Microsoft is carrying out the most sweeping restructuring in Xbox’s 24-year history, cutting roughly 4,800 jobs company-wide and spinning off or selling four video game studios. The cuts, confirmed this week, land hardest on the Xbox division and mark the latest sign that the subscription-driven growth strategy built over the past decade is being unwound.
What to know:
- Microsoft is cutting about 4,800 jobs globally, with roughly 3,200 of those inside the Xbox gaming division.
- Four studios — Compulsion Games, Double Fine Productions, Ninja Theory, and Undead Labs — are being spun off or sold.
- New Xbox CEO Asha Sharma, who took over in February after Phil Spencer’s 12-year run ended, called it the “most significant restructure in Xbox history,” writing that “our business today is not healthy.”
- Excluding Activision Blizzard, the Xbox division spent more than $20 billion over five years on content, platform, and hardware subsidies, while annual revenue fell by nearly $500 million over the same stretch.
- About a third of the studios Microsoft acquired during Phil Spencer’s tenure — including through the $69 billion Activision Blizzard deal — have now been closed, sold, or spun out.
- The Communications Workers of America, representing more than 3,500 Microsoft gaming employees, held a press conference opposing the cuts and demanding layoff protections.
Microsoft confirmed this week that it is cutting approximately 4,800 jobs across the company, with the Xbox gaming division absorbing the largest share at roughly 3,200 positions. The announcement, delivered in a memo from new Xbox CEO Asha Sharma, represents what she called the “most significant restructure” in the platform’s 24-year history. “We must reset Xbox,” Sharma wrote to employees. “Our business today is not healthy.” She acknowledged the human cost directly, adding, “I know this is painful. These changes will directly affect people who have poured their creativity into building Xbox.”
Alongside the layoffs, Microsoft is divesting four studios entirely. Compulsion Games and Double Fine Productions are becoming independent studios again, regaining control of their intellectual property and existing game catalogs. Ninja Theory and Undead Labs are moving to new ownership under deals that Microsoft says include funding to finish in-development projects, including Ninja Theory’s next Senua title and Undead Labs’ State of Decay 3. All four studios had been acquired as part of Xbox’s yearslong push to build out first-party content for its Game Pass subscription service.
That Game Pass strategy is at the center of the reset. Under former Xbox chief Phil Spencer, who stepped down in February after 12 years leading the division, Microsoft spent aggressively on studio acquisitions, most notably the $69 billion purchase of Activision Blizzard that closed in 2023. The bet was that a growing library of exclusive titles would drive subscribers to Game Pass fast enough to justify the spending. Instead, according to figures cited by Sharma’s team, the gaming division spent more than $20 billion over five years on content, platform, and hardware subsidies alone, excluding Activision Blizzard-specific costs, while annual revenue declined by close to $500 million over that same period.
This week’s cuts are not Microsoft’s first pass at trimming its gaming workforce. The company cut 1,900 jobs in early 2024 shortly after the Activision Blizzard deal closed, followed by another 650 in September of that year. A separate round in July 2025, tied to a 4% company-wide reduction, ended development on several in-progress titles, including Perfect Dark and Everwild. Taken together, roughly a third of the studios Microsoft acquired during Spencer’s decade of dealmaking — spanning Activision, Bethesda and ZeniMax, Blizzard, King, and Mojang — have now been closed, sold, or spun off entirely.
The reaction from workers has been swift. The Communications Workers of America, which represents more than 3,500 Microsoft gaming employees under a labor neutrality agreement struck as a condition of the Activision Blizzard merger, held a press conference to publicly oppose the restructuring and press Microsoft for stronger layoff protections and severance terms. Labor organizers have pointed to the scale of the Activision deal, and the promises made about job security during its regulatory review, as reasons the company should be doing more to cushion the impact on affected employees.
For the broader video game industry, the Xbox cuts land amid a broader slowdown. Console makers have grappled with a persistent memory-chip shortage that has pushed up hardware costs, while post-pandemic video game spending has cooled from its 2020-2021 highs. Sharma has signaled that part of Xbox’s path forward includes exploring a lower-cost console tier, a sign that the division is looking to compete on price as much as on exclusive content. Whether trimming the studio portfolio down to a smaller, more focused lineup succeeds in restoring profitability — without eroding the goodwill Game Pass built with subscribers — will be the central test of Sharma’s tenure at the helm of Xbox.
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