Microsoft has begun a sweeping overhaul of its Xbox gaming division, confirming plans to sell four first-party studios and cut around 1,600 jobs across Xbox as part of a wider restructuring.
According to The Verge, Microsoft is laying off about 4,800 employees across the company on 7 July, with more than 30% of those cuts affecting Xbox. The reductions form part of a broader plan to reshape the gaming business and return it to growth by 2027.
Instead of closing studios, as earlier rumours suggested, Microsoft has decided to sell four of its Xbox Game Studios developers.
Double Fine and Compulsion Games will return to independent ownership. Double Fine founder Tim Schafer will regain control of his studio, while Guillaume Provost will take back Compulsion Games. Both studios are expected to continue operating independently after previously joining Microsoft in 2019 and 2018 respectively.
Ninja Theory and Undead Labs will also leave Xbox through separate sale agreements. The move aims to keep their current projects alive rather than cancel them. Last month, Ninja Theory confirmed that one of its planned horror titles had been shelved to focus resources on the Senua franchise. Meanwhile, Undead Labs continues work on State of Decay 3, although its future will now depend on the studio’s new owner.
Xbox chief executive Asha Sharma confirmed the restructuring in an internal memo. She said the company would carry out job cuts throughout the 2027 financial year, beginning with approximately 1,600 redundancies announced on Monday. Sharma said the cost of maintaining certain studios had become unsustainable and described the changes as the first step in an effort to “reset Xbox”, starting with its content portfolio.
The restructuring extends beyond the studios. Sharma said Xbox would reduce management layers to no more than five, and where possible three, noting that platform teams have grown by 40% since the start of the current console generation despite declining player numbers and overall playtime.
The changes also affect Activision, Bethesda/ZeniMax, Blizzard, King, Mojang and Xbox Game Studios. Mojang and King will now report directly to Sharma. She also announced the promotion of Helen Chiang to chief operating officer, giving her end-to-end profit and loss responsibility across content, hardware, platforms and services.
Despite the overhaul, Sharma said Microsoft is not cancelling any publicly announced first-party games or projects.
However, The Verge’s Tom Warren reported that more layoffs and at least one additional studio closure could still follow. He said Arkane Studios’ Blade project has slipped behind schedule and exceeded its budget, prompting consultations over possible strategic options.
With thousands of jobs disappearing and four major studios leaving Xbox, Microsoft’s gaming division is entering one of the biggest restructurings in its history. The full impact of the overhaul may not become clear until the company completes its plans over the coming financial year.
