Microsoft has entered one of its most sweeping gaming overhauls in years after cutting 4,800 employees, or about 2.1% of its workforce. The biggest impact is falling on Xbox, which is now in the middle of its largest restructuring in history.
The move comes as the game industry continues to face pressure and has not fully recovered from recent disruptions. In an internal memo, Microsoft Executive Vice President Amy Coleman said the company must stay focused on customer needs amid rapid changes across the sector.
Xbox takes the heaviest hit
Of the total layoffs, 1,600 positions in Xbox will be removed immediately. Xbox CEO Asha Sharma said the step marks the start of the most significant restructuring the division has ever seen.
Sharma added that another 1,600 roles are expected to disappear over the next year. In his message, he said the changes are meant to shape “a bigger future for Xbox, not a smaller one.”
Four studios are spun off
As part of the restructuring, Microsoft is spinning off four game studios: Compulsion Games, Double Fine Productions, Ninja Theory, and Undead Lab. The studios are not being shut down, but moved to independent management.
Double Fine thanked Xbox for seven years of partnership and said it was grateful to keep its history, culture, and ownership of its games.
| Studio | Status | Notes |
|---|---|---|
| Compulsion Games | Spun off | Moved to independent management |
| Double Fine Productions | Spun off | Kept its history, culture, and game ownership |
| Ninja Theory | Spun off | Moved to independent management |
| Undead Lab | Spun off | Moved to independent management |
Microsoft shifts Xbox toward bigger IP
The new strategy will focus more heavily on strong intellectual property with broad audiences. Under the revised structure, Mojang, the developer behind Minecraft, and King, the maker of Candy Crush, will report directly to Asha Sharma.
That adjustment shows Microsoft wants to reshape gaming into a leaner and more efficient business while staying competitive. Technology analyst Paolo Pescatore said the move represents a major scaling adjustment for Xbox’s future, not just a routine cost cut.
Costs, AI spending, and a changing market
Microsoft made the decision while hardware costs are rising and the company is making large investments in artificial intelligence. Amy Coleman said the company will not replace the eliminated roles with AI.
Pescatore also pointed to broader pressure on Xbox as gaming moves across consoles, PC, cloud, and subscription services. He said the key question is no longer only about efficiency, but also about Xbox’s identity in a fast-changing market.
The layoffs place Xbox in one of the most critical phases in its history. While Microsoft works to sharpen its business direction, the immediate impact is being felt by thousands of employees and by studios now operating under a new structure.