Microsoft lays off 4,800, sells four Xbox studios in major gaming cuts

Microsoft announced significant layoffs affecting 4,800 employees, with more than 30% of the job losses occurring in its Xbox division—approximately 1,600 workers. These cuts are part of a broader restructuring described as an "Xbox reset." In addition to the layoffs, Microsoft is selling off four game studios to operate independently.

According to an internal memo from Xbox CEO Asha Sharma, the company plans to eliminate about 20% of Xbox jobs by the end of fiscal year 2027, totaling roughly 3,200 positions. Today's layoffs account for 1,600 roles, with the remainder to be phased in over the coming year. These figures exclude hundreds of Xbox employees leaving through the sale of four studios.

Double Fine and Compulsion Games are returning to their founders: Tim Schafer takes Double Fine back to independence, and Guillaume Provost makes Compulsion Games an indie studio again. Ninja Theory, creators of "Hellblade," and Undead Labs, developers of "State of Decay," are also being sold, with agreements ensuring the continued development of "Senua" and "State of Decay 3."

Microsoft is also weighing the sale or closure of Arkane Studios, currently working on a "Blade" game that is delayed and over budget. In France, Arkane's management has begun consultations with its works council to review strategic options.

Layoffs will hit other Xbox studios broadly, with particularly large cuts at Bethesda studios. Mojang ("Minecraft") and King ("Candy Crush") will now report directly to Sharma. However, no publicly announced first-party games or projects are being canceled.

Sharma's memo highlighted that Xbox's business is not healthy, with margins 3-10 times lower than comparable platform and publishing businesses. The company is refocusing on bigger franchises rather than competing with independent studios. As part of the restructuring, Microsoft is creating a new chief operating officer role, filled by Helen Chiang.