Microsoft is cutting roughly 3,200 jobs across Xbox through its 2027 fiscal year, including about 1,600 role eliminations today, as the company breaks from years of expansion across studios, Game Pass and platform teams.
In an email posted publicly by Xbox CEO Asha Sharma, Sharma called it "the most significant restructure in XBOX history" and said the business is "not healthy." The cuts will also reshape Xbox's studio portfolio, with Double Fine Productions, Compulsion Games, Ninja Theory, Undead Labs and Arkane Lyon all facing some form of exit, ownership change or consultation process.
Game File, which first reported additional details around the plan, says 1,600 workers are being cut today and another 1,600 are slated to leave before Microsoft's fiscal year ends on June 30, 2027. The report also says the spin-outs will account for more than 300 jobs leaving Microsoft Gaming.
Xbox is undoing much of its studio-buying era
The biggest creative shift is at Xbox's smaller and mid-sized teams. Sharma said Double Fine and Compulsion Games will return to management and become independent studios, keeping their IP, catalog and runway funding for future projects.
Ninja Theory and Undead Labs have entered terms to move to new ownership, with funding attached to complete and grow Senua and State of Decay 3. That makes the timing especially stark for Undead Labs, after State of Decay 3 was already facing layoff-risk reporting and then received a major gameplay showing at the Xbox Games Showcase in June. Microsoft said the survival sequel is still planned for 2027 on Xbox Series X|S, PC, cloud, Game Pass, Steam and PlayStation 5.
Arkane Lyon, which is working on Marvel's Blade, is not being moved on the same timetable. Sharma said Arkane management in France is beginning required consultation with its Works Council to review potential strategic options. Game File reports the future of Blade depends on the studio's eventual outcome.
The move cuts into a strategy Xbox loudly celebrated at E3 2018, when Microsoft announced the creation of The Initiative and plans to acquire Playground Games, Ninja Theory, Undead Labs and Compulsion Games. The Initiative closed in 2025, and under the new plan Playground Games would be the only one of those five teams still inside Xbox.
Double Fine was bought a year later in 2019. Its departure comes after Double Fine workers moved to unionize with CWA, while Sharma's memo says the studio will keep control of its pre-acquisition and post-acquisition catalog.
Platform teams are being cut back too
The restructure is not limited to game studios. Sharma said Xbox's platform teams are 40% larger than they were at the start of the current console generation, even as player base and playtime declined. She said some parts of the company had as many as 14 layers of management, which Xbox now plans to reduce to no more than five.
Sharma framed the cuts as a reset after Xbox entered the generation with a smaller install base and higher costs, then bet on Game Pass, multiplatform releases and a broader content portfolio. Those businesses created value, she said, but did not grow as quickly as Microsoft expected.
"Our business today is not healthy. We are operating at margins that are 3–10x lower than comparable platform and publishing businesses."
The memo also says Mojang and King will now report directly to Sharma. Minecraft and Candy Crush are being treated more like platform businesses inside Xbox, with Sharma saying they are the company's largest gaming studios by monthly active players.
Helen Chiang has been promoted to chief operating officer for Xbox, with responsibility across content, hardware, platform and services. Dave McCarthy, a longtime Xbox executive, is retiring after 17 years.
Sharma said none of Xbox's publicly announced first-party games or projects are being canceled as part of the reductions. Game File reports Microsoft still plans to release its Project Helix console and continue operating Game Pass, while the wider Xbox strategy shifts toward core franchises and a smaller platform organization.