Xbox announces largest restructuring in its history with 3,200 layoffs

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Four studios leave the company; Microsoft says the business is "not healthy" and changes aim to streamline operations and reduce costs

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Microsoft announced on Monday (6) the largest restructuring in Xbox's history, with approximately 3,200 employees being laid off over the 2027 fiscal year. Of that total, about 1,600 layoffs are happening this week.

In a memo sent to employees globally, the company stated that "the business today is not healthy" and that it operates with margins 3 to 10 times lower than comparable companies in the industry. Microsoft entered the ninth generation of consoles with a smaller user base and a higher cost structure, and investments in Game Pass and multiplatform initiatives have not grown at the expected pace. At the same time, the industry faces "the most severe hardware crisis in its history."

As part of the restructuring, four studios are leaving Xbox. Compulsion Games and Double Fine Productions will return to independent management, retaining their intellectual properties and catalogs. Ninja Theory and Undead Labs have entered negotiations for new management, with funding to complete and expand the Senua and State of Decay franchises. In France, Arkane's management has initiated consultations with the workers' council to evaluate strategic options. Microsoft stated that no publicly announced games or projects will be canceled. Mojang and King, now the largest studios in monthly active players, will now report directly to the head of Xbox.

The company also plans to simplify its administrative structure. Currently, some areas of the company have up to 14 layers of management, and platform teams are 40% larger than at the start of this generation, even with a decline in player numbers and playtime. The goal is to reduce the number of managerial layers to no more than five — and, where possible, three. Microsoft also promises to cut spending with external vendors by 50%.

For the first time, Xbox will have a Chief Operating Officer (COO) with full responsibility over content, hardware, platform, and services. Helen Chiang, who previously led Mojang and the Minecraft franchise, has been promoted to the role and will report directly to Xbox leadership. Dave McCarthy, a 17-year company veteran, will retire.

Despite the layoffs, Microsoft stated that it plans to invest in Xbox in 2026 at the same level as previous years, but with "greater focus, discipline, and clarity." The company projected a return to growth in 2027. "These changes are about a bigger future for Xbox, not a smaller one," the memo reads.

Source: Xboxlink outside website

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