Xbox plans to cut 3,200 jobs as part of a major restructure, and will divest of five studios.
Double Fine Productions (Keeper) and Compulsion Games (South of Midnight) will return to independence. Both studios have been given runway funding by Microsoft to help begin their next projects while they seek additional financing. These studios will retain all their IP and their back catalogue.
Developers Ninja Theory (Hellblade) and Undead Labs (State of Decay) have higher financial requirements and have found new owners. However, the deals have not yet closed. The new owners will get the IP and the back catalogue. Both studios have games out next year (Senua and State of Decay 3).
Meanwhile, Arkane Lyon (Dishonored) will today enter the same process as the studios above. Microsoft hopes it can avoid closure for this team, too.
In terms of the 3,200 planned redundancies, these cuts will take place across the whole Xbox business, including other first-party developers. Some studios will barely see any cuts, while others will see much larger reductions. Microsoft didn’t detail which studios will be the worse affected.
One area that will be hit hard is the Xbox platform team, which covers hardware, software services, xCloud and Game Pass. Xbox hopes these cuts will simplify the business and allow it move faster.
The lay-offs will begin with around 1,600 cuts as of today, with an additional 1,600 expected by the end of Microsoft’s 2027 financial year (June 30, 2027). This number includes the divested studios.
On the studios front, Xbox will be shifting from its previous decentralized studio model to a more centralized approach focused around its big franchises. Mojang (Minecraft) and King (Candy Crush) will now report directly to Xbox CEO Asha Sharma.
Xbox has also announced the appointment of a Chief Operating Officer in Helen Chiang, who previously ran the Minecraft business. Meanwhile, corporate vice president of Xbox product services Dave McCarthy is retiring after 17 years with Xbox.
Sharma wrote that she wants Xbox to reach one billion players daily. The company currently reaches 500 million a month.
“These changes are about a bigger future for Xbox, not a smaller one,” Sharma said. “The next decade of gaming will be larger, more global, and more creative than anything we’ve seen before. This year, we’ll invest as much in Xbox as we ever have, but we’ll invest with greater focus, greater discipline, and greater clarity, all in service of making Xbox where the world plays and creates.”
Everything You Need To Know About The Changes at Xbox
Which studios are being closed?
No studios are being closed today. Double Fine (Keeper, Kiln, Psychonauts) and Compulsion (We Happy Few, South of Midnight) are becoming independent once again. Meanwhile, Ninja Theory (Hellblade) and Undead Labs (State of Decay) are being acquired by a currently unnamed parties. Microsoft has entered terms with these new owners, but the deals have not yet closed.
All four studios will retain their IP and their catalogue (plus future revenue from that catalogue). Double Fine and Compulsion are even receiving some runway funding from Xbox.
Arkane Lyon (Dishonored, Deathloop) will start the same process as the other four studios as of today. Xbox hopes for a similar favourable outcome.
But there are job cuts?
Yes. In total, Xbox plans to make around 3,200 redundancies as a result of this restructure. This begins with 1,600 job cuts today, with the rest coming over the next 12 months. Most studios will be affected by the cuts, although some more than others. No further details of impacted teams were shared.
Xbox will also be cutting significantly from its platform business, which oversees console, xCloud, the Xbox Store, Game Pass and more.
The 3,200 job cuts include the 350 employees of the four studios that are leaving the Xbox business.
What about the games?
Ninja Theory announced its next Hellblade game, Senua, last month during the Xbox Showcase. It is scheduled for release in 2027 and has achieved over 100,000 Steam wishlists since its reveal (GameDiscover data). Undead Labs showcased State of Decay 3 at the same event. That game has nearly 930,000 wishlists (it’s had a Steam store page since June 2024) and is also due next year. Both projects are expected to be completed.
Arkane Lyon is working on the upcoming Marvel’s Blade game.
Xbox says all of its announced projects remain in development.
Why is Xbox restructuring?
Xbox’s accountability margin (similar to a profit margin) is just 3%. And despite spending $20 billion on making games over five years, annual revenue has declined by half a billion dollars in that time (excluding Activision Blizzard King). Put simply, Xbox has seen revenue, profits and players decline over the past half a decade, despite all its investment. The company needed to make changes.
The Xbox strategy over the past five years has focused on growing Game Pass (the Netflix-like subscription service), and building a strong business on PC and mobile (plus streaming). This strategy has not met expectations, and it’s this strategy that many of the studios were acquired for.
“To grow, we bet on Game Pass, multi-platform, and a broader portfolio of content. While those businesses have created meaningful value, they did not grow at the pace we expected,” says CEO Asha Sharma. “As that happened, our core business weakened, and we added more teams, more investment, and more time, hoping for a better outcome. And now the industry is facing the most severe hardware crisis in its history. We must reset Xbox.”
In addition, Xbox’s investment in smaller studios and indie games has come at a time where that market has expanded significantly, with a number of new competitors. Xbox has decided not to compete against these companies, and that it will instead support smaller teams in a publishing capacity.
“We now find ourselves competing not only with the largest publishers, but also with smaller independent studios,” Sharma added. “It is neither possible nor desirable to own every great independent studio. We have 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.”
Why is it cutting from its platform team?
Xbox has invested heavily in its platform team over the last six years, across Game Pass, xCloud, console, PC and other areas. Since the start of the pandemic, this division has seen its headcount rise 40%. However, despite this investment, the number of players on Xbox platforms has declined.
Xbox CEO Asha Sharma has prioritized speed for its platform business, and believes the team needs to be closer to both developers and gamers. As a result, the company is reducing the number of managerial layers within this part of the organization. Previously, work would pass through 14 layers of management. Xbox says it will reduce management layers to no more than five, and where possible, three.
The hope is this will lead to a faster and more reactive platform team.
Any other changes?
Yes, Mojang (Minecraft) and King (Candy Crush) will now report directly to Xbox CEO Asha Sharma. The company is also moving away from its decentralized model, where the studios operated largely autonomously, to one that is more centrally integrated. Xbox had previously adopted a ‘limited integration’ approach to the studios it had acquired, which was something that worked well with Mojang.
So, this is about saving money?
Actually, no. Xbox says it will spend as much on content this coming year as it did the previous year. The company feels that it has spread itself too thin, and needs to focus on its franchises that it believes have been underfunded and malnourished. This includes some famous IP, such as Halo, Gears of War and Fallout.
“Xbox says it will spend as much on content this coming year as it did the previous year”
Is Xbox not making any new IP anymore?
The company is prioritizing its biggest franchises. However, it is still developing new concepts, which includes the upcoming Clockwork Revolution. These new ideas will be more ambitious in scope compared with some of the smaller indie-like experiences that it’s produced in the past.
Are there any other reasons for the cuts?
Over a four-year period, Xbox spent nearly $100 billion acquiring studios, and they were acquired for a strategy that hasn’t delivered. What’s more, some of the bigger game bets failed to meet expectations.
But there are also wider industry trends and challenges, which has seen video game growth stagnate.
Following the COVID-19 pandemic, video game spending and engagement fell as people were no-longer locked down. But it wasn’t all because of this. There’s been a sharp rise in the number of games being released (over 21,000 on Steam last year), while big online games like Roblox have become entrenched, dominating playtime (and by extension, revenue). Furthermore, other entertainment sectors such as TV streaming (Netflix) and short form video (TikTok) have taken a larger share of people’s time.
Meanwhile, the cost of making games has increased significantly, and for Western game companies, there’s been increasing competition from developers in Japan, China and South Korea.
What does Xbox want to achieve?
Xbox CEO Asha Sharma says there are one billion people who play Xbox games or use Xbox services every year, or 500 million every month. The aim is to get that to one billion players daily.
Will this restructure deliver that?
Xbox has a number of big challenges. Component costs for its consoles have risen substantially. By the end of this year, the cost of storage will have increased five-fold compared with two years ago, while memory prices are broadly similar. As a result, the company has raised the price of its hardware three times over the past 18 months (PlayStation, Nintendo and other hardware rivals have also had to raise prices).
Its Game Pass user base tumbled after a significant price increase in October last year. Things have stabilized and improved since a price reduction in May, but Xbox says the subscription service is in need of a rethink.
Meanwhile, outside of May’s Forza Horizon 6, it’s not delivered many breakout software hits. Last year’s Call of Duty: Black Ops 7 didn’t deliver the sales results of previous games, and it was outsold by rival Battlefield 6. It’s the first time Battlefield has outsold Call of Duty in its history.
Xbox hopes that by focusing in, it can overcome these challenges and deliver growth in 2027. But games take a long time to develop, and it will be some time before we will see if this plan is going to work.
That’s it for today’s The Game Business Newsletter. Join us back here tomorrow for our interview with Saber Interactive COO Tim Willits.
