Last month, there were murmurs that “major job cuts” were coming for Xbox.
Now, Microsoft is cutting 4,800 roles, with 1,600 impacting its Xbox division today. In an email to employees, Xbox CEO Asha Sharma called it “the most significant restructuring in Xbox history.”
In the email, Sharma said she “made the difficult decision” to cut 3,200 roles—including the 1,600 cut today—by the end of the financial year in July 2027. The other 1,600 cuts are in addition to the 4,800 employees leaving Microsoft immediately.
As part of the restructuring, Sharma said Xbox will work through a “flatter organization” and reduce management layers “to no more than five, and where possible, three.” Sharma said that some of the company’s work passes through 14 management layers. The company makeup will include “individual contributors focused on building,” player-coaches “who remain deeply involved in the work while developing their teams” and “directly responsible individuals (DRIs)” who are the decision-makers.
“We will streamline how we work across our tools, with a cleaner code base, shared services, and 50% reduced vendor spend,” Sharma said.
A source familiar with Xbox said the company will lay off 20% of its workforce over the fiscal year, and that the restructuring is “not about AI automation.” They also said impacted employees will receive severance, healthcare continuation where applicable, career transition support and other benefits.
In a memo to employees, Microsoft EVP and chief people officer Amy Coleman said the “changes mostly fall within our Commercial and Xbox organizations.” Coleman pointed to broader industry changes being part of the reason the company needs to “adjust resources and roles and shift how we operate so we can have the greatest impact for our customers.”
“Our business is changing because the world around it is changing,” Coleman said. “The way technology is built, deployed, and used is transforming faster than at any point in my time here. Our customers’ needs are shifting, the business models that serve them are shifting, and that means the work itself—what we do, where we focus, and how we’re organized—has to transform too.”
Coleman added that while AI was not going to replace those eliminated, “what is true is that AI is changing how work gets done.”
“[The layoffs] are happening at the same time Microsoft is investing and emphasizing its investment in AI projects,” Cara Greene, partner at workers’ rights law firm Outten & Golden LLP, told Fast Company. “So it seems counterintuitive that they would be saying, on the one hand, ‘This is the future. We’re investing in AI,’ and ‘We’re not going to implement it ourselves.’ That seems inconsistent.”
Xbox’s cuts are part of a much bigger pattern in the gaming industry, which has seen mass layoffs and declining revenue in recent years. Companies are trying to keep up with the shift. Just this week, Sony announced it would discontinue physical PlayStation discs for new games starting in 2028 in its move toward digital.
In recent months, other companies like Meta and Block have also issued mass layoffs and flattened organizational structures to offset heavy AI spend and boost efficiency.
Last year, Microsoft eliminated 6,000 roles in May and an additional 9,000 in July. Earlier this year, Microsoft announced plans for its first-ever one-time retirement program for U.S. workers at the senior director level or below.
Greene says that those retirement packages were a sign that Xbox was planning on “tightening things” and preparing for layoffs.
“If they can find people who are going to raise their hands — that typically is in the form of early retirement packages — that’s kind of [the] easy targets,” Greene says. “It is a sign that the company is reducing headcount.”
In addition to cutting staff, Xbox is also selling off four of its game studios to operate independently.
While Microsoft-owned ZeniMax Media was not one of the impacted development studios, the union of its subsidiary Bethesda Game Studios announced in a Bluesky post that “many” of its development team were impacted by the layoffs.
“In what is becoming a stressful annual routine, Microsoft has decided to lay off thousands, including MANY of us at Bethesda Games Studios,” the post read. “With over 10k developers already cut from previous rounds, those at the top have deemed that insufficient in fixing their mistakes.”
“Today we say goodbye to many of our friends and colleagues and to hundreds more across Xbox, including folks that have worked at Bethesda Games Studios for decades,” the post continued. “When will this cycle of cuts in pursuit of ever-greater profits end?”
Read the full email Sharma sent Xbox staff:
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 3–10x 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 IP, 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% 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 5, and where possible, 3. 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 P&L 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
