Microsoft has confirmed a major "reset" of its Xbox business, announcing plans to lay off 3,200 employees over the next financial year. The process begins today with 1,600 immediate redundancies and the departure of five high-profile studios from the Xbox portfolio.
As part of this restructuring, Double Fine and Compulsion Games are returning to management as independent studios, retaining their intellectual property and current catalogs. Ninja Theory and Undead Labs have entered into agreements to join new, unnamed owners, with funding secured to continue development on Senua and State of Decay 3 respectively. The situation for Arkane remains uncertain, as the studio's management is currently in the midst of required consultations with its works council to determine the company's future.
A Business Under Pressure
CEO Asha Sharma outlined the reasoning for these cuts in a post on Xitter, citing a business that is "not healthy" and operating at margins significantly lower than those of comparable publishing entities. According to Sharma, Microsoft entered the current console generation with a higher cost structure and a smaller install base than anticipated. While the company pivoted to focus on Game Pass, multi-platform releases, and a broader content portfolio, these areas did not achieve the expected growth rates.
"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," Sharma stated. The company is now moving away from its previous strategy of aggressive studio acquisitions, acknowledging that it is "neither possible nor desirable to own every great independent studio."
Operational Changes
Beyond the studio spin-outs, Microsoft is implementing a flatter management structure, targeting a reduction to no more than five management layers—and ideally three—across its operations. The company also intends to streamline its code base and reduce spending on third-party vendors by 50%.
To manage this transition, Helen Chiang, the former head of Mojang, has been appointed as chief operating officer to oversee content, hardware, platform, and services. Despite the scale of the layoffs, which impact teams across Activision, Bethesda/ZeniMax, Blizzard, King, and Mojang, Microsoft emphasized that no publicly announced projects are being cancelled.
The studio spin-outs alone account for approximately 300 of the total job losses. For now, the future of the impacted teams remains the primary concern as they navigate the transition out of the Xbox ecosystem.