Microsoft has confirmed a significant workforce reduction, announcing plans to lay off a total of 4,800 employees, with approximately 30% of those cuts coming from the Xbox division. This restructuring effort involves closing four Xbox studios and signals a broader strategic reset for the company’s gaming sector.
Among the studios affected, Double Fine, known for Psychonauts 2, and Compulsion Games, the creators behind South of Minuit, will regain their independence, returning ownership to their original leaders, Tim Schafer and Guillaume Provost, respectively. Meanwhile, Ninja Theory, developers of Hellblade, and Undead Labs, the team behind State of Decay, will be sold. Importantly, Microsoft has assured fans that the upcoming titles Senua’s Saga: Hellblade II and State of Decay 3 remain in development and will not be canceled.
Ongoing Challenges Prompt Further Cuts
This latest round of layoffs impacts roughly 1,600 Xbox employees, representing about 8% of the division’s workforce. According to an internal memo shared publicly by Xbox CEO Asha Sharma on her X account (formerly Twitter), these reductions are part of a longer process expected to continue throughout Fiscal Year 2027, potentially affecting up to 3,200 employees within the division by year-end.
In the memo, Sharma outlined several key challenges contributing to the decision. These include the rapid expansion and acquisition of multiple studios since 2018, which has led to fragmented management structures across Xbox. Additionally, services like Game Pass have not experienced the growth Microsoft anticipated, and some teams within the division have exceeded their necessary size, prompting the need for a recalibrated strategic approach.