Xbox CEO Asha Sharma said Microsoft’s video game business is in desperate need of a “reset,” which apparently means job cuts and the shedding of several game studios. Sharma announced in a memo to staff, posted on Xbox’s website Monday, that the company will cut about 3,200 jobs throughout fiscal year 2027. She described the move as the “most significant restructure in XBOX history.” Half of those jobs, roughly 1,600 roles, are being eliminated today. These cuts are part of broader layoffs at Microsoft, which on Monday said it is eliminating about 4,800 roles, or about 2% of the company. In addition to the job cuts, Sharma announced that four game studios are leaving Xbox. Compulsion Games, known for South of Midnight, and Double Fine Productions, the studio behind Psychonauts, will return to their own management and retransition into independent studios.
Ninja Theory and Undead Labs have agreed to move on to new ownership, with funding to continue their work on the Senua and State of Decay series, respectively. The French studio Arkane is also beginning a required consultation to review “potential strategic options.”
Meanwhile, Xbox’s other studios and units, including Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and Xbox Game Studios, are all being affected by the layoffs. Sharma said no publicly announced first-party games or projects are being canceled as part of the cuts. “Our business today is not healthy,” Sharma wrote in the memo. “We must reset XBOX.” Sharma said Xbox is operating at margins that are 3 to 10 times lower than comparable businesses. She added that, in an effort to grow, the company bet on Game Pass, its video game subscription service, as well as multi-platform releases and a wider portfolio of content. However, she said those businesses did not grow at the pace expected.
