Microsoft has announced plans to eliminate 4,800 jobs worldwide, equivalent to about 2.1 percent of its global workforce, as the company begins the most significant restructuring in the history of its Xbox gaming business.
The cuts will heavily impact Xbox, which will account for roughly 3,200 of the total job losses. Around 1,600 Xbox roles have already been eliminated, while the remaining reductions will be carried out during Microsoft’s 2027 fiscal year.
Game Studios Moved Out of Xbox
As part of the overhaul, Microsoft will remove four game development studios from the Xbox organisation rather than shutting them down.
Compulsion Games, developer of South of Midnight, and Double Fine Productions, known for Psychonauts, will return to independent management.
Meanwhile, Ninja Theory and Undead Labs will move to new ownership structures so they can continue work on the Senua and State of Decay franchises outside Microsoft.
None of the studios is being closed, allowing employees, intellectual property, and ongoing projects to continue under new management.
Double Fine said it was grateful for its seven years under Xbox ownership and confirmed an agreement that preserves the studio’s culture while returning ownership of its games. Compulsion Games said its immediate focus was supporting staff during the transition and expressed confidence in its future as an independent company.
Microsoft is also holding consultations regarding Arkane Studios, which developed Dishonored and is currently working on a game based on Marvel’s Blade.
Leadership Signals Strategic Shift
Asha Sharma, who became head of Microsoft’s gaming division in February, described the changes as a painful but necessary reset.
She said Xbox must rethink its content strategy, platform priorities, and operations to build a stronger long-term future. Sharma warned that even long-established companies could no longer assume automatic success in a rapidly evolving industry.
In June, Sharma had already cautioned employees that Xbox was facing declining revenue, weak returns, and challenges in its subscription and cloud gaming strategies.
Focus on Major Franchises
Following the restructuring, Mojang and King will now report directly to Sharma.
The move signals a sharper focus on Microsoft’s largest and most profitable franchises rather than maintaining a broad portfolio of smaller studios. While Microsoft previously expanded aggressively to support Xbox Game Pass, executives now believe some teams will perform better outside the Xbox ecosystem.
Company-Wide Cost Pressures
Amy Coleman told employees the company must concentrate on areas that deliver the strongest customer value in a fast-changing market.
She said the eliminated roles were not being replaced by artificial intelligence, though AI is increasingly changing how work is done across the company.
The job cuts come as Microsoft continues massive investment in AI infrastructure. The company expects to spend around $190 billion in 2026, with the rising cost of data centres placing pressure on cash flow.
Gaming Industry Under Strain
The announcement adds to years of job losses across the global gaming industry. Microsoft cut about 1,900 roles at Xbox and Activision Blizzard in early 2024 and later closed studios such as Tango Gameworks and Alpha Dog Games.
In July 2025, Microsoft announced another round of roughly 9,000 job cuts as it sought to control costs while expanding AI investment.
Higher hardware and memory prices have also forced Microsoft to raise Xbox console prices at a time of weak demand, adding further strain to the gaming division.
Xbox Faces Strategic Identity Test
Technology analyst Paolo Pescatore described the restructuring as a major reset but warned that cost-cutting alone would not solve Xbox’s challenges.
He said Microsoft must clearly define Xbox’s role as gaming increasingly spans consoles, PCs, cloud platforms, and subscription services.
Microsoft has already moved away from relying solely on exclusive games to sell consoles and is now releasing titles across multiple platforms to improve returns from years of heavy investment, including its acquisition of Activision Blizzard.
With fewer studios and employees, Xbox now faces the challenge of proving that its new strategy can deliver sustainable growth in an increasingly competitive gaming market.
