Monday, July 6th 2026
Xbox To Lay Off 3,200 Workers in "Year-Long Reset"
Following recent rumors of the same, Xbox CEO, Asha Sharma announced on July 6 that Microsoft's gaming division would be cutting its workforce by as much as 20% in the 2027 financial year as part of a year-long restructuring at Xbox. The layoffs started with 1,200 employees on the day of the announcement, and Sharma blames the layoffs on declining Xbox revenue, stating that "our business is not healthy," and that Xbox is "operating at margins that are 3-10× lower than comparable platform and publishing businesses." She goes on to acknowledge that Xbox sales for the Series X|S console generation has been low, and that Xbox used Game Pass, multi-platform launches, and an expanded content portfolio as an attempt to compensate for the low install-base and in order to grow the brand's presence.
As part of the plan to "reset" Xbox, Sharma confirmed that Compulsion Games and Double Fine Productions will become independent studios, while Ninja Theory and Undead Labs will be bought out and have started the acquisition process to be bought out by new ownership, where Senua and State of Decay 3 will continue development. Xbox is also looking to cut Arkane Lyon loose, although it doesn't seem as though a definitive plan has been put in place yet. Unspecified changes are also coming for Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and Xbox Game Studios, but Sharma has promised that these changes will not impact publicly announced first-party games. The restructuring will also result in a simplification of management at Xbox, with management layers reduced to a maximum of five and three where possible. Sharma claims that the "flatter organization" will help build success at Xbox, and she plans a "50% reduced vendor spend," across the company.
Meanwhile, leading up to the announcement of the layoffs, the Communications Workers of America union has responded to the incoming layoffs, announcing upcoming action and potentially a strike relating to the layoffs, with unionized workers stating that they "will not be treated as disposable." It remains to be seen how the union and Microsoft's negotiations play out and if there will be any lasting impact on the restructuring.
Sharma's full statement follows:
Source:
Asha Sharma on X
As part of the plan to "reset" Xbox, Sharma confirmed that Compulsion Games and Double Fine Productions will become independent studios, while Ninja Theory and Undead Labs will be bought out and have started the acquisition process to be bought out by new ownership, where Senua and State of Decay 3 will continue development. Xbox is also looking to cut Arkane Lyon loose, although it doesn't seem as though a definitive plan has been put in place yet. Unspecified changes are also coming for Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and Xbox Game Studios, but Sharma has promised that these changes will not impact publicly announced first-party games. The restructuring will also result in a simplification of management at Xbox, with management layers reduced to a maximum of five and three where possible. Sharma claims that the "flatter organization" will help build success at Xbox, and she plans a "50% reduced vendor spend," across the company.
Sharma's full statement follows:
This is an important email I sent today to all employees at 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 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.
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.
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.
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.
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
34 Comments on Xbox To Lay Off 3,200 Workers in "Year-Long Reset"
Holy hell. No wonder Xbox was floundering. That cleaver should have been swung a decade ago!
As if when Robbie and Don were there, these issues from within existed.
So much so that the XBOne flopped and nobody went like "let's sack everyone, BUT the CEO, COO and CFO". Nope, just Don and part of the marketing team, mostly.
Regards,
Fred.
I'm not convinced that the promotion of Helen is a good thing, while Minecraft is/was? popular, they need more people who know what a good game is, and not pigeon hole themselves into one genre of games, Mojang is a one trick pony so far, their other titles were garbage
Gamers are not willing to pay for overpriced gaming console, for overpriced crappy games, for overpriced accessories, for overpriced subscriptions, etc.
Those idiots are always failing to understand that the world is not only USA, but there are 8 more billion other people out there, witch, obviously, sees no value in purchasing the console , nor the games for it.
For a trillion $ company, Microslop sure has some overly incompetent management.
This was the first step on their attempt to phase out physical media, which was met with extreme backlash back in 2013. Sony decided to put their own DRM plans on hold to capitalize on the opportunity, which made the PS4 nearly universally successful, prestige which the PS5 also continued to enjoy to this day.
Xbox never recovered from this incident, not even after the efforts of Phil Spencer and Game Pass. Now that people are way too invested on the PlayStation ecosystem, Sony announces the retirement of physical media with the same intentions Microsoft had back in the day: eliminate the competition posed by the used game market and losses generated by retail copies selling below the intended price.Flush a turd, and the water coming back in is just as muddy... I have below zero faith in this woman.
Gamers have been some of the biggest consooomers out there, which is why the industry was able to degrade to this point. Sure, SOME have stopped, but many have not, and continue to shell out $70, 80, or for GTA VI $100 for a single game.This is prime Dunning Kruger material. If there are 8 billion people out there that see no value in purchasing the console....then why on earth would MS or Sony try to appeal to them?
I'm not even sure where you got this insane idea from. PSN is available in 73 different countries. Both Microsoft and Nintendo officially support 50. Gaming has never been more widespread of a hobby. All of them have a large void in terms of support for Africa, however if your local currency has no purchasing power on the world stage, then yeah, companies are not going to expend billions of dollars to support a country that collectively makes less then a single game. The other two notable exceptions are China and India, Nintendo has no support, Sony supports India, but has seen very little success (see the currency issue) and a limited chinese only version, and Xbox fully supports both, but has also seen little in the way of success in either country.
Gaming has never been USA centric. Even in the earliest days of video games you had European countries screwing around with various home PCs and Asia had Nintendo playing with early consoles. Both US centric console makers have had spectacular failures (atari and microsoft).
I think, rather then calling people idiots, you should do some research on the actual availability of gaming globally.I agree they do. Especially in the xbox division. Thankfully most are getting the door now.The death of the Xbone was largely overblown. The console shifted 58 million units. Not 360 tier, but still far above the og xbox and plenty enough to support a strong console library. They also had a number of big software hits during this time, the Froza games, state of decay 2, halo MCC, and Grounded all did very well.
What killed the Xbone wasnt Mattrick. He didnt help. The one didnt really die, it outsold the current series consoles 2:1. But it did start the trend of underperforming low quality sequels (halo 4/5, halo wars 2, gears 5) and poor OG work that didnt sell well (sunset overdrive, sea of thieves). Thsi began to undermine consumer's confidence int he brand.
However, I've long maintained that the xbox 360 was a total fluke. It arrived a year before the competition, was far cheaper, and had a better online service. In the end, it couldnt keep up, relying on paid exclusivity to keep the brand strong, but still ending up in last place behind Sony and Nintendo's console sales due to their much stronger software lineup. The writing was on the wall even back then, xbox had little to promote itself outside of Halo. Had the PS3 been easier to program for and not cost as much as a used car to build, the 360 never would have succeeded the way it did.
Their market grab of so many developers was an attempt to correct this serious issue, one that completely backfired because MS sucks at managing gaming companies, and they blew billions buying studios that were has beens, with the OG talent largely gone. Now we know better, that studio names simply dont matter anymore.I have no idea where you are going with this line. So far we've seen her willing to cut the fat that Phil refused to cull, even as they lost billions, and willing to make small changes to the brand that fans desire. It's not much, but its a HUGE leap from what we had.
As they acquired studios, they also assigned managers to manage them. Then needed managers to manage those managers, then as they got more studios, you needed managers to manage the managers managing the studios. And on and on it goes, with everyone abdicating responsibility anywhere they could, creating a Soviet style game of telephone where you needed 18 signatures to buy groceries. This likely played a major role in these studios' failures, getting anything done was a bureaucratic nightmare.
So long as XBL and Halo/Gears kept printing money, and the software sales flowed, this wasnt an issue. But once the series consoles failed to sell and that sweet 30% margin came under fire from lack of volume, suddenly they had a major problem on their hands, tried to pivot, and faceplanted.How many Playstation 4s are in use? It's just as irrelevant of a strawman argument.Xbox one had multiple large sellers. Grounded sold 4.5 million. Halo 4 11 million. forza 4 sold 10 million, fastest selling in the series to date.
Clearly people didnt just buy these things to use as doorstops. The xbone wasnt a failure, despite people on tech forums wishing it was.As opposed to Phil, who WAS a gamer, had long worked int he industry, worked his way up the chain, and got us into this disastrous mess.
I don't think it was a "failure", but it clearly did not have the shine of the Xbox 360, so that's very important to acknowledge.
Sure you might not like what Phil did there. Layoffs and dealing with cruft for a guy who's about to retire, I don't blame him for not going down that rabbit hole. Asha is a businesswoman at most. She is not a gamer and I do not trust anyone but gamers to run gaming companies, it just makes sense: publishers and the "suits" are our eternal enemies, and we just have to live with them because they're the ones with the money to run game studios. It's a love-hate relationship which is more hate than love, and when businesses start businessin', if you catch my drift, it becomes directly antithetical to fun.
nuff said.
There's a straight line from the state of Xbox today back to the ABK acquisition along with increased ai spend by Microsoft. The ink hadn't even dried and the cancelations started with a side of layoffs. Upper management decided it had to be paid for and didn't care how it happened. It was apparent Spencer's wings had been clipped and most of what followed was bad. The highlights being reduced hardware contracts (causing them to raise prices first), studios being cut free, constant price increases for game pass and high profile cancelations (my favorite of which being the Destiny-esque shooter that was getting universal praise).
Spencer was hardly perfect, but he had a clear direction on where to take the business. If gaming as a service was to revitalize the business they needed lots of games not just big profit centers. From the outside looking in it seemed like his biggest failings were leaving studios (and publishers) to their own devices after acquisition and putting literally everything on game pass without any restrictions.
I'm not going to speculate too much on how things would look without upper management's meddling, but I'm pretty confident the state of Xbox wouldn't be so dire.
Sure, it's not on par with the 360, but I never said it was. It's be a bit like asking how many people were playing on the og Xbox in 2014.
Yes, the ps4 sold more and so did it's software, but this does not address the topic, which is that sales wise, the Xbox one was not a failure. It's not a zero aum game where only one can succeed.You guys keep saying you want gamers to run companies. Being a gamer does not make you an intelligent businessman.
Every complaint you just listed occured to Xbox game studios under phil, a LIFELONG GAMER.
Let's be honest here: these studios all failed. They had gone a decade without producing anything good or succ awful. A decade these developers were paid to not put out product. This is not the fault of AI, or corpo greed. At some point, you gotta cut the rotten flesh hanging off of the company.
Now if they were laying off mojang, or blizzard, then you'd have a point. I already wrote up before how poorly all these studios have done. And most of these 3200 layoffs are the middle management that don't make games. All the studios combined barely hit 600 people.
Well... At least the shareholders are happy for a moment.
It seems like all of these mega corporations are poised to repeat the exact same pattern: make a ton of money -> make eye watering acquisitions that do not generate revenue -> ??? -> fire everyone and end up in the gutter. Are they all cursed or something ?