Microsoft is reportedly planning the biggest restructuring in Xbox’s history. The company is expected to cut around 3,200 jobs — almost 20% of the gaming division’s workforce — over the next year, reports Bloomberg. It is also expected to divest five game development studios. Around 1,600 employees are reportedly expected to leave immediately, while the remaining job cuts are likely to take place gradually during the current fiscal year.
The reported layoffs would affect almost every part of the Xbox business, including game development, publishing, engineering, marketing, operations and support teams. According to the report, Xbox CEO Asha Sharma told employees that the restructuring is aimed at ‘resetting Xbox’. She said years of heavy investment had failed to deliver the level of profitability Microsoft had expected. The reported goal is to reduce costs, simplify the organization and focus resources on areas with stronger long-term growth.
A major part of the overhaul involves reducing Microsoft’s first-party studio network. Double Fine and Compulsion Games are expected to become independent studios again, while Ninja Theory and Undead Labs are likely to move to new owners, with support continuing for their existing games. Microsoft is also reviewing options for a fifth studio, which could either be sold or spun off separately. The company has said that games already announced to the public are expected to continue development despite the ownership changes.
Internally, Xbox is also removing management layers and merging teams with overlapping responsibilities. Studios like Mojang, which develops Minecraft, and King, the company behind Candy Crush, will now report directly to Xbox leadership, while a new Chief Operating Officer role has been created to better coordinate Xbox’s hardware, software, publishing and platform businesses.
The restructuring comes after Microsoft spent years expanding Xbox through some of the biggest acquisitions in gaming history. In 2023, the company completed its $69 billion acquisition of Activision Blizzard. Earlier, Microsoft had acquired ZeniMax Media for $7.5 billion, bringing Bethesda and several well-known studios into the Xbox family. These acquisitions gave Microsoft ownership of some of the world’s biggest gaming franchises, including Call of Duty, World of Warcraft, Diablo, Overwatch, Candy Crush, Halo, Minecraft, Forza, Fallout, Doom and The Elder Scrolls. Currently, Xbox reaches around 500 million monthly active players across console, PC and mobile platforms, making it one of Microsoft’s largest consumer businesses.
However, despite building one of the strongest game portfolios in the industry, Xbox has struggled to turn that scale into strong financial performance. Console sales have continued to slow as the gaming market matures, while the growth of Xbox Game Pass, Microsoft’s subscription gaming service, has been slower than expected. Reports suggest Game Pass has reached around 30 million subscribers, far below earlier internal targets. Xbox revenue also fell 5% in the latest reported quarter, while operating margins remained under pressure.
It is also important to note that Microsoft has reduced its workforce several times in recent years. Earlier this year, it introduced a voluntary retirement programme for eligible long-serving employees in the US. The company laid off around 10,000 employees in 2023, followed by more job cuts in its gaming division in 2024. Last year, in 2025, Microsoft announced another major round of layoffs affecting about 4% of its global workforce.