Xbox to lay off 3,200 employees, divest five studios

Xbox has announced a major restructuring, reducing its headcount by 3,200 employees throughout fiscal year 2027, with 1,600 roles eliminated today. Four studios—Compulsion Games, Double Fine Productions, Ninja Theory, and Undead Labs—will leave Xbox ownership, while Marvel’s Blade developer Arkane Studios has begun consultations in France to explore “strategic options.”

Both Compulsion Games and Double Fine Productions will become independent again, returning to their original management along with their “[intellectual properties], catalog, and runway for their next games.”

Ninja Theory and Undead Labs have entered terms to join new ownership “with funding to complete and grow” their upcoming games, Senua and State of Decay 3.

According to Xbox CEO Asha Sharma, the Xbox business today is “not healthy,” with operating margins being “[three to 10 times] lower than comparable platform and publishing businesses.” And bets on “Game Pass, multiplatform, and a broader portfolio of content” did not meet expectations.

Since 2018, Xbox has “aggressively” expanded its studio portfolio, and in a typical year, “lost 64 cents for every dollar we invested.”

As Xbox ‘resets,’ it will reduce its management layers from as many as 14 levels to a maximum of five—or three, where possible.

Dave McCarthy, who has been at Xbox for 17 years, will retire as chief operating officer, and Helen Chiang will take his place, overseeing content, hardware, platform, and services with “end-to-end [profit and loss] responsibility.”

“These changes are about a bigger future for Xbox, not a smaller one,” said Sharma. “The next decade of gaming will be larger, more global, and more creative than anything we’ve seen before. This year, we’ll invest as much in Xbox as we ever have, but we’ll invest with greater focus, greater discipline, and greater clarity, all in service of making Xbox where the world plays and creates.

“I want Xbox to be one of the few companies that entertains more than a billion people each day and gives everyone the opportunity to create and connect. I know we can achieve this goal. Xbox has many of the most beloved franchises in entertainment history, talented studios around the world, and we will return to growth in 2027.”

Read the full memo from Sharma below.

Team,

We are beginning the most significant restructure in Xbox history. After careful consideration, I’ve made the difficult decision to reduce our team by approximately 3,200 throughout FY27. This will include approximately 1,600 role eliminations today, and in addition, four studios will leave Xbox to new management. 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.

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.

Our business today is not healthy. We are operating at margins that are [three to 10 times] lower than comparable platform and publishing businesses. We entered Gen 9 with a smaller install base and a higher cost structure. To grow, we bet on Game Pass, multi-platform, and a broader portfolio of content. While those businesses have created meaningful value, they did not grow at the pace we expected. As that happened, our core business weakened, and we added more teams, more investment, and more time, hoping for a better outcome. And now the industry is facing the most severe hardware crisis in its history. We must reset Xbox.

First, we will reset our content portfolio.

Since 2018, we have aggressively expanded our studio portfolio while the number of games created each month across the industry now outpaces the last ten years combined. We now find ourselves competing not only with the largest publishers, but also with smaller independent studios. 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.

Compulsion Games and Double Fine Productions will return to management and transition to independent studios with their [intellectual properties], catalog, and runway for their next games. Ninja Theory and Undead Labs have entered terms to join new ownership with funding to complete and grow Senua and State of Decay 3. In France, Arkane’s management is beginning required consultation with its Works Council to review potential strategic options.

We are also making reductions across other units, and in some cases, shifting investment to focus on higher priority projects. These changes vary in size across Activision, Bethesda / ZeniMax, Blizzard, King, Mojang, and Xbox Game Studios. None of our first party publicly announced games or projects are being cancelled as part of these reductions.

In addition, Mojang and King will now report directly to me. These two studios have increasingly become platforms and are our largest by monthly active players. They bring critical geographic, demographic, and differentiation to Xbox.

Second, we will reset our platform.

We know that great technology gets better when it gets simpler, not bigger. Today, in some parts of the company, work passes through as many as 14 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. That complexity has slowed decisions, blurred accountability, and made it harder to deliver for players. As we reset Xbox, we will simplify.

We will reduce management layers to no more than [five], and where possible, [three]. We will deliver success through a flatter organization that is built around makers (individual contributors focused on building), player-coaches (leaders who remain deeply involved in the work while developing their teams), and directly responsible individuals (DRIs) who own key decisions and outcomes. And we will streamline how we work across our tools, with a cleaner code base, shared services, and 50% reduced vendor spend.

Third, we are resetting how we operate.

As Xbox grew our headcount, we became more fragmented. Teams, studios, and functions often operate independently, and it became harder to work towards a shared goal, make the right tradeoffs, and get things done.

For the first time, we are establishing a Chief Operating Officer with end-to-end [profit and loss] responsibility across content, hardware, platform, and services. Helen Chiang has been promoted to this role and will report directly to me. Over nearly two decades at Xbox, Helen has helped build some of our most important businesses, from Xbox Live to leading Mojang and the Minecraft franchise. She will bring our businesses together under one operating model, making sure we make clear investment decisions, learn from our successes and failures, and hold ourselves accountable for results.

Thank you, Dave McCarthy, who is retiring after 17 years with Xbox. Dave has played a defining role in building the platform that millions of players rely on every day and has been a trusted partner through many of the biggest moments in Xbox’s history. We wish him all the best.

These changes are about a bigger future for Xbox, not a smaller one. The next decade of gaming will be larger, more global, and more creative than anything we’ve seen before. This year, we’ll invest as much in Xbox as we ever have, but we’ll invest with greater focus, greater discipline, and greater clarity, all in service of making Xbox where the world plays and creates.

I want Xbox to be one of the few companies that entertains more than a billion people each day and gives everyone the opportunity to create and connect. I know we can achieve this goal. Xbox has many of the most beloved franchises in entertainment history, talented studios around the world, and we will return to growth in 2027.

History is full of companies that mistake longevity for inevitability. We will not be one of them.

Asha