Why Xbox is Cutting 3,200 Roles & Offloading Four Studios

Global consumer spending on games has grown very slowly over the past five years, leaving Xbox facing severe market pressures.

To combat this, Microsoft appointed Asha Sharma as CEO earlier in 2026, following her two-year tenure as Microsoft’s President of CoreAI Product.

Asha took the helm following a 9% year-on-year decline in total gaming revenue and a 32% plunge in Xbox hardware sales, as revealed in a January report.

Since then, she has engineered a company-wide overhaul to reinvigorate growth after a prolonged period of falling sales and slower product delivery.

The reset aims to inject fresh consumer and technical depth into the organisation to address these challenges. Asha notes that the division requires a distinct operational shift to navigate a stagnant market.

This strategic shift has now culminated in a dramatic transformation for Microsoft’s gaming division. The CEO describes the new strategy as a fundamental reset of how Xbox operates and invests.

The resulting restructure will see a 20% reduction in the Xbox workforce, directly impacting roughly 3,200 people.

More than 1,600 roles will be immediately axed, with another 1,600 roles scheduled for reduction over the next year.

These job losses form part of a broader corporate realignment at Microsoft.

The parent company is cutting a total of 4,800 jobs, representing roughly 2.1% of its global workforce.

Console focus drives strategy reset

A major restructure at Xbox has been expected for months, as losses have mounted amid a cascade of issues and competition that has eaten away at its market share. 

Microsoft reported a 7% decrease in quarterly gaming revenue in its latest financial report, driven by a 33% drop in Xbox hardware revenue and a 5% decline in Xbox content and services.

In a June note to employees, Asha signalled that major changes were coming.

She says that despite investing more than US$20bn into content and hardware over the past five years, excluding Activision Blizzard, annual revenue has declined by nearly half a billion dollars. 

On 6 July, she told employees in a memo that Xbox’s operating margins are three to 10 times lower than comparable businesses.

Speaking to Fortune, Asha explains: “In order to grow, we made a bunch of bets and as we did that, we inherently didn’t focus on the core business.

“The number one measure of your strategy is what you put your resources behind, and we simply spread ourselves too thin.”

The new plan centres on returning focus to its flagship Xbox console, which represents 80% of its business.

Xbox will funnel its content budget toward high-growth areas such as the Minecraft game, step away from smaller studios and move from a decentralised studio model to a more centralised one, among other measures.

For the first time, Xbox is installing a COO, Helen Chiang, who will be accountable for profits and losses across its content, hardware, platform and services businesses.

Major assets such as Candy Crush-maker King and Minecraft-maker Mojang Studios will now report directly to Asha.

She says Xbox needs a new business model and that it has been battered by surging component costs, overextending its studio system, underfunding its popular franchises and relying too heavily on vendors instead of fostering a self-reliant engineering culture. 

The cost of certain console components is expected to keep climbing, too.

Asha says: “A healthy Xbox could weather the shock of the hardware crisis. With an unhealthy Xbox, it becomes really challenging and it accelerates a lot of the changes we need to make.”

Offloading gaming studios to preserve culture

Four Xbox game development studios, Compulsion Games, Double Fine Productions, Ninja Theory and Undead Labs, will be spun off as part of the changes. 

According to Piers Harding-Rolls from Ampere Analysis, this restructuring underlines Xbox’s vision for its studios and content, which will be more heavily focused on the biggest IP and audiences.

He says the company previously bought a plethora of studios to boost offerings on its subscription service Game Pass but the company has now decided that some of these teams and the games they are building would be better suited to sit outside the Xbox organisation. 

Double Fine Productions and Compulsion Games will both return to independent management and depart with their intellectual property. 

While turning Xbox around will take time as executives experiment with open systems and financing to lower consumer barriers, Asha says the changes are to ensure a bigger future for the brand. 

She assures: “History is full of companies that mistake longevity for inevitability. We will not be one of them.”