In the most significant restructuring in its history, Microsoft’s gaming division, Xbox announced plans to cut 3,200 jobs – approximately 20% of its total workforce – over the 2027 fiscal year.
The move follows a period of financial instability for the company with 1,600 positions being eliminated immediately and the remainder occurring throughout the coming year.
Xbox CEO Asha Sharma addressed the workforce in a candid memo, stating, “Our business today is not healthy.” She highlighted that the division has been operating at margins significantly lower than its peers, noting, “In a typical year, we lost 64 cents for every dollar we invested.”
According to Sharma, the goal is to “reset” the division, simplify its structure and move away from complex bloated management layers that she claims grew to as many as fourteen in some areas.
A major studio shake-up
As part of this massive consolidation, five game studios are being removed from the Xbox ecosystem. Compulsion Game and Double Fine are returning to independence, retaining their intellectual property and catalogs.
Ninja Theory and Undead Labs have reached terms to join new ownership with secured funding to finish current projects like “Senua” and “State of Decay 3”.
Meanwhile, Arkane Lyon has entered a formal consultation process to review its future. Sharma emphasized that while this is a official transition, the strategy is necessary, noting, “It is neither possible nor desirable to own every great independent studio.”
Focusing on efficiency
The restructuring aims to flatten the organization reducing management levels to no more than five. The company intends to shift its focus toward higher-priority projects and a more disciplined investment model.
“These changes are about a bigger future for Xbox, not a smaller one,” Sharma insisted. “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.”
The human impact
Acknowledging the severity of the situation, Sharma expressed the difficulty of these decisions. “I know this is painful,” she wrote. “These changes will directly affect people who have poured their creativity into building XBOX. Today’s decisions do not reflect their talent or dedication.”
Despite the cuts, the company clarified that no publicly announced first-party games are being canceled and it remains committed to its core franchise as it attempts to steer toward profitability in 2027.
