less than others.
For sure, Call of Duty will face serious competition this year from Grand Theft Auto VI, a game that has been in the works at Rockstar for around 13 years or so. It debuts like a juggernaut on November 19, 2026, and almost no other games are competing with it that month. But Microsoft gets a share of that business, as it will be published on Xbox platforms. Such a third-party game could lift Microsoft’s sales this year in the critical holiday season.
Most people may not realize how many people it takes to get a Call of Duty game out every year. Those games are multibillion-dollar sellers every year because they include enormous value for players. A single installment this year will include the single-player campaign for Cal of Duty: Modern Warfare 4, a multiplayer mode with a dozen maps at launch, a new DMZ extraction experience, and after launch a bunch of new content as well as likely new maps for Call of Duty: Warzone.
Here’s the full memo to staff from Asha Sharma:
Subject: Resetting XBOX
Team,
We are beginning the most significant restructure in XBOX history. After careful consideration, I’ve made the difficult decision to reduce our team by approximately 3,200 throughout FY27. This will include approximately 1,600 role eliminations today, and in addition, four studios will leave XBOX to new management. I recognize that a year-long restructuring creates additional challenges. Unfortunately, it is not possible to make all the necessary changes in a single day, and I wanted to be direct about the scale.
I know this is painful. These changes will directly affect people who have poured their creativity into building XBOX. Many joined us through acquisitions, while others were recruited here, or sought us out because they loved this industry and loved XBOX. Today’s decisions do not reflect their talent or dedication.
Our business today is not healthy. We are operating at margins that are 3–10x lower than comparable platform and publishing businesses. We entered Gen 9 with a smaller installed base and a higher cost structure. To grow, we bet on Game Pass, multi-platform, and a broader portfolio of content. While those businesses have created meaningful value, they did not grow at the pace we expected. As that happened, our core business weakened, and we added more teams, more investment, and more time, hoping for a better outcome. And now the industry is facing the most severe hardware crisis in its history. We must reset XBOX.
First, we will reset our content portfolio.
Since 2018, we have aggressively expanded our studio portfolio while the number of games created each month across the industry now outpaces the last ten years combined. We now find ourselves competing not only with the largest publishers, but also with smaller independent studios. 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.
Compulsion Games and Double Fine Productions will return to management and transition to independent studios with their IP, catalog, and runway for their next games. Ninja Theory and Undead Labs have entered terms to join new ownership with funding to complete and grow Senua and State of Decay 3. In France, Arkane’s management is beginning required consultation with its Works Council to review potential strategic options.
In addition, Mojang and King will now report directly to me. These two studios have increasingly become platforms and are our largest by monthly active players. They bring critical geographic, demographic, and differentiation to XBOX.
We are also making reductions across other units, and in some cases, shifting investment to focus on higher priority projects. These changes vary in size across Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and XBOX Game Studios. None of our first party publicly announced games or projects are being cancelled as part of these reductions.
Second, we will reset our platform.
We know that great technology gets better when it gets simpler, not bigger. Today, in some parts of the company, work passes through as many as 14 layers of management. Our platform teams are 40% larger than they were at the start of this generation, even as our player base and playtime have declined. That complexity has slowed decisions, blurred accountability, and made it harder to deliver for players. As we reset XBOX, we will simplify.
We will reduce management layers to no more than 5, and where possible, 3. We will deliver success through a flatter organization that is built around makers (individual contributors focused on building), player-coaches (leaders who remain deeply involved in the work while developing their teams), and directly responsible individuals (DRIs) who own key decisions and outcomes. And we will streamline how we work across our tools, with a cleaner code base, shared services, and 50% reduced vendor spend.
Third, we are resetting how we operate.
As XBOX grew our headcount, we became more fragmented. Teams, studios, and functions often operate independently, and it became harder to work towards a shared goal, make the right tradeoffs, and get things done.
For the first time, we are establishing a Chief Operating Officer with end-to-end P&L responsibility across content, hardware, platform, and services. Helen Chiang has been promoted to this role and will report directly to me. Over nearly two decades at XBOX, Helen has helped build some of our most important businesses, from XBOX Live to leading Mojang and the Minecraft franchise. She will bring our businesses together under one operating model, making sure we make clear investment decisions, learn from our successes and failures, and hold ourselves accountable for results.
Thank you, Dave McCarthy, who is retiring after 17 years with XBOX. Dave has played a defining role in building the platform that millions of players rely on every day and has been a trusted partner through many of the biggest moments in XBOX’s history. We wish him all the best.
These changes are about a bigger future for XBOX, not a smaller one. The next decade of gaming will be larger, more global, and more creative than anything we’ve seen before. This year, we’ll invest as much in XBOX as we ever have, but we’ll invest with greater focus, greater discipline, and greater clarity, all in service of making XBOX where the world plays and creates.
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.
History is full of companies that mistake longevity for inevitability. We will not be one of them.
Asha