Xbox begins historic layoffs with up to five studio closures

Microsoft ↗ 0.27% is expected to begin sweeping layoffs across its Xbox division on Monday, marking what industry observers have called potentially the largest single layoff event in gaming history. The cuts, part of new Xbox CEO Asha Sharma's "reset" plan, come alongside the possible closure or sale of up to five game studios.

A Restructure Months in the Making

The layoffs follow weeks of reporting that signaled deep changes at Xbox. Bloomberg first reported on June 10 that Sharma was planning major cuts shortly after Microsoft's fiscal year closed on June 30. Business Insider subsequently reported that the broader Microsoft cuts would affect less than 2.5% of the company's roughly 220,000-person workforce, spanning Xbox, sales, and consulting divisions.bloomberg+3

The Verge reported that at least five studios face closure or spinoff, with layoffs set to "hit most parts of Xbox" beginning July 6. Sources indicated that beyond studio closures — which could affect at least 500 employees — wider cuts across the division could push total losses above 1,000 jobs at Xbox alone.theverge+1

Studios on the Chopping Block

The studios identified as at risk include Compulsion Games (South of Midnight), Double Fine (Psychonauts), Ninja Theory (Hellblade), and Undead Labs (State of Decay), all of which have been in negotiations to find buyers or go independent. Arkane, the studio behind Marvel's Blade, was later added to the list after reports emerged that Microsoft was weighing canceling the game, which had slipped from a late 2026 window to late 2027 and gone over budget.engadget+4

Bloomberg reported that studio leaders at Double Fine, Compulsion, and Ninja Theory had entered active negotiations to spin off as independent entities, though such transitions would likely still result in job losses. GamesBeat reported that Undead Labs, with approximately 110 employees, faced closure if a buyer could not be found.polygon+3

The Broader Context

The restructure reflects years of declining returns on Microsoft's gaming investments. Sharma's internal memo, reported by Bloomberg, acknowledged that Xbox revenue had declined by "nearly half a billion" dollars over five years despite spending more than $20 billion on content. The cuts follow previous rounds of layoffs in 2024 and a roughly 9,000-job Microsoft-wide reduction in July 2025.80+2

George Broussard, co-founder of 3D Realms, wrote on X that the closures would "likely be the largest single layoff event in gaming history". As of this writing, Microsoft had not publicly confirmed the full scope of the restructure.polygon