Xbox to Cut About 3,200 Jobs During Microsoft’s 2027 Fiscal Year, Four Studios Exit

Xbox is cutting about 3,200 jobs over Microsoft’s 2027 fiscal year, including about 1,600 immediately, and moving four studios out of Xbox control as the company retreats from the expansion strategy it pursued through acquisitions in recent years. In a July 6 memo to staff, later published on Xbox Wire, Microsoft Gaming chief Asha Sharma said, “We are beginning the most significant restructure in XBOX history.” She added: “This will include approximately 1,600 role eliminations today, and in addition, four studios will leave XBOX to new management.”

Those four studios are taking different paths. Compulsion Games and Double Fine Productions will return to management and become independent studios, with their intellectual property, game catalogs and financing runway for their next games, according to Sharma’s memo. Ninja Theory and Undead Labs have entered terms to join new ownership, with funding to complete and grow the “Senua” franchise and “State of Decay 3.” Separately, Arkane in France is beginning required consultation with its Works Council — a formal employee-representation body under French labor rules — to review potential strategic options. Sharma did not describe Arkane as leaving Xbox.

The cuts reach across much of Microsoft’s gaming business. Sharma said layoffs will affect Activision, Bethesda/ZeniMax, Blizzard, King, Mojang and Xbox Game Studios. At the same time, she said, “None of our first party publicly announced games or projects are being cancelled as part of these reductions.” That means Microsoft is saying the restructuring does not cancel any games it has already announced publicly from its first-party studios.

Sharma framed the reset as a response to weak economics inside the business. “Our business today is not healthy,” she wrote. In the memo, she said Xbox is operating at margins “3–10x lower than comparable platform and publishing businesses,” entered the current console generation with a smaller install base and a higher cost structure, and failed to get the growth it expected from Game Pass subscriptions, multiplatform releases and a broader content lineup. The message marked a blunt acknowledgment that the company’s recent strategy had not produced the financial performance management wanted.

The announcement is the clearest sign yet of how sharply Xbox is changing course under Sharma, who became Microsoft Gaming chief in February after replacing longtime Xbox leader Phil Spencer. On June 10, Sharma and Xbox Game Studios head Matt Booty had already warned employees in a memo titled “Next 100 Days: XBOX Reset” that the business was overextended and headed for major changes. Monday’s moves unwind part of Microsoft’s studio buildout from 2018 and 2019, when it acquired Compulsion, Ninja Theory and Undead Labs in 2018, and Double Fine in 2019. The cuts also follow broader Microsoft layoffs, including roughly 9,000 jobs eliminated across the company in July 2025.

The restructuring also reshapes Xbox management. Mojang and King will now report directly to Sharma. Helen Chiang has been promoted to chief operating officer, with end-to-end profit-and-loss responsibility across content, hardware, platform and services. Dave McCarthy is retiring after 17 years with Xbox. Microsoft did not identify the new owners for Ninja Theory and Undead Labs in the memo.