Xbox CEO Asha Sharma said Microsoft’s video game business is in desperate need of a “reset,” which apparently means job cuts and the shedding of several game studios.
Sharma announced in a memo to staff, posted on Xbox’s website Monday, that the company will cut about 3,200 jobs throughout fiscal year 2027. She described the move as the “most significant restructure in XBOX history.”
Half of those jobs, roughly 1,600 roles, are being eliminated today. These cuts are part of broader layoffs at Microsoft, which on Monday said it is eliminating about 4,800 roles, or about 2% of the company.
In addition to the job cuts, Sharma announced that four game studios are leaving Xbox.
Compulsion Games, known for South of Midnight, and Double Fine Productions, the studio behind Psychonauts, will return to their own management and retransition into independent studios.
Ninja Theory and Undead Labs have agreed to move on to new ownership, with funding to continue their work on the Senua and State of Decay series, respectively.
The French studio Arkane is also beginning a required consultation to review “potential strategic options.”
Meanwhile, Xbox’s other studios and units, including Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and Xbox Game Studios, are all being affected by the layoffs. Sharma said no publicly announced first-party games or projects are being canceled as part of the cuts.
“Our business today is not healthy,” Sharma wrote in the memo. “We must reset XBOX.”
Sharma said Xbox is operating at margins that are 3 to 10 times lower than comparable businesses. She added that, in an effort to grow, the company bet on Game Pass, its video game subscription service, as well as multi-platform releases and a wider portfolio of content. However, she said those businesses did not grow at the pace expected.
In the letter, Sharma also appeared to take some shots at her predecessor’s studio-buying strategy. Sharma took over as Xbox CEO in February, replacing longtime Xbox exec Phil Spencer. She previously served as Microsoft’s president of CoreAI Product and worked at Instacart and Meta before joining Microsoft.
“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,” Sharma wrote. “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.”
Sharma also gave a pretty clear sense of where Xbox sees some of its strongest businesses going forward.
She announced that Mojang, the studio behind Minecraft, and King, the maker of Candy Crush, will now report directly to her.
“These two studios have increasingly become platforms and are our largest by monthly active players. They bring critical geographic, demographic, and differentiation to XBOX,” Sharma said.
Still, the news leaves the company in a pretty awkward postion with workers preparing for more even more cuts to come
“Unfortunately, it is not possible to make all the necessary changes in a single day, and I wanted to be direct about the scale,” wrote Sharma. “I know this is painful.”
