Xbox is doing a "reset," but can it reboot the business?
Microsoft's gaming brand cut 1,600 employees on Monday, with an additional round of layoffs expected before June 2027, according to an employee memo from Xbox CEO Asha Sharma. The layoffs are part of a massive restructuring by Microsoft, which is cutting about 2.1% of its total workforce, or roughly 4,800 employees.
Approximately 350 people affected are from four gaming studios that Xbox plans to offload to outside management: Compulsion Games, Double Fine, Ninja Theory and Undead Labs, all of which were bought within the last eight years. A fifth, Arkane Studios in France, could also be sold or spun off.
Sharma, who took over Microsoft's gaming division in February, said in her statement that Xbox's business operation is "not healthy," that costs are too high and the customer base too low. She said Game Pass -- a monthly subscription that provides access to Xbox's collection of games -- and the company's in-house portfolio of games has not grown fast enough.
Over the past few months, Sharma seemed to acknowledge Xbox's weaknesses and pushed changes to address them, including lowering the price of the subscription service.
Xbox has had a tumultuous history, rising to dominate earlier console generations before falling to Sony and Nintendo in the last decade. The original Xbox console launched on Nov. 15, 2001, to compete with Sony's PlayStation 2 and the Nintendo GameCube.
While Xbox console sales were at or near No. 1 in the US during the Xbox 360 era in the early 2010s, by the prior and current console generation defined by the Xbox Series X and PS5, Sony's PlayStation is now the global market leader, accounting for nearly half of all sales, with Nintendo's Switch at 27% and Xbox at 23%.
What happened to Xbox
In a video titled "How Things Got So Bad at Xbox," Bloomberg reporter Jason Schreier argues that Xbox's current turmoil is the result of inconsistent strategy, shifting priorities and a late-stage push for profitability after massive spending.
Schreier traces Xbox's decline from a console-first business to a sprawling, internally conflicted organization with hardware, software, subscriptions and studios pulling in different directions, not to mention expensive acquisitions. Microsoft's $68.7 billion purchase of Activision Blizzard in October 2023 -- the largest acquisition ever in the video game industry -- was followed by repeated Xbox layoffs and the cancellation of games.
In a Bloomberg Live interview last month, Sharma said that Xbox had grown too broad and complex, and was looking to reset the business by focusing on core priorities and long-term sustainability. Sharma said the company needed to look at how it's investing, how it's prioritizing change and how it's operating to return to growth. In what appeared to be an effort to reassure investors and partners, she called Activision and other studios "incredible assets" and said Xbox will continue to invest in them.
Yet analysts see the sudden cuts and jettisoning of well-known studios as an attack on the Xbox institution that it will be difficult to recover from -- if it does at all. With this move, Microsoft is slashing and burning 25 years of creativity, infrastructure, and goodwill, said Amanda Farough and Mike Futter, game developers and industry analysts who host the Virtual Economy podcast. The message Xbox executives Asha Sharma, Xbox chief content officer Matt Booty, and Xbox chief strategy officer Matthew Ball are sending is clear: do not buy an Xbox.
"The rapid deaccessioning of Double Fine, Compulsion, and Undead Labs appears haphazard. The threat to Arkane Lyon communicates a failure of strategy and a reminder that neither Sharma nor Ball understand the industry," Farough said. "The layoffs at Obsidian, a studio that released two fantastic games (Avowed and The Outer Worlds 2) within a single year cements the clumsiness of the "strategy.""
Divesting from studios and enacting layoffs makes it appear that Microsoft is thinning out to become a more attractive acquisition target, Futter said. Whatever the reason, the result is more instability in one of the worst years within the games industry, with 8,300 jobs lost at the halfway point of the year -- already almost twice as much as in the entirety of 2025, according to the layoff-tracking website GamingLayoffs.com.
"No one is safe. No matter how much you can contribute, how creative you are, how successful your games are, nothing matters more to this leadership than cutting until there's nothing left but the most salable of studios making the next sequel in a household name franchise," Futter said.
Pundits and media critics have been equally skeptical that Xbox can right the ship. Video game reviewer Max Shockley, whose DreamcastGuy YouTube channel has more than 250,000 subscribers, says Xbox has given up on being a competitive platform. "Games are already releasing half-baked, buggy or downright busted. Less employees won't lead to a more polished product," he told CNET.
Shockley said it will be very difficult for Xbox to develop Project Helix, the codename for its next-gen console that is being conceived as a hybrid to play both Xbox titles and PC games.
"Going into a new console generation with the lowest level of studios and literal billions poured down the drain for zero growth is a complete nonstarter. Their next-generation console, I think, will either not come out or will be fully built by someone else," Shockley said.
The end of the road
Fans haven't been happy about the news, either. In a Reddit thread about the restructuring, Xbox fans mostly mocked the company's repeated cycle of buying and cutting studios, framing it as corporate hypocrisy or a "circle of life" for large tech companies. While some commenters acknowledged that the move could make business sense, others expressed intense disappointment with Microsoft's and Xbox's leadership.
CNET managing editor David Lumb said that even if the layoffs please shareholders, the decision damages trust with gamers and leaves developers paying the price: "It's ghoulish for Xbox CEO Asha Sharma to aspire for a billion daily Xbox players while derailing the lives of thousands of developers making the entertainment to satisfy such aims," Lumb said.
Even if Xbox survives in the long term, this won't "encourage faith in a teetering platform that sprinted to acquire and then relinquished talent-filled studios."
Shockley considers Xbox's future more dire, calling it the "end of the road" and noting that budget cuts, layoffs and studio closures never inspire magically profitable results. "Xbox tried to buy its way to the top of the industry, but the wings of Icarus melted before it reached the heights it needed," Shockley said.
What's next
For gamers looking forward to the release of new titles, Sharma said there are deals in place for the new owners of Ninja Theory to release its next game, Senua, and for Undead Labs to keep developing State of Decay 3.
Sharma said there will also be reductions and changes in other Xbox units, including Activision, Bethesda/ZeniMax, Blizzard, King, Mojang and Xbox Game Studios. She said all first-party, publicly announced games or projects are still happening.
A month ago, on June 7, Xbox touted Senua -- the third title in the Hellblade series -- at its Xbox Game Showcase. Longtime video game reporter Stephen Totilo of Game File wrote that, according to a source, Xbox "had already planned to sunset or split with the studio" before announcing Senua.
