Xbox Is Axing 3,200 Jobs As It Parts Ways With Five Development Studios

Xbox has announced that, as part of a sweeping corporate overhaul, 3,200 employees across its operations will be let go through fiscal year 2027, with 1,600 departures taking effect immediately. The company also revealed the closure of five internal studios, four of which will transition to independent status or new ownership.

For months, credible speculation had hinted at such a shake‑up, and the latest announcement confirms those rumors. Xbox CEO Asha Sharma released a statement—originally circulated internally—now posted on Xbox Wire, outlining the extensive workforce reductions and strategic portfolio adjustments.

Sharma explained that Xbox is operating on margins 3–10 times lower than comparable platform and publishing peers. “We entered Gen 9 with a smaller install base and a higher cost structure,” she said. “To grow, we bet on Game Pass, multi‑platform reach, and a broader content slate. While these initiatives added value, they did not accelerate growth as projected. Consequently, our core business weakened, prompting further team expansions, increased investment, and extended timelines in hopes of a turnaround.”

She added that the industry is now confronting the most severe hardware crisis in its history, and that Xbox must reset its trajectory.

The company’s response will involve significant job cuts and the downsizing of its studio network.

Compulsion Games, the creators of We Happy Few and South of Midnight, and Double Fine Productions, the legendary studio behind Psychonauts and the recent Keeper, have announced that they will once again operate as fully independent entities. The move means they will retain full control over their intellectual property. Meanwhile, Ninja Theory—known for Hellblade—and Undead Labs, the team that built the State of Decay series, have been sold to new owners, though the identities of those owners remain undisclosed. Crucially, both Undead Labs and Ninja Theory have secured the necessary funding to finish their flagship projects, State of Decay 3 and Senua, which were highlighted at the recent Xbox Games Showcase.

Despite the unsettling headlines, the silver lining is that these creative teams have not been shuttered outright and will have the chance to continue operating. Both Double Fine and Compulsion have issued statements about the transition, with Double Fine’s head, Tim Schafer, proudly declaring, “Once again, Double Fine Productions will be an independent studio.”

In a more detailed announcement, Compulsion Games recounted its origins as an independent outfit before its brief tenure under Xbox, and reiterated its return to self‑management. The studio confirmed that it will retain the rights to Contrast, We Happy Few, and its award‑winning South of Midnight.

Severing ties with studios is only the beginning of the restructuring. The company’s latest blog post also outlines reductions across other parts of its portfolio, including Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and Xbox Game Studios. While details about the Xbox Game Studios segment remain vague, it is clear that no publicly announced first‑party titles will be impacted by the layoffs.

Sharma also detailed a shift in Xbox’s management hierarchy, cutting the layers of approval needed to move projects forward. He noted that some teams now navigate up to 14 levels of management, even as platform teams have grown 40% since the start of this generation, despite a decline in player base and playtime. This complexity has slowed decision‑making, muddied accountability, and hindered player delivery. The plan is to streamline the structure, limiting layers to no more than five, and ideally three.

While the procedural changes are noteworthy, the real concern lies in the 3,200 jobs lost—people with bills to pay. The hope is that such aggressive asset cuts will become less common, though skepticism remains. Last year, Xbox and Microsoft already eliminated about 9,100 positions and shelved several projects.

The rationale behind these moves was stability, ensuring that future reductions would be unavoidable. That strategy appears to have succeeded.

Adam’s devotion to PlayStation is rivaled only by his passion for vacuuming. Whether he’s holding a Dyson or a DualShock, his enthusiasm is unmistakable. He can be found on PSN as TheVacuumVandal, on Xbox Live as VacuumVandal, and on Steam as TheVacuumVandal.