On July 6, at the dawn of a new fiscal year, Microsoft announced the layoffs of 3,200 people in its Xbox division, as well as an additional 3,200 employees in other departments. Among the layoffs at Xbox, 1,600 jobs were cut immediately, while the remaining 1,600 will be lost over the coming year, with the promise casting a morbid shadow over the immediate future of Microsoft’s gaming business. Additionally, Xbox attempted to shut down five of its development teams – Arkane Studios, Compulsion Games, Double Fine, Ninja Theory, and Undead Labs – and ended up divesting four of them, while Arkane’s future remains uncertain.
The layoffs hit Xbox across the board: Doom Creator id Software lost around 50% of its staff, Double Fine had to cut a third of its employees to buy back from Microsoft, the platform’s team was gutted, and it appears several projects were canceled. Fallout: New Vegas studio Obsidian Entertainment, including a sequel to Declared.
Knowing it was going to happen didn’t lessen the carnage.
Xbox CEO Asha Sharma and chief content officer Matt Booty, who both took over earlier this year as part of a surprise C-Suite shakeup, outlined the brand’s dire financial situation in a June public memo. They highlighted broad internal issues with Xbox games, consoles, infrastructure and marketing, and ominously promised a “reset” of the company. Rumors of mass layoffs and reports of potential studio closures soon followed, with the cull expected to begin just after Microsoft’s new fiscal year on July 1.
“We will end this fiscal year with a liability margin of approximately 3 percent, down year over year,” Sharma and Booty wrote in their memo. “Excluding Activision Blizzard King, over the past five years we have spent more than $20 billion in ongoing investments in our content, platform, and hardware subsidies, but our annual revenue has declined by nearly half a billion during this period. Moving forward, this cannot continue.” (Including Activision Blizzard King, acquired by Xbox in 2023, adds $69 billion to company spending.)
Ahead of the layoffs, Xbox union members represented by CWA urged the company to consider the human and creative cost of repeated mass layoffs and negotiate in good faith over worker protections. Union members accused Microsoft of leaving proposals on the table for months, paying little attention to meetings and unfairly allocating the company’s vast financial resources. UVW-CWA Treasurer Sherveen Uduwana noted that Microsoft CEO Satya Nadella personally earned $96 million in 2025.
“There is no shortage of riches in the gaming industry, especially if we talk about Xbox, Sony, EA,” Uduwana said.
After Xbox announced the layoffs on July 6, the CWA in the United States and Canada filed lawsuits against Microsoft for unfair labor practices, and employees held protests outside their offices to call “people over profits.”
Additionally, in July, the Xbox network went down for nearly a day and revealed that even physical media was not safe from DRM on the company’s consoles, although the disc issue was apparently a bug that will be fixed. Days later, Microsoft’s financial results for the fourth quarter of 2026 revealed a 10% revenue decline for Xbox. Each year, Xbox’s reported revenue fell by more than $2 billion year over year, falling behind its closest competitor, PlayStation, by billions.
This all follows two years of successive layoffs at Xbox, eight years of increasingly reckless studio acquisitions, and a systemic model of valuing potential revenue over any kind of creative process. But we’ll come back to that at the end. First, a look at the terrible, horrible, no good, very bad July on Xbox.
