Microsoft Xbox As part of a major restructuring to improve the gaming business, 3,200 jobs, or about 20% of Xbox’s workforce, will be cut next year. As part of the overhaul, Xbox will also spin off five game development studios.
The company said the restructuring was aimed at simplifying the business, cutting costs and putting more money into bigger gaming projects. Xbox CEO Asha Sharma announced the changes in a note to employees Monday morning. Sharma said the Xbox business is currently in poor financial shape. “Our business today is not healthy,”
Sharma wrote in an employee note. She also said Xbox’s operating margins are three to 10 times lower than similar companies. “We have to reset the Xbox,” Sharma wrote. Xbox has invested heavily over the years, including its $69 billion acquisition of Activision Blizzard in 2023, but the business is still struggling. Bloomberg reports that despite these investments, Xbox is still facing fewer blockbuster game releases, declining hardware sales and a difficult gaming market.
Sharma earlier told employees that Xbox’s liability margin had fallen to 3%, and the company said the layoffs would occur over the next 12 months.
The studio was divested
Xbox is selling Ninja Theory, the studio behind Hellblade, to an undisclosed buyer. Xbox will also sell Undead Labs, known for State of Decay, to an undisclosed buyer. Even after the sale, both studios will continue to develop their current games: Senua and State of Decay 3 (for Xbox). Xbox is spinning off Double Fine, the studio behind Psychonauts.
Xbox will also spin off Midnight South developer Compulsion Games. Bloomberg said the two studios will return to private ownership under the leadership of their original founders. Sharma said Double Fine and Compulsion Games will receive funding during the transition period and will retain full ownership of the intellectual property (IP) they create, including their legacy games.
Also read: Why is Microsoft laying off 4,800 employees? Xbox Reorganization Explained
Xbox will also begin negotiations with Arkane Studios in Lyon, France. Xbox will review possible strategic options for Arkane, including a sale or spin-off. Sharma said Xbox wants to “review potential strategic options” for Arkane. The Arkane process has not officially started yet and will take longer due to French labor laws.
Why Xbox is making these changes
All five studios were originally acquired by former Xbox CEO Phil Spencer. According to Bloomberg, Spencer spent several years acquiring small game developers and major publishers, including Activision Blizzard and ZeniMax. His strategy is to let Xbox Game PassMicrosoft’s video game subscription service is getting more attractive by adding more exclusive games.
Xbox Game Pass growth ultimately slowed, reducing the expected benefits of these acquisitions. Sharma admits there has been some success with these acquisitions. “Meaningful value was created,” but “they did not grow at the pace we expected,” Sharma wrote. She also said that “in a typical year,” Xbox loses 64 cents for every dollar invested in the business.
“It is neither possible nor desirable to own every great independent studio,” Sharma wrote. She added, “When we reset Xbox, we will help independent creators succeed by providing open development tools and an audience to realize their vision.”
What stays the same
Sharma said publicly announced game projects will not be canceled due to the restructuring. However, she said layoffs It will affect every part of Xbox, including the studios the company retains. Sharma said this was done to “focus on higher priority projects”.
Bloomberg reports that ZeniMax will be reorganized and will focus primarily on its largest gaming franchises. These series include Fallout, The Elder Scrolls, Doom, Quake, and Wolfenstein. Xbox will also reduce the number of layers of management in its platform division to speed up product development.
Xbox will introduce a more centralized studio structure. The company also plans to increase its investment in big blockbuster games such as Minecraft. Sharma said her long-term goal is to get Xbox to 1 billion players every day. She told employees the reorganization was aimed at building a better future for Xbox. “These changes are for the greater future of Xbox, not the smaller future,” Sharma wrote.
According to Bloomberg, she added: “This year, we will continue to invest in Xbox as always, but our investments will be more focused, more rigorous, and more clear, all with the goal of making Xbox the place where the world plays and creates.”
