As expected, Microsoft is once again emptying its Xbox teams. It has been widely reported that the company will lay off a large number of employees after its fiscal year ends on June 30 in a bid to seek higher profit margins and greater efficiency in its gaming unit. In a memo to staff shared publicly, Xbox CEO Asha Sharma confirmed that the division plans to lay off approximately 3,200 employees next year across Activision, Bethesda/ZeniMax, Blizzard, King, Mojang and Xbox Game Studios, with 1,600 immediate job cuts.
Xbox announced that four of its studios would continue under new owners. South of midnight Developers Compulsion Games and Double Fine Productions will go independent “with their IP, catalog and track for their upcoming games,” Sharma said. Ninja Theory and Undead Labs “will have entered into terms to join new owners with funding to complete and develop Senua And State of decadence 3.” As for Arkane Studios, which is also rumored to be on the verge of death, Sharma claims that “the developer’s management is beginning to consult with its works council to review potential strategic options.”
These changes are part of a reset of the Xbox content portfolio, Sharma said. “Since 2018, we have aggressively expanded our studio portfolio, while the number of games created each month in the industry now exceeds the last ten years combined,” she wrote. “We now find ourselves competing not only with the largest publishers, but also with smaller independent studios. It is neither possible nor desirable to own every major independent studio. We also learned that we are not the best home for every type of studio; in a typical year, we lost 64 cents for every dollar we invested. By rebooting Xbox, we will help independent creators succeed by providing them with open development tools and audiences to realize their vision.”
Sharma noted that while Xbox isn’t canceling any publicly announced first-party games or projects, the division is redirecting some investments “to focus on higher priority projects.” Mojang and King will now report directly to Sharma, who is flattening the organization by removing some layers of management in the name of efficiency. “Our platform teams are 40% larger than they were at the start of this generation, even though our player base and play time have shrunk,” she wrote. “This complexity has slowed down decisions, blurred accountability and made it more difficult for players.”
As part of these changes, Dave McCarthy, director of operations for the division, is retiring from Xbox. It installs Helen Chiang, who has been part of Minecraft’s management team for a decade, as its new COO. Chiang will “bring our businesses together under one operating model, ensuring we make clear investment decisions, learn from our successes and failures, and hold ourselves accountable for results,” Sharma wrote. The new COO will have “end-to-end responsibility (profit and loss) for content, hardware, platform and services.”
Sharma was quite blunt about the reasons for the restructuring. “Our business today is not healthy. We operate on margins 3 to 10 times lower than comparable platform and publishing companies,” she wrote. “We entered Gen 9 with a smaller install base and higher cost structure. To grow, we focused on Game Pass, cross-platform, and a broader content portfolio. While these businesses created significant value, they did not grow at the rate we expected. In doing so, our core business weakened and we added more teams, more investments, and more time, hoping for a better outcome. And now, the industry is facing the most serious hardware crisis in its history. We need to reset Xbox.
The division set the stage for the layoffs several weeks ago. Its executives shared a memo outlining plans for a “reset” of the division, suggesting current revenue margins were unsustainable. The head of Xbox Game Studios resigned shortly after the memo was made public, while several studios are said to be on the chopping block.
It was initially said that executives from Ninja Theory, Double Fine and Compulsion Games were negotiating with Xbox to try to restore independence to their studios or find a new owner. Otherwise they should be closed. It was later reported that Undead Labs and Arkane were at risk of closing or divestment.
Before the job cuts, the Communications Workers of America, a union that represents many gaming industry workers at Microsoft, urged the company to bargain in good faith over “meaningful layoff protections.”
Microsoft made the massive layoffs shortly after announcing it would raise prices for Xbox consoles, due to skyrocketing memory and storage costs – something the company also played a role in by expanding its AI computing capacity. Xbox previously cut 1,600 jobs in early 2024 and hundreds more just over a year ago.
