Microsoft has announced a massive restructuring of Xbox after rumors circulated that the company would be closing several of its video game studios.
In a public statement shared on X, formerly Twitter, Xbox CEO Asham Sharma confirmed that there will be approximately 3,200 layoffs at the company by the end of the financial year in July 2027. Sharma announced that 1,600 of those layoffs will be effective immediately. Four of its studios will also be entering new management, leaving the Xbox brand either as independent companies or purchased by another company.
“Our business today is not healthy. We are operating at margins that are 3–10x lower than comparable platform and publishing businesses,” Sharma wrote in the statement, which is an email she sent to all employees at Xbox on Monday (July 6). “We entered Gen 9 with a smaller install base and a higher cost structure. 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.”
Crucially, developers Double Fine and Compulsion Games are being handed back to their respective founders, Tim Schafer and Guillaume Provost. Double Fine was acquired by Xbox Game Studios in June 2019, under which they released the games Psychonauts 2, Keeper, and Kiln. Compulsion Games, meanwhile, was acquired by Xbox Game Studios in June 2018, and developed the action-adventure game South of Midnight.
Hellblade developers Ninja Theory and State of Decay developers Undead Labs are also being sold, with agreements in place to ensure the studios will ship their already in-development titles, Senua and State of Decay 3. French studio Arkane, developers of the Dishonored franchise and the upcoming Marvel’s Blade, is “beginning required consultation with its Works Council to review potential strategic options,” Sharma noted.
The Xbox CEO stressed that none of the publicly announced games or projects will be canceled as part of the restructuring of the company. There will, however, be “reductions across other units” of the company, and a move to shift investment to focus on “higher priority projects.”
“I want Xbox to be one of the few companies that entertains more than a billion people each day and gives everyone the opportunity to create and connect,” Sharma added. “I know we can achieve this goal. Xbox has many of the most beloved franchises in entertainment history, talented studios around the world, and we will return to growth in 2027.”
The restructuring of Xbox comes less than five years after the company massively expanded its studio portfolio with the acquisitions of ZeniMax—the company that owns studios such as Arkane, id Software, and Bethesda Softworks among others—and Activision Blizzard, which owns the developers of the Warcraft series and Call of Duty series, among others.
