Xbox’s expected cuts are here, as CEO Asha Sharma delivers on previous warnings that “hard decisions” were on the way.
Microsoft’s gaming division is joining broader cuts at the firm, which will see thousands of roles eliminated from across the company in the near to medium term. Preliminary sourcing suggests the initial wave will see 1,500 staffers impacted at Xbox alone, with a total of 3,200 through FY27.
In an email to staff, Xbox CEO Asha Sharma described how Xbox is currently losing 64 cents for every dollar invested in the current climate.
“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.”
As part of the cuts, Microsoft has reached deals with four studios to either go independent or join new management, saving them from closure.
Compulsion, known for South of Midnight, will be acquired by management and go independent again. Double Fine Productions will also go independent, led by Tim Schafer. Undead Labs and Ninja Theory will be acquired by new publishers. Sources told us over the weekend that both Ninja Theory’s Senua and Labs’ State of Decay 3 will remain fully in production as part of the divestiture deals.
There’s a question mark over Arkane and Blade, however. Microsoft is engaging the French government to try and figure out a path forward for the legendary Dishonored maker — with the goal of saving Arkane from closure, and keeping Blade in production. Right now, we can only hope Arkane finds a suitor to help keep the Dishonored and Blade maker afloat.
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…July 6, 2026
Beyond that, to meet the reductions Sharma has described every department at Xbox will see some form of layoffs and restructuring. Microsoft’s executive layers want to reduce middle management across the board, in attempts to help Xbox move more quickly. Minecraft and Candy Crush’s King will begin reporting in to Xbox’s c-suite directly, for example, with a view of making them more competitive against incumbents like Roblox and things like Monopoly Go respectively.
There’s also an effort to bring some of Xbox’s remaining studios into closer collaboration, focusing on some of the firm’s bigger franchises and potential. Xbox CEO Asha Sharma has been transparent about wanting to focus on things like Halo and Fallout. We could see studios like Obsidian dust off their Fallout mantle, for example.
What about Xbox hardware? It has been suggested to me that Xbox’s hardware team will see the least amount of reductions, with Microsoft still intent on shipping Xbox hardware and Xbox Helix.
Microsoft’s next-gen Xbox Helix console has been in production for some time, although the structural equations have been hit hard by the memory availability crisis gripping all of consumer tech. Regardless, I’m told Microsoft will soldier on with Helix and Xbox hardware in general. Microsoft is still intent on following Xbox CEO Sharma’s plan to “rebuild the core,” with a focus on Xbox’s most profitable users: those on console.
A sad day for Xbox, and the industry in general
It’s painful to me that Microsoft’s bean counters wouldn’t let Xbox hang on just a bit longer with some of these studios. It’s hardly Undead Labs’ fault that their integrations were defeated by Covid lockdowns and previous management leaving. State of Decay 3 for example has more wishlists on Steam than some of Xbox’s other tentpole projects. It easily, in my view, has potential to be even bigger than similar multiplayer titles like Grounded or Sea of Thieves. It has been a long and expensive road to get here for sure … but the rewards were literally just around the corner. Couldn’t Microsoft have stayed the course just a bit longer on some of this stuff? Microsoft’s penchant for giving up at the last hurdle is ceaselessly irritating.
Xbox gave some of its studios freedom to explore new IPs and experimental titles, which while virtuous, potentially hurt their capability to return positive news to those higher-ups working the spreadsheets. It’s also difficult to argue against Asha Sharma’s notes to staff about not wanting to compete with indie developers. It is a strange universe where Microsoft, the juggernaut, is building games that would otherwise be produced by comparatively far, far smaller teams with non-existent marketing budgets.
It’s hard to deny that Xbox has massively dropped the ball on things like Fallout and Halo. Hindsight is 20/20, but imagine if the Fallout TV show had a mainline Fallout game to complement its popularity? Cyberpunk 2077 just hit 40 million copies sold, and is seeing another player count bump from integrations in Wuthering Waves and Cyberpunk Edgerunners Season 2 on Netflix.
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Some of these plans revolve around laying the ground work to take advantage of these squandered opportunities. It should lead to a stronger Xbox in the years to come. But at the same time, it’s staffers paying the price for previous decisions — whether owing to managerial mistakes, evolving user behavior, or macro-economic factors that nobody could really predict. It’s not fair, is it? For all those impacted, it’s just another round of needless chaos in our cold, AI-funny-money-powered economy.
“These changes are about a bigger future for XBOX, not a smaller one,” Asha Sharma noted to employees. “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.”
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