Xbox to Cut 3,200 Jobs Amidst Business Challenges

Earlier in June, reports surfaced indicating that Xbox was gearing up for significant layoffs in July. It was suggested that several studios, including Compulsion Games, Double Fine, Ninja Theory, Undead Labs, and Arkane, were at risk of being shut down by Microsoft.

As July has arrived, those predictions have materialized: on Monday, Xbox CEO Asha Sharma announced that over 1,600 employees would be laid off, with a total of more than 3,200 job cuts planned for the new fiscal year. This restructuring is described as “the most significant” in the company’s history. In a memo to Xbox staff, Sharma acknowledged, “Our business today is not healthy.” Microsoft, which owns Xbox, is set to lay off 4,800 employees in total on Monday alone.

Compulsion Games and Double Fine Productions will transition to independent studios, retaining their intellectual properties and the freedom to develop their next projects. Meanwhile, Ninja Theory and Undead Labs will have new owners with the necessary funding to finish their respective titles, Senua and State of Decay 3, although details on the new ownership remain undisclosed.

Arkane’s future is uncertain, as its leadership is consulting with its Works Council to explore potential strategic options. Recent reports suggested that Arkane might face closure, and its project, Marvel’s Blade, which is reportedly behind schedule and over budget, could be canceled.

The layoffs extend to various divisions, affecting teams at Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and Xbox Game Studios. However, Sharma reassured that none of Xbox’s previously announced first-party games are being canceled due to these layoffs.

In the memo, it was noted, “We now find ourselves competing not only with the largest publishers but also with smaller independent studios. It is neither possible nor desirable to own every great independent studio.” This marks a shift from Xbox’s previous strategy of aggressively acquiring studios under former Microsoft Gaming CEO Phil Spencer. The memo also highlighted that the company has learned it may not be the best fit for every type of studio, citing a loss of 64 cents for every dollar invested in a typical year.

Management layoffs are also part of the restructuring. The memo pointed out that “Our platform teams are 40% larger than they were at the start of this generation, even as our player base and playtime have declined.” To address this, management layers will be streamlined from 14 to three to five, aiming to enhance efficiency across platform teams.

Despite the layoffs, Sharma remains optimistic about Xbox’s future, aspiring to entertain “more than a billion people each day,” a challenging target for a company that currently reaches a billion players annually. “I know we can achieve this goal. Xbox has many of the most beloved franchises in entertainment history, talented studios around the world, and we will return to growth in 2027.”

The layoffs come on the heels of a brief period of optimism following Sharma’s appointment. The new CEO initiated a charm offensive, emphasizing initiatives like Player Voice and rebranding as XBOX. Players were eager for exclusives, and the company responded by highlighting upcoming titles like the next Gears of War and 2027’s Clockwork Revolution as Xbox console exclusives. Additionally, Game Pass saw a price reduction, although future Call of Duty titles will not be available on the service at launch.

However, the goodwill generated during Sharma’s initial months is fading. The layoffs are likely to leave a negative impression on players, compounded by a third round of price increases for Xbox hardware within just 13 months. Starting August 1, the Xbox Series S 512 GB will retail for $499, while the Xbox Series X will be priced at $799, up from $299 and $499 in 2020.

These layoffs and hardware price hikes follow a stark memo to employees titled “Next 100 Days: Xbox Reset,” which stated, “For some of you, these realities will be surprising and even frustrating to discover. We won’t succeed by hiding hard truths, nor will we succeed by doing the same thing and expecting different results.” A month after this message, the harsh realities of the “Xbox Reset” are becoming evident.

It raises the question of whether Xbox should have acquired the studios it is now closing.