Compulsion Games, Double Fine, Ninja Theory, Undead Labs and Arkane Studios, are among the studios that will be parting from Xbox.
Xbox is cutting approximately 3,200 employees throughout FY27 as part of what CEO Asha Sharma has called the "most significant restructure in Xbox history", with around 1,600 roles being eliminated today.
Sharma announced the sweeping cuts in a memo sent to Xbox employees globally on Monday (6 July) and published on Xbox Wire, confirming that the remaining reductions will take place throughout the financial year.
The year-long restructure will also see four studios leave Xbox for new management, further job cuts across its wider businesses, a major reduction in management layers and vendor spending, and the appointment of the company's first Chief Operating Officer.
In a stark assessment of the company's current position, Sharma told employees: "Our business today is not healthy."
How many employees is Xbox laying off?
Xbox plans to cut approximately 3,200 roles throughout FY27, beginning with around 1,600 job losses on 6 July. Sharma acknowledged that carrying out the restructure over an entire year would create additional challenges for employees, but said it was not possible to make all the necessary changes in a single day. "I wanted to be direct about the scale," she wrote.
The Xbox CEO said the decisions do not reflect the talent or dedication of those affected, many of whom joined the company through acquisitions, were recruited by Xbox or sought out the company because of their love for the games industry.
The reductions will also extend across Activision, Bethesda/ZeniMax, Blizzard, King, Mojang and Xbox Game Studios, although Sharma said the scale of the cuts will vary between different units. In some cases, Xbox will also shift investment towards what it considers higher-priority projects. However, Sharma confirmed that none of Xbox's publicly announced first-party games or projects are being cancelled as part of the reductions.
Why is Xbox cutting 3,200 jobs?
Sharma offered an unusually direct explanation for the cuts, telling employees that Xbox is currently operating at margins between three and 10 times lower than comparable platform and publishing businesses.
According to the memo, Xbox entered the ninth console generation with a smaller install base and higher cost structure before betting on Game Pass, multi-platform expansion and a broader portfolio of content to drive growth. While Sharma said those businesses created "meaningful value", they did not grow at the pace Xbox expected. As its core business weakened, the company continued adding teams, investment and development time in the hope of a better outcome.
"And now the industry is facing the most severe hardware crisis in its history. We must reset Xbox," Sharma wrote.
Why is Xbox reducing its number of game studios?
The first part of the restructure will focus on Xbox's content portfolio after years of aggressively expanding its studio holdings. Sharma said the number of games created each month across the industry now outpaces the previous 10 years combined, leaving Xbox competing not only with the world's largest publishers but also smaller independent studios.
The Xbox CEO said the company has learned that it is "not the best home for every type of studio" and that, in a typical year, Xbox lost 64 cents for every dollar it invested. "It is neither possible nor desirable to own every great independent studio," Sharma wrote. As part of the reset, Xbox said it will instead help independent creators through open development tools and access to audiences.
Five game studios are leaving Xbox
Four studios will leave Xbox for new management as part of the wider restructure. Compulsion Games and Double Fine Productions, both studios that were reportedly in trouble last month, will return to their management teams and become independent studios, taking their IP, existing catalogues, and funding runway for their next games with them.
Ninja Theory and Undead Labs, meanwhile, have entered terms to move under new ownership, with funding to complete and grow Senua and State of Decay 3. In France, Arkane's management is also beginning the required consultation process with its Works Council to review potential strategic options. The studio changes mark a major shift from Xbox's aggressive expansion since 2018 and will be covered in more detail separately.
What else is changing in the Xbox restructure?
The second part of the restructure will overhaul how Xbox's platform teams operate. Sharma said work in some parts of the company currently passes through as many as 14 layers of management. At the same time, Xbox's platform teams have grown 40% larger since the beginning of the current console generation despite declines in its player base and playtime.
According to Sharma, that complexity has slowed decisions, blurred accountability and made it harder for Xbox to deliver for players. Xbox will now reduce management structures to no more than five layers and, where possible, three.
The company will reorganise around "makers", or individual contributors focused on building; "player-coaches", or leaders who remain directly involved in the work while developing their teams; and directly responsible individuals who own major decisions and outcomes.
Xbox will also streamline its tools through a cleaner code base and shared services, while reducing vendor spending by 50%.
Who is the new Xbox Chief Operating Officer?
The final part of the reset will change how Xbox operates across its businesses. For the first time, the company is establishing a Chief Operating Officer with end-to-end profit and loss responsibility across content, hardware, platform and services.
Helen Chiang has been promoted to the newly created role and will report directly to Sharma. During nearly two decades at Xbox, Chiang has worked on Xbox Live and led Mojang and the Minecraft franchise. Sharma said the new COO will bring Xbox's businesses together under a single operating model, with responsibility for clearer investment decisions and accountability for results.
Mojang and King will now report directly to Sharma. She described the two as Xbox's largest studios by monthly active players and said both have increasingly become platforms in their own right. The restructure also comes as Dave McCarthy retires after 17 years with Xbox.
Despite the scale of the cuts and wider changes, Sharma said the company will invest as much in Xbox this year as it ever has, but with greater focus, discipline and clarity. "These changes are about a bigger future for Xbox, not a smaller one," she wrote. Sharma said Xbox intends to return to growth in 2027, before ending the memo with a warning about the company's future. "History is full of companies that mistake longevity for inevitability. We will not be one of them."
