Microsoft has confirmed the layoffs Xbox insiders spent all summer bracing for.
In a memo to staff on Monday, new Xbox CEO Asha Sharma said the company will cut roughly 3,200 jobs across fiscal 2027 and push four studios out of its first-party portfolio, calling it the most significant restructure in the platform’s history.
About 1,600 of those cuts landed today. The rest will roll out over the next 12 months. The reductions are part of a wider round of roughly 4,800 layoffs across Microsoft, with the company’s sales organization absorbing much of the rest.
Sharma did not bother pretending everything is fine.
“Our business today is not healthy,” she wrote, before laying out a three-part “reset” covering content, platform, and operations.
Four Studios Are Being Cut Loose
The clearest sign of the pullback is the studio list.
Compulsion Games and Double Fine Productions will spin out as independent studios and keep their IP, catalogs, and runway for their next games. Ninja Theory and Undead Labs have lined up new ownership with funding to finish and grow Senua and State of Decay 3.
Together, the four studios employ roughly 350 people.
In France, Arkane’s management is starting the required Works Council consultation to review its options, a process that can drag on for months under French labor law.
Sharma stressed that no announced first-party game is being cancelled, and that reductions across Activision, Bethesda, Blizzard, King, Mojang, and Xbox Game Studios vary in size.
That’s the reassurance.
The numbers underneath it are much harder to spin.
Xbox’s Math Finally Caught Up With It
Sharma put hard figures on the problem.
Xbox is running at margins she pegged as three to 10 times lower than comparable platform and publishing businesses. In a typical year, she wrote, the division lost 64 cents on every dollar it invested in studios it did not ultimately keep.
That’s the bill for a decade of expansion.
Since 2018, Xbox bought its way into a sprawling studio roster and bet the future on Game Pass and a multi-platform “everything is an Xbox” strategy. By Sharma’s own account, those bets created value, but they never grew at the pace Microsoft needed. Meanwhile, the core console business weakened underneath them.
The subscription math tells the same story. Xbox raised Game Pass pricing twice in roughly a year, and chief strategy officer Matthew Ball has said the most recent hike cost the service millions of subscribers within months.
Sharma also pointed to what she called the most severe hardware crisis in the industry’s history, a nod to rising console costs that Xbox still has not answered with a clear next-generation plan.
Xbox Is Cutting The Bureaucracy Too
The structural changes are just as brutal.
Sharma said some decisions currently pass through as many as 14 layers of management. She wants that cut to no more than five, and ideally three. Platform teams, she noted, are 40 percent larger than at the start of the generation even as playtime has fallen.
To centralize control, Sharma promoted longtime Minecraft leader Helen Chiang to Xbox’s first-ever chief operating officer, with end-to-end profit and loss responsibility across content, hardware, platform, and services.
Dave McCarthy is retiring after 17 years. Mojang and King, now the division’s biggest studios by monthly active players, will report directly to Sharma.
That last move says a lot.
According to reporting from Variety’s sources, Xbox has been leaning on Minecraft as a funding source for other studios while Mojang itself was starved for growth money. The company now plans to redirect investment toward Minecraft and a long-dormant Elder Scrolls, which has not shipped a new mainline entry since 2011.
Treat that as insider-tier detail rather than confirmed strategy, but it fits the larger picture: Xbox is retreating to the safest, highest-margin franchises it has left.
Microsoft Says AI Isn’t Replacing The Jobs
Microsoft chief people officer Amy Coleman told staff the eliminated roles are not being replaced by AI, while adding that AI is changing how work gets done and that employees will need to keep adapting.
That framing will not comfort anyone who just lost a job. It also lands awkwardly for a company that has spent the past two years selling AI as a productivity multiplier.
This is the second brutal summer in a row for Xbox, which cut around 9,000 jobs in July 2025. It is also the first major test for Sharma, who took over in February after Phil Spencer ended a 12-year run atop the division.
Sharma closed by insisting Xbox will return to growth in 2027 and warning that plenty of companies have mistaken their own staying power for a guarantee.
The pitch is a bigger future.
The evidence on the page is 3,200 people paying for strategy calls made above them.
