Microsoft restructures Xbox, cuts jobs and spins off game studios

Microsoft has reportedly begun another major round of layoffs, cutting approximately 4,800 jobs across the company, with more than 30% of the reductions affecting its Xbox division.

The restructuring is expected to impact around 1,600 Xbox employees, according to an internal memo from Xbox CEO Asha Sharma. Described internally as a major "reset" for the gaming business, the changes are set to continue beyond today's layoffs, with Microsoft reportedly aiming to reduce its Xbox workforce by around 20% by the end of the 2027 financial year.

Xbox shake-up: Microsoft cuts jobs, reshuffles studios and strategy

As part of the shake-up, four game studios will no longer operate under Microsoft. Double Fine and Compulsion Games are being spun off as independent studios, with founders Tim Schafer and Guillaume Provost taking charge of their respective companies once again.

Meanwhile, Ninja Theory, the studio behind Hellblade, and Undead Labs, known for the State of Decay series, are being sold. The report adds that agreements are in place to ensure both Senua and State of Decay 3 remain on track for release despite the ownership changes.

“I recognize that a year-long restructuring creates additional challenges. Unfortunately, it is not possible to make all the necessary changes in a single day, and I wanted to be direct about the scale,” says Sharma. “I know this is painful. 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.”

Microsoft is also reportedly considering the sale or closure of another Xbox studio. According to earlier reports, Arkane Studios, which is developing Blade under Xbox, has run into challenges, with the project said to be behind schedule and exceeding its planned budget.

“In France, Arkane’s management is beginning required consultation with its Works Council to review potential strategic options,” says Sharma.

The discussions surrounding Arkane Studios are expected to continue for several months, leaving the future of both the studio and its upcoming Blade project uncertain.

The restructuring will also affect several other Xbox studios, with layoffs expected across the gaming division. Reports indicate that Bethesda studios are among those facing some of the deepest cuts.

As part of the organisational overhaul, Mojang, the studio behind Minecraft, and King, the developer of Candy Crush, will now report directly to Xbox CEO Asha Sharma.

“These changes vary in size across Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and Xbox Game Studios,” says Sharma. “None of our first party publicly announced games or projects are being cancelled as part of these reductions.”

The latest round of Xbox layoffs appears to signal a shift in Microsoft's gaming strategy. The company is reportedly rolling back some of the smaller studio acquisitions made under former Xbox chief Phil Spencer, which were intended to strengthen the Xbox Game Pass lineup.

Instead, Microsoft now seems to be focusing on larger, established franchises rather than expanding its portfolio of smaller, indie-style titles such as South of Midnight, Kiln and Keeper.

"We now find ourselves competing not only with the largest publishers, but also with smaller independent studios,” says Sharma. “It is neither possible nor desirable to own every great independent studio. We have also learned that we are not the best home for every type of studio; in a typical year, we lost 64 cents for every dollar we invested. As we reset Xbox, we will help independent creators succeed by providing open development tools and audiences to realize their vision.”

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