Xbox Confirms 3,200 Layoffs and Releases Five Studios in Sweeping Business Reset
After weeks of rumour, conjecture and murmurings, the earthquake has finally shaken the gaming world, with Microsoft confirming one of the most seismic restructurings in Xbox history. Gaming division CEO Asha Sharma announced plans to dispense with approximately 3,200 positions across its next fiscal year. Roughly 1,600 of those roles will be cut immediately, with the news coming weeks after we reported on Asha Sharma’s planned “reset.”
Alongside the headcount trimmings, Xbox is set to part ways with five notable first-party studios: Dishonored developer Arkane, Psychonauts developer Double Fine Productions, State of Decay developer Undead Labs, South of Midnight developer Compulsion Games, and Senua's Saga developer Ninja Theory,
Double Fine and Compulsion will get their independence back, retaining their back catalogs and IP, as well as what Sharma described as "runway" funding for their next projects. Undead Labs and Ninja Theory, meanwhile, have each entered agreements with undisclosed new owners, with funding in place to make sure upcoming games State of Decay 3 andSenua see the light of day. On that note, no game cancellations have been announced.
It’s hard to say at this point what will become of Arkane. Management at the French studio is engaged in mandatory consultation with an employee works council to explore what Sharma called "potential strategic options," but we’re aware of no resolution at the time of writing. All five studios were acquired during Sharma’s predecessor – Phil Spencer – ‘s time at the company.
Thinking about everybody affected by today’s Xbox news. A well composed, coherent and revealing memo from Asha Sharma and her team but the amount of change is hard to fathom.
— Victor Lucas (@Victor_Lucas) July 6, 2026
I hope for great things & new games from Compulsion, Double Fine, Ninja Theory, Undead Labs & Arkane.
Asha Sharma took to X to lay out the reasoning behind the decisions. "Our business today is not healthy," she wrote. "We are operating at margins that are 3–10x lower than comparable platform and publishing businesses. We entered [the most recent console generation] with a smaller install base and a higher cost structure. To grow, we bet on Game Pass, multi-platform, and a broader portfolio of content. While those businesses have created meaningful value, they did not grow at the pace we expected."
Sharma also took a pointed swing at the acquisition-heavy approach Xbox pursued since 2018. "It is neither possible nor desirable to own every great independent studio," she said in the announcement. "We have also learned that we are not the best home for every type of studio; in a typical year, we lost 64 cents for every dollar we invested." Sharma confirmed that reductions will also touch teams across Blizzard, Activision, Bethesda/ZeniMax, Mojang, King, and Xbox Game Studios proper, though she stressed that no publicly announced first-party games are being cancelled as part of the restructuring.
Before today, unionized Xbox developers had already begun pushing back publicly, demanding protections against what workers described as disposable treatment. On X, industry commentator @Victor_Lucas reflected the general mood:
Thinking about everybody affected by today’s Xbox news. A well composed, coherent and revealing memo from Asha Sharma and her team but the amount of change is hard to fathom.
— Victor Lucas (@Victor_Lucas) July 6, 2026
I hope for great things & new games from Compulsion, Double Fine, Ninja Theory, Undead Labs & Arkane.
It’s also worth noting that Sharma has appointed Helen Chiang as Xbox's new Chief Operating Officer, a detail that was easy to miss unless you speak Spanish (we found it in a Spanish-language coverage of the announcement on X!). Sharma is also committing to flatten management, capping organizational layers at five and targeting three if she can, a move that could minimize bureaucratic bottlenecks.
Ultimately, though, it’s not hard to see all this as a bit of a bloodbath. The only saving grace right now is that the five aforementioned first-party studios haven’t closed but we feel a little uneasy about the future of Arkane, which is very much in the air. For now, those who are looking forward to Senua and State of Decay 3 can at least breathe a little easier.
