Microsoft is cutting 3,200 Xbox jobs and spinning off four game studios

[Daniel Sims]

Cutting corners: The first wave of massive layoffs that Microsoft teased several weeks ago has arrived. Most of the losses will hit the Xbox division over the next year as the company consolidates its gaming strategy. Microsoft will spin off Compulsion Games, Double Fine, Ninja Theory, and Undead Labs, while Arkane enters labor negotiations. Bethesda, ZeniMax, id Software, Activision, Obsidian, and Microsoft's accessibility team will all see deep cuts.

In a public memo to Xbox employees, CEO Asha Sharma confirmed that Microsoft will eliminate approximately 3,200 positions across the gaming division between now and July 2027, with 1,600 layoffs taking effect immediately. Other outlets report an additional 1,600 redundancies across other Microsoft divisions, bringing the total to 4,800.

No studios have been fully closed so far, and Sharma stressed that no publicly announced games have been canceled. Compulsion Games (which recently shipped South of Midnight) and Double Fine (Psychonauts) will become independent, retaining their intellectual property and receiving "runway" funding for their next projects.

Meanwhile, Microsoft will sell Ninja Theory (Hellblade) and Undead Labs (State of Decay) to new owners with the resources to finish Senua and State of Decay 3, respectively.

Arkane Lyon, meanwhile, is entering negotiations with its work council over its future. Stringent French labor laws likely spared the Dishonored and Deathloop studio from Arkane Austin's fate. The studio's next title, Blade, based on the Marvel Comics character, is said to have slipped from a late-2026 to a late-2027 launch after running over budget. Studio founder Raphael Colantonio, who left Arkane in 2017 and later founded the indie studio WolfEye in 2019, jokingly asked Sharma how much it would cost to buy Arkane back.

Although ZeniMax and its other subsidiaries, including Bethesda (The Elder Scrolls) and id Software (Doom), will remain under Microsoft, they've suffered significant losses. Bloomberg's Jason Schreier reports the studios will narrow their focus to franchises such as Fallout, The Elder Scrolls, Doom, Quake, and Wolfenstein. The Elder Scrolls VI remains years away despite having been announced eight years ago.

Reports of further job losses are still filtering across social media. According to 3D Realms founder Scott Miller and former Bethesda Game Studios lead Jeff Gardiner, id Software lost around 95 employees, including most of its coders.

Microsoft layoffs since 2023

Date (announcement)	Reported headcount cut	Main business areas hit
18 Jan 2023	10,000	Windows & devices, Xbox, HoloLens, recruiting & marketing
25 Jan 2024	1,900	Activision Blizzard, Xbox, ZeniMax after the ABK deal closed
3-4 Jun 2024	≈1,000 (internal est.)	Azure for Operators, HoloLens/mixed-reality, other "moonshot" teams
12 Sep 2024	≈650	Xbox publishing & game-studio support teams
Jan-Feb 2025	≈2,000	Company-wide "low-performer" cull (no severance in many cases)
13 May 2025	≈6,000 (Microsoft says "< 3% of staff")	All geographies; focus on middle-management, LinkedIn
2 Jun 2025	305	Redmond, Washington HQ roles; additional WARN-notice layoffs following the May cuts
2 Jul 2025	≈9,000 (Microsoft says "< 4% of staff")	Company-wide; Xbox, sales, management layers, and other divisions
23 Apr 2026 (opens May)	Up to ≈8,750 offered voluntary exit	US employees at senior director level and below whose age plus tenure equals 70 or higher; certain sales staff excluded
Fiscal Year 2027 (beginning July 6, 2026)	≈4,800	Largest reset in Xbox history, five game studios divested

If accurate, the redundancies could significantly affect Microsoft's internal game engine development. The studio behind Doom and Quake has produced some of the most influential graphics engines in video game history, and its recent technical work on Doom: The Dark Ages and Indiana Jones and the Great Circle is considered among the most ambitious on today's hardware.

Sources also told Gardiner that around 35 Bethesda employees were let go, and Obsidian Entertainment (The Outer Worlds 2, Avowed) lost an undetermined number of employees. The team behind The Elder Scrolls Online, meanwhile, took enough damage to push its roadmap significantly beyond the upcoming content season.

While Microsoft's Accessibility Team, widely praised for designing controllers for disabled gamers, saw layoffs, the company's hardware division appears unscathed. The next Xbox console, codenamed Helix and expected to launch in late 2027 or 2028, remains on schedule. Blizzard Entertainment hasn't seen any immediate redundancies, though the Diablo IV studio might lose staff in the coming months.

– Raphael Colantonio (@rafcolantonio) July 6, 2026

Mojang (Minecraft) and King (Candy Crush) will now come under direct oversight of the Xbox division. Former Mojang executive Helen Chiang has been promoted to a newly created chief operating officer position as Microsoft looks to reduce the number of management layers between studios.

Sharma explained that Xbox's prior strategy – bolstering the Game Pass subscription service with a wide variety of content and multiplatform releases – didn't reach Microsoft's growth targets. The company's margins are 3-to-10 times lower than those of similar businesses, and it lost 64 cents for every dollar it invested in most years. The CEO told Fortune that Xbox had stretched itself thin.

On top of this, memory shortages, partly driven by Microsoft's own AI investments, have multiplied the company's expenditures on RAM for its hardware. These conditions have pushed Apple, Sony, and other manufacturers to raise prices, with Microsoft set to add at least $100 to the price of Xbox Series consoles in August.

Amid post-pandemic market corrections, AI-related spending, and other factors, Microsoft has enacted multiple rounds of layoffs in each of the past several years. By July 2027, approximately 44,000 of the company's employees will have lost their jobs in four years.

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Microsoft is cutting 3,200 Xbox jobs and spinning off four game studios

 

[m4a4]

Sounds either like someone got serious and cut the covid and HR bloat finally, or they're just flailing.

I'm hoping it's the former, considering how meh the games MS has put out recently have been...

 

[Kirby1]

At least they're not shutting the studios down.

 

[rmcrys]

I really don't care about a company that in the last decade just tried to do more obscure businesses: bloated business, bloated software, bloated uninteresting games and forcing people to go AI / cloud even if you have zero interest in it. Even the office for Mac scandal shows how obscure they're going... That is happening across most American companies and the US itself in the last decade. Even Hollywood / Netflix etc are supporting very dubious ideas (Odyssey, Supergirl, etc), Sony is releasing very overpriced and uninteresting TVs and ending physical game media... no one seems to care to make MANDATORY that you OWN a game/music/movie license and if the company wants to shut down their servers, they are either give you a offline version, or they have to refund your money.

What is the US (and not only) trying to do? You pay as if you owned something, but you own nothing. Heck, the philosophy is clearly "you owe us money, but we companies own you"

But hey, it's a great time for the rest: Linux adoption and distro quality has never been so wide, "free" Office solutions the same and fortunately other European solutions too. I hope much more gaming studios start supporting offline games, across Linux x86/ARM so that people can game in their tablets, smartphones, Mac, handhelds etc.. I also hope the Chinese (why not Europeans?!) start manufacturing RAM and SSD in good quantities, so that we stop supporting sh.tty US/South Korean companies.

 

[LordVile95]

Sounds either like someone got serious and cut the covid and HR bloat finally, or they're just flailing.

I'm hoping it's the former, considering how meh the games MS has put out recently have been...

Sounds like they’re culling middle management with them supposedly cutting the layers from up to 13 to up to 4/5

 

[Megalomaniac]

So glad I never worked for these corporations.

 

[SirDigby]

No *specific* mention of Machine Games? Wolfenstein Youngblood wasn't the hit they wanted but 1 and 2 were absolutely incredible games, would be sad to see them go.
id Software just put out the first expansion for Doom: TDA - not played it yet, but TDA was alright, not my fav of the modern trilogy but again, I'd be really sad to see them go - I've got a Doom tattoo.
Wouldn't mind more focus on TES and Fallout, these games take a frustratingly long time to make.

 

[Theinsanegamer]

I wonder what sucker they got to buy undead labs, which is torn apart by DEI politics to the point it has a whole paragraph on Wikipedia, and ninja theory who hasn't put out a good selling game in a decade.

No *specific* mention of Machine Games? Wolfenstein Youngblood wasn't the hit they wanted but 1 and 2 were absolutely incredible games, would be sad to see them go.
id Software just put out the first expansion for Doom: TDA - not played it yet, but TDA was alright, not my fav of the modern trilogy but again, I'd be really sad to see them go - I've got a Doom tattoo.
Wouldn't mind more focus on TES and Fallout, these games take a frustratingly long time to make.

This attitude is an issue. Wolfenstein 1 is over a decade old now, just like the rest of the studios. Youngblood was a major flop and doom TDA sold terribly.

"Past performance predicts future results" leads to a lot of sunk cost, when game studios have proven otherwise.

Sounds like they’re culling middle management with them supposedly cutting the layers from up to 13 to up to 4/5

Yes. All the closed studios combined are only about 500 employees. This is a middle management bloodbath.

This isn't over either. Bethesda is on thin ice, if they start flopping they will get gutted next, and actiblizzard is huge and in need of culling.

 

[The Talking Tech]

It's a kind gesture from Xbox CEO Asha Sharma to allow studios to walk away with All their IPs even those made with Microsoft's money, instead of choosing to close them down leaving them with nothing to work with.

It shows that Asha understands that while the ship might be sinking, its crew doesn't have to drown with it.

Wish other publishers would take notice of her great actions.

 

[GABulldog]

The game industry is oversaturated and a lot of the games don't have that "WOW" factor. Then you have companies like Sony who take away the right of ownership only to turn around and take away the game anytime they feel like. Then you have Microslop who didn't read the room very well, raised prices because they believed gamers will pay it.

They need to go back to the late 90's early 2000's, when games were actually worth playing and enjoyable to play.

 

[Dreadcthulhu]

As far as I can tell, between those four studios being spun off, they have collectively managed to release 1 commercially successful game (Psychonauts 2) while under MS ownership. The rest of their meager output just hasn't sold well. And for that matter, one of those studios, Undead Labs, has not managed to even release a single game since Microsoft purchased them in 2018.

 

[GeforcerFX]

This attitude is an issue. Wolfenstein 1 is over a decade old now, just like the rest of the studios. Youngblood was a major flop and doom TDA sold terribly.

Machines last game release was Indiana Jones which did pretty well critically and commercially. None of Microsofts games have actually sold well since they all go gamepass day one no one buys the game outright. I think Forza Horizon 6 and COD have been there only major sale success in the last 2 years.



On a sad note if the coders are gone from id than the id tech engine is basically dead as they were the ones creating and managing it. One of the best looking modern engines that still ran good on most hardware.

 

[Theinsanegamer]

Machines last game release was Indiana Jones which did pretty well critically and commercially. None of Microsofts games have actually sold well since they all go gamepass day one no one buys the game outright. I think Forza Horizon 6 and COD have been there only major sale success in the last 2 years.



On a sad note if the coders are gone from id than the id tech engine is basically dead as they were the ones creating and managing it. One of the best looking modern engines that still ran good on most hardware.

Fair point, I forgot they did the great circle.

I haven't heard of id shedding programmers, although honestly idtech has stalled ever since carmack left. I'd say it's on its last legs as a standalone engine.

 

[ScottSoapbox]

“ 10 times lower” is a nonsensical statement.

Please learn how numbers work.