Xbox is laying off 3,200 employees and spinning off part of its studios

Xbox is entering one of the toughest periods in its history. According to an official announcement, Microsoft will lay off around 3,200 employees within the Xbox division during fiscal year 2027, with 1,600 jobs being eliminated immediately. Xbox head Asha Sharma informed employees that this is the most significant restructuring in the brand's history, explaining that the current business model is not healthy enough and that margins are lagging behind comparable platform and publishing companies.

The changes also include the spin-off of several well-known studios. Compulsion Games and Double Fine Productions are returning to independent status, along with their IPs and catalogs, while Ninja Theory and Undead Labs are moving under new ownership with funding to continue work on the Senua and State of Decay 3 projects. Arkane Studios in France is entering consultations regarding possible strategic options. Microsoft claims that no publicly announced first-party game has been canceled as part of these cuts, but the message is clear: Xbox, after years of aggressive acquisitions, is trying to become a smaller, simpler, and more profitable system.