Microsoft is laying off around 4,800 employees, with the Xbox division taking one of the biggest hits in gaming industry history.
According to Asha Sharma, CEO of Xbox, about 1,600 Xbox staff are being cut immediately, with total Xbox-related reductions expected to hit roughly 20% of the division by the end of the fiscal year.
Most of those affected reportedly work in commercial sales, marketing, and middle management, though development staff aren’t being spared.
The restructuring goes well beyond layoffs. Microsoft is reportedly reshaping its first-party lineup by selling off or spinning out multiple studios it spent billions acquiring.
Double Fine Productions and Compulsion Games are said to be returning to independence. Both studios will leave with their IP, catalogs, and runway for their next projects. That means Tim Schafer takes Double Fine, home of Psychonauts and Brütal Legend, back into indie territory, while Guillaume Provost does the same with Compulsion, the team behind We Happy Few and South of Midnight.
Ninja Theory and Undead Labs are reportedly being sold outright. No buyers have been named yet, but Microsoft has reportedly put agreements in place to make sure Senua’s Saga follow-ups and State of Decay 3 still ship.
Arkane Lyon is the wildcard. The Dishonored and Deathloop studio is reportedly under review for a sale or closure, but any formal announcement is being delayed by French labor laws, which require worker consultation before major structural moves. The studio’s Marvel’s Blade project is also reportedly delayed and over budget.
Why this is happening
Microsoft leadership is reportedly framing this as a full reset of the Xbox business. An internal memo attributed to Asha Sharma pointed to bloated management with as many as 14 layers, and reportedly claimed Xbox lost $0.64 for every dollar invested in a typical year.
The plan is to strip layers down, simplify decision-making, and refocus on marquee franchises like Halo, Gears of War, Forza, Call of Duty, Diablo, Fallout, and The Elder Scrolls.
This isn’t Microsoft’s first swing of the axe either. In January 2024, roughly 1,900 gaming staff were let go after the $68.7bn Activision Blizzard deal closed. Later that year, Arkane Austin, Tango Gameworks, Alpha Dog, and Roundhouse Studios were shut down or absorbed, with Tango later rescued by Krafton.
The situation for in-development games remains murky. State of Decay 3, the next Ninja Theory project, Blade, Clockwork Revolution, Fable, and the next Gears and Forza entries are all in various stages of production. Publishing rights, release windows, and ownership of certain IP are still to be sorted.
