Key Takeaways
- Xbox is cutting 3,200 jobs to refocus on its core gaming business.
- Five Xbox studios will be divested or seek independent futures.
- Leadership says restructuring aims to restore growth by 2027.
Xbox layoffs continue as CEO Asha Sharma says the company is restructuring after expansion efforts weakened its core business, leading to 3,200 job cuts, studio divestments, and management changes aimed at restoring growth in 2027.
Xbox layoffs come as the company restructures its business after years of aggressive investment failed to deliver the expected growth, prompting studio changes and broader efforts to reduce costs and simplify operations.
Speaking to Fortune, Sharma said the company lost focus while pursuing multiple growth strategies.
“In order to grow, we made a bunch of bets,” Sharma said. “As we did that, we inherently didn’t focus on the core business.”
She added that the company’s strategy became too broad.
“The number one measure of your strategy is what you put your resources behind, and we simply spread ourselves too thin.”
Company plans studio divestments and leaner management
As part of the restructuring, Xbox plans to divest five internal studios. Compulsion Games and Double Fine will become independent, while Ninja Theory and Undead Labs will seek new owners or outside funding. Arkane Lyon will begin a consultation process to explore strategic options.
The company also plans to simplify its management structure. Sharma said some teams currently have as many as 14 management layers.
Under the new plan, Xbox aims to reduce those layers to no more than five and, where possible, three.
In a memo to employees published Monday, Sharma said management had expanded significantly during the current console generation.
“As Xbox grew our headcount, we became more fragmented,” Sharma wrote. “Teams, studios, and functions often operate independently, and it became harder to work towards a shared goal, make the right tradeoffs, and get things done.”
Financial pressures drive long-term restructuring
The Xbox layoffs follow declining financial performance and a broader restructuring effort to improve long-term growth.
Last month, Sharma said Microsoft spent more than $20 billion on Xbox during the past five years, excluding its Activision Blizzard acquisition. She also said Xbox revenue declined by an estimated $500 million annually during that period.
In the employee memo, Sharma said Xbox operates with margins “three to ten times lower than comparable platform and publishing businesses.”
She said the company invested heavily in Game Pass, multiplatform publishing, and a broader content portfolio, but those businesses did not grow as quickly as expected.
“As that happened, our core business weakened, and we added more teams, more investment, and more time, hoping for a better outcome,” Sharma wrote.
According to Sharma, platform teams are now about 40% larger than they were at the beginning of the current console generation, even as both the player base and total play time have declined.
Despite the layoffs and restructuring, Sharma said the changes are intended to strengthen Xbox over the long term rather than reduce its ambitions.
“These changes are about a bigger future at Xbox, not a smaller one,” she said.
Sharma said she wants Xbox to become one of the few entertainment companies capable of reaching more than one billion people daily through games and creator experiences.
She said the company expects to return to growth in 2027.
Also Read: PS5 vs Xbox Series X: Which Console Fits Your Gaming Style in 2026?
