Microsoft’s Xbox division is undertaking what company leadership described as the most significant restructuring in its history, combining thousands of job reductions, studio ownership changes and a broad organizational overhaul as the gaming business seeks to improve profitability and simplify operations.
The changes were outlined in an internal message sent to Xbox employees worldwide by Xbox President Asha Sharma. According to the company communication, approximately 3,200 positions will be eliminated during fiscal year 2027, including around 1,600 roles affected immediately. Four game studios will also move outside Microsoft’s ownership as part of the restructuring.
The announcement frames the overhaul as a response to financial and operational challenges that company leadership says have weighed on Xbox despite years of investment in content, subscriptions and platform expansion.
Company cites profitability and industry pressures
In the message, Sharma said Xbox’s business is operating with profit margins that are between three and 10 times lower than comparable platform and publishing businesses.
The executive said Microsoft’s gaming division entered the current console generation with a smaller hardware install base and a higher cost structure. Investments in Xbox Game Pass, multiplatform publishing and a broader portfolio of games created value, Sharma said, but did not expand as quickly as expected.
According to the memo, continued investment during that period coincided with a weakening core business, while the wider video game industry is experiencing what leadership described as its most severe hardware downturn.
The restructuring is intended to reposition Xbox for future growth by reducing costs, simplifying operations and concentrating investment on higher-priority areas.
Studio portfolio to be reshaped
A central part of the restructuring involves changes to Microsoft’s first-party development organization.
Compulsion Games and Double Fine Productions will become independent studios under new management, retaining their intellectual property portfolios, existing game catalogs and resources for future projects, according to the company.
Ninja Theory and Undead Labs have entered agreements to transition to new ownership that will provide funding to complete development of the Senua franchise and State of Decay 3, the memo said.
In France, Arkane’s management has begun the legally required consultation process with its Works Council to examine potential strategic options for the studio.
The company also confirmed workforce reductions across several business units, including Activision, Bethesda/ZeniMax, Blizzard, King, Mojang and Xbox Game Studios.
Despite the restructuring, the memo states that none of Microsoft’s publicly announced first-party games or projects are being canceled as part of the workforce reductions.
Leadership changes accompany restructuring
Microsoft is also changing how several of its largest gaming businesses are managed.
Mojang and King will now report directly to Sharma. The executive said both businesses have evolved into large-scale gaming platforms with the company’s highest monthly active player bases while providing geographic and demographic diversity across Xbox’s portfolio.
The restructuring also introduces a new chief operating officer position responsible for profit-and-loss management across content, hardware, platform and services.
Helen Chiang has been promoted to the newly created role after nearly two decades with Xbox. According to the company, Chiang previously contributed to Xbox Live and later led Mojang and the Minecraft franchise. She will oversee investment decisions and operational coordination across Microsoft’s gaming businesses.
The announcement also marks the retirement of Dave McCarthy after 17 years with Xbox.
Organizational simplification
Beyond staffing reductions, Microsoft plans to simplify its organizational structure.
According to the internal message, some parts of Xbox currently have as many as 14 layers of management. The company said platform teams have expanded by roughly 40% since the beginning of the current console generation despite declines in player numbers and total playtime.
Under the restructuring, management layers will be reduced to no more than five wherever possible, with some organizations targeting three layers.
The company also plans to streamline development by simplifying its code base, expanding shared services and reducing vendor spending by approximately 50%.
Long-term growth strategy
Although the restructuring includes significant workforce reductions, Xbox leadership characterized the initiative as an effort to build a more sustainable business rather than reduce its long-term ambitions.
The company said it intends to maintain investment levels while allocating capital more selectively and with greater financial discipline.
Sharma said Xbox aims to return to growth in 2027 while pursuing a longer-term objective of expanding its global reach and strengthening its position across gaming content, platforms and creator tools.
Topics: Xbox | Microsoft | Corporate Restructuring | Gaming Industry | Workforce Reductions | Game Studios | Corporate Strategy
This report is based on reporting by Team XBOX employees globally.
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