XBOX confirmed today, July 6, 2026, what the gaming industry had been bracing for since early June: a sweeping restructuring that will cut approximately 3,200 jobs throughout fiscal year 2027, with 1,600 role eliminations taking effect immediately.
CEO Asha Sharma announced the changes in an internal memo to staff, calling it “the most significant restructure in XBOX history.” Alongside the layoffs, four studios are leaving the Xbox family: Double Fine Productions and Compulsion Games are returning to independence, while Ninja Theory and Undead Labs are being sold to new owners.
The cuts at XBOX are part of a wider round of layoffs at Microsoft, which is eliminating roughly 4,800 positions company-wide today, with the remaining reductions concentrated in commercial sales divisions outside of gaming.
Sharma took over as CEO of Microsoft Gaming in February 2026, succeeding Phil Spencer, who had led the division since 2022. Since then, she has already reversed some of XBOX’s most criticized moves, including that Game Pass price hike, while pushing the brand back toward console exclusives after years of an “every screen is an Xbox” strategy that never fully paid off.
Sharma acknowledged the human weight of the announcement directly in her memo. “I know this is painful,” she wrote. “These changes will directly affect people who have poured their creativity into building XBOX. Many joined us through acquisitions, while others were recruited here, or sought us out because they loved this industry and loved XBOX. Today’s decisions do not reflect their talent or dedication.”
Four studios, two very different fates
Double Fine Productions, founded by Tim Schafer in 2000 and known for Psychonauts, Brutal Legend and Broken Age, will return to Schafer’s own management and retain full control of its intellectual property and back catalog.
Compulsion Games, the Montreal studio behind We Happy Few and South of Midnight, follows the same path under founder Guillaume Provost, also keeping its IP. Sharma wrote in the memo that both studios will “return to management and transition to independent studios with their IP, catalog, and runway for their next games.” Double Fine had been part of XBOX Game Studios since Microsoft acquired it in 2019, while Compulsion joined the family back in 2018.
Ninja Theory, the Cambridge studio behind the Hellblade series, and Undead Labs, developer of the State of Decay franchise, are being sold to new owners who have not yet been publicly identified. According to Sharma, both studios “have entered terms to join new ownership with funding to complete and grow” their current projects: Senua, the next chapter in Ninja Theory’s saga following Hellblade II, and State of Decay 3.
A fifth studio, France-based Arkane, has not been sold or spun off, but its management has begun mandatory consultations with its Works Council, a legal requirement in France before any major restructuring decision. Sharma described this as Arkane “beginning required consultation with its Works Council to review potential strategic options,” leaving the future of the Dishonored and Deathloop studio, and that of its in-development Blade project, unresolved for now.
Sharma was direct about why XBOX is stepping back from owning so many studios outright. “We now find ourselves competing not only with the largest publishers, but also with smaller independent studios,” she wrote. “It is neither possible nor desirable to own every great independent studio.” Going forward, she added, XBOX intends to support independent creators through open development tools and access to its audience rather than direct studio ownership.
“Our business today is not healthy”
In the memo, Sharma did not soften the diagnosis. “Our business today is not healthy,” she wrote, noting that XBOX is operating at profit margins three to ten times lower than comparable platform and publishing businesses.
She explained that XBOX entered the current console generation with a smaller install base and higher costs than expected, and that its bets on Game Pass, multi-platform releases and a broader content portfolio “did not grow at the pace we expected.”
As the core business weakened, the company responded by adding more teams, more investment and more time, hoping for a turnaround that never fully arrived, all while the industry faces what Sharma calls its most severe hardware crisis in history, driven in part by memory and storage component costs that have climbed several times over compared to just two years ago, complicating production of XBOX’s next-generation Helix console.
The reset is built around three priorities. The first is the content portfolio: since 2018, XBOX aggressively expanded its studio lineup, but according to Sharma, the company lost 64 cents for every dollar invested in a typical year, a figure that explains why four studios are exiting XBOX this week.
Sharma also confirmed that no first-party publicly announced games are being cancelled, though reductions will affect Activision, Bethesda/ZeniMax, Blizzard, King, Mojang and Xbox Game Studios in varying degrees. Mojang and King will now report directly to Sharma, tied to both studios becoming, in her words, “platforms” with the largest monthly player bases at Xbox, bringing “critical geographic, demographic, and differentiation to XBOX.”
The second priority is the platform itself. Sharma revealed that in some parts of the company, a single decision passes through as many as 14 layers of management, while platform teams have grown 40% larger than they were at the start of this console generation, even as player base and playtime have declined.
Her fix caps management layers at five, and ideally three, built around what she calls “makers” (individual contributors focused on building), “player-coaches” (leaders who stay involved in the work while developing their teams), and “directly responsible individuals” who own key decisions and outcomes instead of passing them along a chain. The third priority, how Xbox operates day to day, includes a cleaner codebase, shared services, and a 50% cut in vendor spending.
As part of the restructuring, Helen Chiang, previously corporate vice president of Minecraft, has been named XBOX’s first Chief Operating Officer, taking on end-to-end responsibility across content, hardware, platform and services. Former COO Dave McCarthy is exiting the company after 17 years with Xbox.
A reset years in the making
This isn’t XBOX’s first painful stretch. Microsoft made a similarly large round of cuts around this same time in 2025, affecting hundreds of workers across studios like King, Turn 10 and Blizzard. The road to today’s memo began in early June, when Sharma and Chief Content Officer Matt Booty published a joint memo titled “Next 100 Days: XBOX Reset,” warning staff that the division’s financial situation “cannot continue” after five years of heavy investment without matching revenue growth.
That earlier memo also came months after XBOX partially reversed its controversial Game Pass price hike, cutting Game Pass Ultimate from $29.99 back down to $22.99 a month in April 2026, after the October 2025 increase reportedly cost the service millions of subscribers within a few months.
Part of XBOX’s new content strategy, according to Variety, involves concentrating investment on its biggest franchises, with titles like Minecraft and The Elder Scrolls positioned as priority growth areas going forward, while smaller-scale exclusive bets are scaled back.
Whether that strategy pays off remains to be seen, but for the 1,600 people who lost their jobs today, and the teams now heading into independence or new ownership at Double Fine, Compulsion, Ninja Theory and Undead Labs, the human cost behind XBOX’s reset is already impossible to ignore.
So, what’s your take: was this restructuring inevitable, or is XBOX giving up too much by letting go of studios like these? Let us know!