Microsoft ‘resets’ Xbox by cutting 3,200 jobs this year, divesting five game studios — firm cites ‘margins that are 3-10x lower than comparable platform and publishing businesses’

Microsoft’s gaming division, Xbox, will eliminate approximately 3,200 jobs over its 2027 fiscal year in an attempt to turn around its floundering business. The cuts include offloading four studios with plans to spin off another, though no announced first-party games are being canceled.

Around 1,600 of those jobs are being eliminated today, and the rest will occur throughout the rest of the year.

“We are operating at margins that are 3-10x lower than comparable platform and publishing businesses,” Xbox CEO Asha Sharma wrote in a note to Xbox employees, pointing out that investments in studios and Game Pass did not add as much value as expected. She wrote that the business typically loses 64 cents for every dollar invested. “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.” She wrote that she has a goal for Xbox to reach more than a billion people per day.

Xbox is selling Compulsion Games (South of Midnight) and Double Fine (Psychonauts, Kiln), back to their management as independent studios, along with their catalogs, intellectual property, and funding for their next games.

Meanwhile, Ninja Theory and Undead Labs are being sold to unidentified “new ownership” and will continue to work on Senua and State of Decay 3 with Xbox, respectively.

The fifth studio, Arkane, is entering consultation to review options due to France’s strict labor laws. The company is currently working on Marvel’s Blade and previously worked on Redfall and Deathloop.

In Sharma’s letter, she wrote that changes will come to Activision, Bethesda and ZeniMax, Blizzard, King, Mojang, and Xbox Game Studios. Some will focus more on popular franchise games. Bloomberg reports that ZeniMax will focus specifically on its biggest names, such as Fallout, Doom, The Elder Scrolls, Quake, and Wolfenstein.

Mojang and King will report directly to Sharma, who wrote that those two studios are the largest in terms of monthly active players, and bring “critical geographic, demographic, and differentiation to XBOX.” But in other areas, Sharma is greatly reducing the amount of management for a flatter organizational chart.

Xbox has also found its first-ever chief operating officer. Helen Chiang, the corporate vice president of the Minecraft business, was promoted to streamlining changes to how the business operates, including “end-to-end P&L responsibility across content, hardware, platform, and services.”

“These changes are about a bigger future for XBOX, not a smaller one,” Sharma wrote. “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.”

Microsoft’s other recent moves include bringing more games exclusively to Xbox consoles, such as Gears of War: E-Day, returning to an all-caps “XBOX” brand, and more public discussion of Project Helix, the company’s next home console that’s also set to play PC games.

Sharma was named CEO of Xbox (then Microsoft Gaming) in February, succeeding Phil Spencer. Spencer built up Xbox with major acquisitions of Game Studios and a push to bring Xbox games everywhere with Game Pass.