Xbox Sheds Four Studios and 3,200 Jobs in 'Most Significant Restructure in History'

Microsoft's gaming division announces sweeping cuts, a flat org structure, and a COO with total P&L responsibility — all to fix margins that ran 3–10× below competitors.

Microsoft has announced the largest restructuring in Xbox history, with approximately 3,200 job cuts across fiscal year 2027 and four game studios set to leave the company. Xbox CEO Asha told employees in an internal memo published Monday that the business is operating at margins "3 to 10 times lower than comparable platform and publishing businesses."

The cuts begin immediately with roughly 1,600 role eliminations today. Four studios are departing: Compulsion Games and Double Fine Productions will return to independent operation with their IP intact, while Ninja Theory (Hellblade) and Undead Labs (State of Decay) have entered terms to join new ownership. Arkane's management in France is beginning consultations on strategic options.

Xbox lost 64 cents for every dollar it invested in its studio portfolio in a typical year, the memo revealed. The company's bets on Game Pass and multi-platform publishing "did not grow at the pace we expected," while the gaming industry faces what the memo calls "the most severe hardware crisis in its history."

The restructuring reshapes leadership. Helen Chiang, a two-decade Xbox veteran who led the Minecraft franchise, has been promoted to Chief Operating Officer with end-to-end P&L responsibility. Mojang and King — Xbox's largest studios by monthly active players — will now report directly to the CEO. Longtime executive Dave McCarthy is retiring after 17 years.

The company is flattening its management structure, reducing layers from as many as 14 down to a maximum of five. Vendor spending will be cut by 50 percent, and the platform organization — which grew 40 percent larger this generation even as player counts declined — will be streamlined. No first-party games already announced are being cancelled.

The cuts are already rippling across the portfolio. Obsidian Entertainment, the studio behind Avowed and The Outer Worlds, is losing roughly 25 percent of its staff across all disciplines, including employees with more than a decade at the studio. Bethesda's Elder Scrolls Online team was described as "gutted," with the publisher narrowing its focus to five main franchises including The Elder Scrolls and Fallout. Polygon reports the changes could reshape Game Pass itself.

Sources: Xbox Wire, Polygon, Polygon, Kotaku, Hacker News