Xbox to Cut 3,200 Jobs and Divest Five Studios in Reset

Microsoft’s Xbox division will cut about 3,200 jobs — roughly a fifth of its workforce — and let go of five studios it spent the past several years and billions of dollars acquiring, in what chief executive Asha Sharma called the largest restructuring in the brand’s history.

Sharma, who took over Microsoft Gaming from Phil Spencer earlier in 2026, laid out the cuts in a July 6, 2026 staff memo posted to Xbox Wire and to her account on X. About 1,600 roles were eliminated that day, with the rest to follow across Microsoft’s 2027 fiscal year, which ends June 30, 2027. The Xbox reductions are the largest share of a wider round of roughly 4,800 job losses reported across Microsoft.

Unwinding a decade of studio buying

Four studios are leaving Xbox Game Studios outright. Compulsion Games and Double Fine will return to their own management as independent studios, keeping their intellectual property, back catalogs and funding for their next games. Ninja Theory and Undead Labs have agreed terms to move to new, undisclosed owners with financing to finish Senua and State of Decay 3. A fifth studio, France-based Arkane, has begun a works-council consultation required under French law to weigh its options.

The exits are a partial reversal for a company that spent much of the past decade buying developers. Since 2018, Microsoft assembled one of the industry’s largest first-party stables, including its roughly $7.5 billion purchase of ZeniMax Media, closed in 2021, and the far larger Activision Blizzard acquisition that followed. Sharma said Xbox is now running at margins three to ten times lower than comparable platform and publishing businesses, and that in a typical year it lost 64 cents on every dollar put into its expanded portfolio. “It is neither possible nor desirable to own every great independent studio,” she wrote.

Her argument leans on how much the market has changed. With more games launching each month than in years past and big-budget development growing harder to sustain, Sharma said Xbox now competes with small independents as much as with major publishers. The reset also lands amid what she described as the worst hardware crisis in the industry’s history: component costs have climbed sharply, with storage alone on track to cost several times what it did two years ago, and Xbox has raised console prices repeatedly over the past 18 months.

A flatter, more centralized Xbox

Alongside the cuts, Sharma is rewiring how the division operates. Helen Chiang, who previously ran Mojang and the Minecraft business, becomes Xbox’s first chief operating officer, with profit-and-loss responsibility spanning content, hardware, platform and services. Mojang and King — Xbox’s largest studios by monthly players — will now report directly to Sharma, tightening control over its most reliable earners.

Longtime corporate vice president Dave McCarthy is retiring after 17 years. Sharma said the platform organization had grown bloated, with work passing through as many as 14 layers of management, and pledged to cut that to no more than five, halve spending on outside vendors, and consolidate the codebase. The changes point to a company trying to run its gaming arm with the financial discipline of the rest of Microsoft rather than as a loose federation of studios.

Bethesda and the studios that stay

No announced first-party games are being cancelled and no studios are closing, Sharma said, but the cuts fall unevenly across Activision, Bethesda/ZeniMax, Blizzard, King, Mojang and Xbox Game Studios. Bloomberg’s Jason Schreier reported that ZeniMax — the Bethesda parent Microsoft bought in 2020 — faces a significant overhaul, with id Software and ZeniMax Online Studios among the hardest hit and teams refocused on the group’s biggest franchises: Fallout, The Elder Scrolls, Doom, Quake and Wolfenstein.

In an internal email reported by IGN, Bethesda head Jill Braff told staff the publisher would move away from planning around each studio’s next project and toward “our strongest franchises,” casting the change as a step back to sustainable growth. Obsidian, another Microsoft-owned studio, stays inside Xbox.

The reductions extend a punishing stretch for the industry. They come almost exactly a year after a summer 2025 round that hit about 9,000 Microsoft staff, shut the studio The Initiative and cancelled two games, and they arrive as a video-game workers’ union stands up a hardship fund for laid-off developers. Sharma cast the reset as the route back to growth for Xbox in 2027. For the 3,200 people it affects, it is the second summer running that Microsoft’s gaming ambitions have narrowed at their expense.