Microsoft Cuts 3,200 Xbox Jobs in Major Strategic Reset

Xbox CEO Asha Sharma announced a massive organizational "reset" involving the layoff of 3,200 employees throughout fiscal year 2027. The restructuring, part of a broader 4,800-person reduction at Microsoft, follows a significant shortfall in Game Pass subscribers, which reached approximately 30 million against a target of 77 million. Sharma attributed the failure to high cost structures and a flawed multiplatform strategy that left the business "not healthy."

As part of the pivot back to system-selling exclusives, Microsoft is divesting several studios. Double Fine Productions and Compulsion Games are returning to independence, while Ninja Theory and Undead Labs are being sold. Arkane Studios remains under strategic review. Additionally, IO Interactive closed its Istanbul studio after Xbox withdrew funding for Project Fantasy.

Internal studios faced severe cuts. id Software lost between 50% and 75% of its workforce, totaling 136 layoffs. This prompted rumors that the proprietary id Tech engine was dead; however, Xbox refuted this, stating dozens of developers continue to work on the technology across multiple locations. Bethesda Game Studios also saw more than 50 staff members let go, creating risks for the development of The Elder Scrolls 6.

Labor reactions have been sharp. The Communications Workers of America criticized Microsoft for treating workers as "disposable line items." Former id Software co-founder John Carmack noted that the studio may have been a "marginal business" from Microsoft's perspective. To improve stability, Xbox appointed Helen Chiang as Chief Operating Officer and is flattening its management structure to five layers.