Microsoft has announced plans to eliminate 4,800 jobs, representing around 2.1% of its global workforce, as it begins a major restructuring of its Xbox gaming business.
Xbox will account for 3,200 of the planned job reductions. Microsoft immediately eliminated around 1,600 Xbox positions, while the remaining cuts will take place during its 2027 fiscal year.
Four Studios Leave
Microsoft will also move four game development studios out of the Xbox organisation.
Compulsion Games, the developer of South of Midnight, and Psychonauts developer Double Fine Productions will return to independent management.
Ninja Theory and Undead Labs will move to new ownership so they can continue developing the Senua and State of Decay franchises outside Microsoft.
Double Fine said it was thankful for its seven years under Xbox and had reached an agreement that would preserve its culture and history while returning ownership of its games to the studio.
Compulsion Games also said its immediate priority was supporting employees during the transition and expressed confidence in its future as an independent business.
Microsoft is separately holding consultations concerning Arkane Studios in France, which developed Dishonored and is working on a game based on Marvel’s Blade.
None of the four departing studios has been closed, allowing their employees, games, and intellectual property to continue under new management.
Xbox Restructure
Asha Sharma, who took over as chief executive of Microsoft’s gaming division in February, described the changes as the most significant restructuring in Xbox’s history.
Sharma acknowledged that the cuts would be painful but said Xbox needed to reset its content portfolio, platform, and operations.
She argued that the changes were intended to create a larger future for Xbox rather than shrink the business. Sharma also warned that long-established companies could not assume their continued success was guaranteed.
Sharma had warned employees in June that Xbox needed a major reset as the company dealt with declining revenue, weak returns, and problems with its subscription and cloud gaming strategies.
This is an important email I sent today to all employees at XBOX:
Team,
We are beginning the most significant restructure in XBOX history. After careful consideration, I've made the difficult decision to reduce our team by approximately 3,200 throughout FY27. This will include…
— ASHA (@asha_shar) July 6, 2026
Major Franchises
Minecraft developer Mojang and Candy Crush developer King will now report directly to Sharma.
The restructuring indicates that Xbox will place greater emphasis on its largest franchises and audiences instead of maintaining a broad collection of studios and smaller projects.
Microsoft previously acquired numerous studios to expand the catalogue available through Xbox Game Pass. However, the company has now decided that some teams and projects would operate more effectively outside Xbox.
Company-Wide Cuts
Microsoft Executive Vice President and Chief People Officer Amy Coleman told employees that the company needed to focus on areas capable of delivering results for customers in a rapidly changing industry.
Coleman said Microsoft was not replacing the eliminated roles with artificial intelligence. However, she acknowledged that AI was changing how employees perform their work.
The cuts come as Microsoft continues spending heavily on AI infrastructure. The company projected around $190 billion in spending for 2026, while the rising cost of building data centres is putting pressure on its cash flow.
Gaming Industry Pressure
The latest announcement adds to several years of job losses across the gaming industry.
Microsoft eliminated around 1,900 positions at Xbox and Activision Blizzard in early 2024. It later closed several studios, including Tango Gameworks and Alpha Dog Games.
In July 2025, Microsoft announced another reduction of around 9,000 jobs as it attempted to control costs while increasing its investment in AI infrastructure.
Rising hardware and memory costs have also forced Microsoft to increase Xbox console prices at a time when demand for its gaming hardware remains weak. AI data centres have contributed to a stronger demand for memory components, placing further pressure on supply and prices.
Xbox Faces Identity Challenge
Technology analyst Paolo Pescatore described the changes as a major reset but said reducing costs would not solve all of Xbox’s problems.
He said Microsoft must clearly define the role of Xbox as gaming increasingly moves across consoles, PCs, cloud services, and subscription platforms.
Microsoft has already shifted away from relying entirely on exclusive games to sell Xbox consoles. It is increasingly releasing its games across more platforms as it tries to improve returns from years of heavy investment, including its acquisition of Activision Blizzard.
Xbox now faces the challenge of rebuilding its gaming business with fewer employees and studios while proving that its new strategy can deliver sustainable growth.
Stay Connected with ProPakistani
Get the latest tech news, telecom insights, and product launches wherever you prefer.
Add ProPakistani to Preferred Sources and see more of our stories in Google Search and Top Stories.
