Xbox Confirms Plans to Cut 3,200 Jobs Over the Next Year in Major Restructuring

Tue, 07 Jul 2026 00:00:00 +0000

Xbox has officially confirmed plans to cut approximately 3,200 jobs over the next year across its sprawling network of studios, including Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and Xbox Game Studios. Half of those cuts — roughly 1,600 positions — are taking place immediately as part of a broader workforce reduction at Microsoft that is eliminating 4,800 roles today, or about 2.1% of the company’s global workforce.

The announcement follows weeks of speculation that Microsoft was preparing to gut its gaming division after the end of its fiscal year on June 30. In a memo to staff shared publicly, Xbox CEO Asha Sharma laid out a blunt assessment of the division’s challenges and the restructuring needed to address them.

A Health Check That Didn’t Go Well

Sharma was remarkably candid about the state of Xbox’s business. “Our business today is not healthy,” she wrote. “We are operating at margins that are 3-10x lower than comparable platform and publishing businesses.” She pointed to a smaller install base heading into Gen 9, a higher cost structure, and growth bets on Game Pass and multi-platform publishing that “did not grow at the pace we expected.”

The memo detailed how the division had expanded aggressively since 2018, acquiring studios at a rapid clip while the industry itself entered a period of oversupply. “We now find ourselves competing not only with the largest publishers, but also with smaller independent studios,” Sharma noted. “It is neither possible nor desirable to own every great independent studio.”

Studios Set Free

As part of the restructuring, Xbox is divesting several studios rather than shutting them down entirely. Compulsion Games (South of Midnight) and Double Fine Productions are going independent, retaining their IP, catalog, and development runway for their next titles. In a statement on X, Compulsion confirmed it is keeping the rights to its games and said its “immediate priority is to support our team throughout this transition period.”

Ninja Theory and Undead Labs have entered terms to join new ownership with funding to complete and grow Senua and State of Decay 3, respectively. Xbox did not disclose the prospective buyers. Around 350 of the job cuts are tied to these studio divestitures, according to The Game Business.

Meanwhile, Arkane Studios — the Lyon-based developer behind Dishonored and Deathloop — faces an uncertain future. Sharma confirmed that Arkane’s management is beginning consultation with its Works Council to “review potential strategic options,” as required by French labor law. Reports indicate Arkane’s Blade game has been delayed internally and is now targeting a late 2027 release.

Leadership Changes and Organizational Flattening

Dave McCarthy, Xbox’s chief operating officer, is retiring. He will be replaced by Helen Chiang, who has led Minecraft’s leadership team for the past decade. Chiang will take on end-to-end profit and loss responsibility across content, hardware, platform, and services, with Sharma saying she will “bring our businesses together under one operating model.”

Sharma is also flattening the organization by removing layers of management. “Our platform teams are 40 percent larger than they were at the start of this generation, even as our player base and playtime have declined,” she wrote. “That complexity has slowed decisions, blurred accountability, and made it harder to deliver for players.”

Notably, Sharma confirmed that Xbox is not canceling any publicly announced first-party games or projects.

A Broader Industry Pattern

This is not the first round of painful cuts for Xbox. The division cut 1,600 jobs in early 2024 and laid off hundreds more just over a year ago. The latest reductions come shortly after Microsoft announced price increases for Xbox consoles, citing soaring memory and storage costs — costs the company has acknowledged it contributed to through its massive buildout of AI compute capacity.

The Communications Workers of America, a union representing many Microsoft game workers, had urged the company to negotiate in good faith over “meaningful layoff protections” ahead of the cuts. The broader tech industry continues to grapple with a post-pandemic correction, and gaming has been hit especially hard, with thousands of jobs lost across publishers and developers worldwide throughout 2024, 2025, and now 2026.

As Xbox resets its content portfolio and cost structure, the coming months will reveal whether this leaner, more focused approach can restore the division to health — or whether further cuts lie ahead.

Bethesda on Know the Tech

Xbox Confirms Plans to Cut 3,200 Jobs Over the Next Year in Major Restructuring

A Health Check That Didn’t Go Well

Studios Set Free

Leadership Changes and Organizational Flattening

A Broader Industry Pattern