Xbox announced a fiscal-year restructuring that would eliminate approximately 3,200 roles, beginning with about 1,600 immediate cuts, as the Microsoft gaming division sought to address weak margins, declining engagement and an increasingly complex organization. Four studios were also set to leave Xbox for independent operation or new owners.
In a message to employees, Xbox chief executive Asha Sharma said the business was operating at margins three to 10 times lower than comparable publishing and platform companies. Xbox entered the ninth console generation with a smaller installed base and higher costs, while investments in Game Pass, multiplatform distribution and a broader catalog did not expand as quickly as leadership expected. The message said the business lost 64 cents for every dollar invested in a typical year.
Compulsion Games and Double Fine Productions will become independent, retaining their intellectual property, catalogs and funding for their next games. Ninja Theory and Undead Labs reached terms to join new ownership, with financing intended to complete and expand Senua and State of Decay 3. In France, Arkane management began consultation with its Works Council over possible strategic options. Xbox said none of its publicly announced first-party games or projects would be cancelled as a direct result of the reductions.
The changes also extend across Activision, Bethesda/ZeniMax, Blizzard, King, Mojang and Xbox Game Studios, although the scale differs by unit. Mojang and King will report directly to Sharma, reflecting their role as Xbox’s largest businesses by monthly active users and their ability to reach different regions and audiences.
Management layers will be capped at five and reduced to three where possible. Xbox said some work currently travels through as many as 14 layers, while platform teams are 40% larger than at the start of the console generation despite lower player numbers and playtime. The company also plans a cleaner shared code base, consolidated services and a 50% reduction in vendor expenditure.
Helen Chiang was promoted to the newly created chief operating officer role, with responsibility for profit and loss across hardware, content, services and platform operations. Dave McCarthy is retiring after 17 years with Xbox.
The reorganization is planned across the full fiscal year rather than as a single round of cuts. Xbox said investment would remain at a record level but would be concentrated more narrowly, with a stated goal of returning the division to growth in 2027.
