XBOX is Laying Off 1600 Employees Today, and That's Just the Beginning

After weeks of uncertainty, speculation, and nervousness, layoffs have unfortunately begun at XBOX as part of the company's "reset" under new CEO Asha Sharma.

Microsoft as a whole is eliminating 3,200 jobs, with 1,600 of those affecting XBOX, according to a post from Sharma. She also confirms that four studios will be leaving the XBOX family. Double Fine and Compulsion Games will become independent and return to private ownership under their original founders, as reported by Bloomberg's Jason Schreier. Compulsion confirmed on social media that they will retain the rights to games such as We Happy Few and South of Midnight. Ninja Theory and Unead Labs will be sold to new ownership "with funding to complete and grow Senua and State of Decay 3."

The future of Arkane Studios remains in doubt. Sharma says they are reviewing various strategic options over the next few months. That process has yet to begin, though, as Schreier points out that it will take longer due to French labor laws.

Today's layoffs come nearly one year to the date of major layoffs last year at XBOX that caused the cancellation of several anticipated games. Sharma confirms that "none of [XBOX's] first party publicly announced games or projects are being cancelled as part of these reductions."

New CEO Asha Sharma Lays Out a Plan for the Future of XBOX

Much has been made about the XBOX reset under Sharma's leadership, and she brings it up again in today's official announcement.

Under Phil Spencer, XBOX bet big to grow on Game Pass, multi-platform releases, and a wide range of games under the XBOX Studios umbrella. That plan did not translate into success, as Sharma explains.

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.

This is not the first time XBOX has talked publicly about the hardware crisis. As they raised prices on consoles, they talked about how console storage and memory prices have increased by over 250% recently, and they expect that to double again by next fall.

So what is the plan for XBOX? A larger focus on shifting their investment strategy towards "higher priority projects." Sharma points out Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and XBOX Game Studios as targets for this. To me, that reads a bigger investment in Call of Duty, Blizzard IPs like Diablo, Warcraft, and StarCraft, mobile games, Minecraft, and established first-party IPs like Gears of War and Halo. At the time of writing, its unclear where studios such as Obsidian currently stand.

Schreier also adds that it's expected Bethesda/ZeniMax will focus on Fallout, The Elder Scrolls, Doom, Quake, and Wolfenstein in particular.

The XBOX Reset Also Includes a Change in Operations

Video game development in 2026 looks very different than it did during the days of the Xbox 360, when Microsoft and XBOX arguably ruled the gaming world.

Studios have become larger, game budgets have exploded, and it's become harder and harder to manage teams. This is something Sharma acknowledges:

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.

To address this, Helen Chiang, the corporate VP of the Minecraft franchise, is being prompted to the first-ever XBOX Chief Operating Officer with end-to-end Profit and Loss responsibility across content, hardware, platform, and services. Chiang has been at Microsoft for over a decade, working in various roles in the XBOX division. Meanwhile, Dave McCarthy, the current XBOX COO, is retiring after 17 years with the company.