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Xbox will cut around 3,000 jobs and spin off four game studios in the next year as new chief executive Asha Sharma orders what she calls the 'most significant restructure' in the division's 25‑year history.

In a memo to staff on Monday, Sharma confirmed that about 1,600 Xbox employees are being laid off immediately, with a further wave of redundancies to follow across fiscal 2027, largely affecting teams in Microsoft's gaming arm.

The Xbox layoffs, which are part of 4,800 job cuts across Microsoft as a whole, will result in a 20% reduction in the gaming unit's workforce.

Sharma said the business 'today is not healthy' and warned that Xbox must be 'reset' if it is to survive the current hardware and revenue crunch.

Asha Sharma's Xbox Restructure And What It Means For Phil Spencer's Legacy

Sharma told staff that Xbox has been operating on profit margins 'three to ten times lower' than its main competitors, despite record content spending last year.

She argued that bets on Game Pass, multi‑platform publishing and a broader content portfolio have 'created meaningful value' but 'did not grow at the pace we expected', leaving the core business weaker even as headcount ballooned.

'We must reset Xbox,' she wrote. 'Our business today is not healthy.'

Acknowledging that a rolling, year‑long restructuring is 'painful', she added, 'These changes will directly affect people who have poured their creativity into building Xbox. Many joined us through acquisitions, while others were recruited here, or sought us out because they loved this industry and loved Xbox. Today's decisions do not reflect their talent or dedication.'

The scale of the reset becomes clearer when you track the studios Phil Spencer brought under the Xbox banner. Counting earlier closures and this latest wave of divestments, around 32% of those acquisitions have now gone.

Tango Gameworks, Alpha Dog Games, Roundhouse Studios, Toys for Bob and Arkane Austin were all shuttered or spun out in 2024.

On Monday, Ninja Theory, Undead Labs, Compulsion Games and Double Fine Productions were confirmed as leaving Xbox, either via sale to undisclosed buyers or by regaining full independence and control of their intellectual property.

On top of that, a fifth studio, France‑based Arkane, is now 'beginning required consultation' with its works council to explore 'potential strategic options', corporate speak for more cuts or a possible sale.

Two‑thirds of Spencer's acquisitions technically remain inside Xbox, but many of them, including Obsidian and Bethesda, have already endured heavy layoffs.

How The Xbox Layoffs Will Work And Which Studios Are Hit

Up to 3,200 jobs will go at Xbox over the next 12 months, on top of thousands of wider Microsoft redundancies. Of those, 1,600 roles are being eliminated this week, with up to another 1,250 positions at risk as the restructure continues through the company's next fiscal year, which runs from 1 July 2026 to 30 June 2027.

Four studios, employing roughly 350 people between them, are being spun out or sold. Ninja Theory and Undead Labs are due to be sold to currently unnamed buyers, with contracts still pending, while Compulsion Games and Double Fine Productions will be returned to their existing management teams and become independent again, taking their game catalogues and future revenue with them.

Sharma said the layoffs will hit 'almost every division' at Xbox, including Activision, Bethesda/ZeniMax, Blizzard, King, Mojang and Xbox Game Studios, although the depth of cuts will vary by team.

She also stressed that no previously announced first‑party games or projects are being cancelled as a direct result of the staff reductions, a point clearly aimed at reassuring players watching the turmoil from the outside.

Internally, however, the reset will feel brutal. According to Sharma, Xbox's platform teams are now 40% larger than they were at the start of the current console generation, even as the number of active players and total playtime have declined.

In some parts of the business, there are reportedly up to 14 layers of management. As part of the restructure, Xbox will collapse that hierarchy down to 'no more than five, and where possible, three' levels, a frankly mad number of middle managers to strip out in one go.

Game Pass, Minecraft And Elder Scrolls: What Survives The Xbox Purge

The question hanging over all of this is where Sharma wants Xbox to go next.

Publicly, she insists that Game Pass 'is still a priority' and that content spending over the next fiscal year will remain roughly in line with last year's record outlay, albeit reshaped. Behind the scenes, people familiar with the plan say flagship franchises such as Minecraft and The Elder Scrolls are being promoted as major growth engines.

One insider claims Xbox has effectively been using Minecraft as a 'funding source' for other projects and that Mojang 'has not been given the funding it needs to grow.'

Under the new structure, leadership at Mojang and Candy Crush maker King will report directly to Sharma.

For The Elder Scrolls, which has not seen a mainline entry since 2011, Xbox is said to be 'reallocating' teams and money towards new projects, while also pushing Bethesda to focus more sharply on future Fallout and Elder Scrolls titles.

Sharma has signalled three main areas of focus for the reset, the content portfolio, the platform itself, and 'how we operate.'

She has promoted veteran Xbox executive Helen Chiang, who has spent nearly two decades in the gaming division, into a new chief operating officer role with end‑to‑end profit and loss responsibility for content, hardware, platform and services.

Long‑serving operations chief Dave McCarthy is retiring after 17 years.

The wider backdrop is not unique to Microsoft. Traditional console publishing has been squeezed by the rise of mobile and free‑to‑play games, spiralling development costs and a hardware market that even Sharma describes as suffering 'the most severe hardware crisis in its history.'

Ubisoft and other major publishers have already announced their own drastic cuts. Xbox is simply the latest giant to admit that its current numbers do not add up.

Sharma insists that, despite the job losses and studio exits, 'these changes are about a bigger future for Xbox, not a smaller one.'

Her closing line to the staff was blunt. 'History is full of companies that mistake longevity for inevitability. We will not be one of them.'

The news came after months of speculation about a hard 'reset' at Xbox following Sharma's promotion to CEO earlier this year and the departure of long‑time Xbox boss Phil Spencer after 38 years at Microsoft.

Under Spencer, Xbox spent heavily on studio acquisitions to feed its Game Pass subscription service and bolster its first‑party line‑up, from Minecraft maker Mojang to Elder Scrolls publisher Bethesda and Activision Blizzard.

Now, as growth slows and margins tighten, about a third, or 32%, of the studios acquired during Spencer's tenure have been closed, sold or spun out, while most of the ones still inside Xbox have been hit by repeated rounds of cuts.

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