Xbox’s ‘painful’ reset: 3,200 job cuts, studio exit, and vow to return to growth by 2027

Xbox CEO Asha Sharma unveiled a sweeping overhaul of Microsoft’s games division on Monday, calling it the most significant restructuring in Xbox history and revealing that the business was losing 64 cents on every dollar invested in its games studios.

As detailed in a memo to employees, the changes include nearly 3,200 job cuts during the fiscal year — about 20 percent of Xbox’s workforce — the emergence of four game studios, a new COO, and a plan to trim management from 14 to five layers.

“We will return to growth in 2027,” Sharma wrote. “History is full of companies that mistake longevity as an inevitability. We will not be among them.”

@media (max-width: 600px) { aside.callout { float: none !important; width max:100% !important; margin-left:0 !important; margin-right:0 !important; } aside.callout .callout-img { display:none !important; }}

Sharma, an early adopter and former Microsoft AI lead, was named Xbox CEO in February.

“I know this hurts,” he wrote. “These changes will directly affect the people who have poured their creativity into building XBOX. Many have joined us by buying, and others are employed here, or seek us out because they love the industry and love XBOX. Today’s decisions do not reflect their talent or dedication.”

But he reiterated what he said in a memo last month: The Xbox business is not healthy, operating at margins 3-10x below industry peers after years of heavy spending that failed to generate expected growth.

About 1,600 Xbox job cuts begin Monday as part of a broader round of 4,800 layoffs across Microsoft. The remaining Xbox discounts will come in the coming months. Sharma acknowledged that the year-long restructuring “creates additional challenges” but said “it is not possible to make all the necessary changes in one day.”

Sharma said the cuts extend to Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and Xbox Game Studios, although no games have been publicly announced as cancellations.

Many game studios will be started as independent programs, taking costs off Microsoft’s books while giving the studios a chance to survive on their own.

• Compulsory games (South of Midnight) and Double Fine Productions (The Psychonauts) will return to their management teams as independent studios, keeping their intellectual property and current projects.
• Ninja Theory (Hellblade) and Undead Labs (State of Decay) will transition to new owners with funds to complete their current games.
• In France, Arkane (It is disgraced, Deathloop) begins legally required consultations with its labor council to determine its future.

Sharma will also oversee the Mojang game studios (Minecraft) and king (Candy crush), the two major Xbox studios are players of the month.

In addition, he is establishing a new role of chief executive officer with financial responsibility for end-to-end content, hardware, platform, and services. Helen Chiang, a nearly ten-year Xbox veteran who led Mojang and the Minecraft franchise, has been promoted to the role. Dave McCarthy, a 17-year Xbox veteran who helped build the platform, is retiring.

At every stage, Sharma wrote in a memo, Xbox will reduce costs for retailers by 50% and reduce management layers from 14 to no more than five.

The overhaul follows a 25-year period in which Microsoft largely promoted the Xbox as a strategic bet in the living room. Microsoft CEO Satya Nadella said the time is up, noting that YouTube creators make more money from Xbox games than Microsoft does from them.