Microsoft has announced that thousands of Xbox employees have lost their jobs today, as part of wider cuts across Microsoft in a bid to make the business "healthy". In a memo attributed to Xbox CEO Asha Sharma, some 3200 people will be laid off "throughout FY2027" (which runs until March 31st, 2028), with 1600 of those losses happening immediately.
As part of the changes, four internal Xbox studios will leave the brand. Keeper and Psychonauts developer Double Fine and South of Midnight creators Compulsion Games are set to return to independent operation, with their IP intact. Meanwhile, Senua developer Ninja Theory and State of Decay 3 developer Undead Labs are being sold to unnamed publisher(s) with assurances that their recently announced games will be completed. Arkane, creators of Dishonored and Deathloop, is also likely to experience job losses, but French employment law requires a consultation period - so the extent of proposed changes is not yet known.
Many other Xbox studios have also suffered debilitating layoffs. Scott Miller, founder of 3D Realms, posted on Twitter to say that the majority of id Software has been laid off - "including most (if not all) coders". Zenimax Online Studios, the developers of Elder Scrolls Online, has reportedly lost around half their staff according to Kotaku, while Obsidian has suffered 25 percent casualties. The numbers represent a huge amount of lost talent for these studios, with the prospect of equally large layoffs hanging like a sword of Damocles over the head of remaining employees for the next two years.
How much confidence do you have in Xbox as a brand?
I'm confident these cuts will pave the way for new success I'm somewhat confident Xbox will remain a major player. I have little to no confidence in the future of Xbox.
How much confidence do you have in Xbox as a brand? (323 votes)
- I'm confident these cuts will pave the way for new success 7%
- I'm somewhat confident Xbox will remain a major player. 9%
- I have little to no confidence in the future of Xbox. 85%
The id Software cuts feel especially damning, given the wealth of engineering talent responsible for id Tech and the critical success of the three Doom games released in the past ten years. The studio also contributed its engine and expertise to other Xbox projects over the years, making it hard to believe that the studio was a net negative to the brand in an industry where Unreal Engine games have become the norm and bespoke engines are a prized rarity.
While it was inevitable that layoffs and restructures of some sort were coming given the "Xbox Reset" memo released last month, this is a severe gutting of the Xbox business and indicates a huge strategy u-turn, with the leadership team of the new all-caps brand seemingly giving up the idea of becoming the world's largest games publisher, and instead focusing on the most successful pieces of that library to the exclusion of others.
From here, the plan looks like producing more frequent and better monetised entries in large existing franchises - such as Fallout, The Elder Scrolls, Call of Duty, Candy Crush, Minecraft and Forza - with revenue coming through traditional sales and microtransactions. (That's instead of through Game Pass subscriptions, with the memo intimating that the strategy ultimately didn't work and their recent studio acquisitions were largely not worthwhile.) Mojang and King, the studios behind Minecraft and Candy Crush respectively, now report to Sharma directly as a measure of their importance to the business. There is also an Xbox COO for the first time, Helen Chiang, with the remit to oversee "end-to-end profit and loss" across "content, hardware, platform, and services."
It will be interesting to see where Microsoft and its surviving studios go from here, as it feels like almost every part of the business has been badly affected - and even studios lucky enough to escape with minimal layoffs will no doubt face intense pressure to complete their existing projects at warp speed. The new, flatter organisational structure mentioned in the memo sounds like a reasonable improvement, but will it make up for the losses elsewhere? It's hard to say.
With these cost-cutting measures in place, I'd like to hear more about where Microsoft is actually growing its investment - eg what about Xbox on Windows, one of the few remaining unique points of the business versus rivals Sony and Nintendo? As the line between console and PC continues to blur, this feels like one of the few areas of genuine potential for Xbox, where gaming-focused rebuilds of Windows and the Xbox app could give the business a much-needed shot in the arm.
What do you make of the news? Does Microsoft's strategy make sense to you? Let me know in the comments below.
[source news.xbox.com]
Will is website editor for Digital Foundry, specialising in PC hardware, sim racing and display technology.
Well, the second half of 2026 just started. We’ve still got 6 months to go, but I can already tell this year sucks for real.
- 2
- themightyant
- 3 hours ago
Awful news all around with id reportedly having around 50% of staff laid off (rumoured to be id Tech team), Obsidian facing major cuts and Zenimax online also rumoured to be 50%.
If there's any small sliver of a silver lining it's that Double Fine, Ninja Theory, Compulsion games & Undead Labs all have a small lifeline and aren't being closed.
We will have to wait and see about Arkane as French law is holding up an announcement there... but it doesn't sound good.
Add to that Sony ending discs, rumoured £1000 consoles, and it's been the worst week of gaming news I can remember.
- 3
- MercoLunarTarus
- 2 hours ago
Ironically 'everything's an xbox' might not have been a bad strategy looking at hardware prices today. Could release a $100 box with controller that streams games with a gamepass subscription to go along with Helix release? I would hate that, but XBOX and Playstation seem to be leaving behind the casual with $1000+ box prices next gen. They're probably making the right decisions with this from a spreadsheet perspective, but a lot of lost jobs and talent in the process.
- 4
- Magnumstache
- 1 hour ago
Dreadful news about id Software. Clearly Microsoft want their IP but not their actual game making talent, otherwise it would've been nice if they'd had the opportunity to go independent or to find another buyer rather than being hobbled by layoffs.
- 5
- Snorlaxcat
- 34 mins ago
are we actually in the video games crash part 2?
- 6
- Someguyperson
- 20 mins ago
Asha wrote in a previous statement that she "wanted to reduce dependence on 3rd party vendors" and then she went and killed off the team creating the only real competitor to Unreal that was in-house? She's either duplicitous and can't be trusted with a word she says, or she's a complete idiot. It's not good either way. I think Phil Spencer will come out of this looking like a hero that tried to actually do what was best for the whole division, while Asha will continue to look like Satya's puppet and effectively be the death of that entire division.
- 7
- LukasUnderscore
- 3 mins ago
I can't imagine this being a healthy working environment, and all the knowledge that's being lost is just an insane move. I hope all these talented devs land on their feet after this, but its not looking good for the western game industry.
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