Microsoft’s Xbox division has kick-started a big reset today, a move it has been hinting at for weeks. The company has announced layoffs covering approximately 3,200 roles throughout 2027, of which nearly half of the roles are being terminated starting today. Additionally, the gaming arm is letting go of four studios, including Ninja Theory, which developed the smash hit Senua series of games. Notably, the company assures that none of the first-party games that have already been announced will be affected or cancelled.
What’s happening?
This is an important email I sent today to all employees at XBOX:
Team,
We are beginning the most significant restructure in XBOX history. After careful consideration, I’ve made the difficult decision to reduce our team by approximately 3,200 throughout FY27. This will include…
— ASHA (@asha_shar) July 6, 2026
Xbox is entering a year-long restructuring phase, something that has been making the rounds of the rumor mill for a while now. The company argues that its operating margin is 3-10x lower than rival platforms (read: PlayStation and Nintendo). And to make matters worse, the install base was lower, and the cost of its ninth-generation platform was higher than ever. The company also notes that Xbox Game Pass and its multi-platform game strategy didn’t yield the kind of results they had hoped for.
Our business today is not healthy.
“I know this is painful. These changes will directly affect people who have poured their creativity into building XBOX. Many joined us through acquisitions, while others were recruited here, or sought us out because they loved this industry and loved XBOX. Today’s decisions do not reflect their talent or dedication,” Xbox chief Asha Sharma wrote in an official blog post. This is the second major lay-off following restructuring that happened back in 2024.
What about the studios?
Xbox / Microsoft
The biggest shift that comes as part of the reset is the studio culling. Compulsion Games (South of Midnight, We Happy Few, and Contrast) and Double Fine Productions (Psychonauts 2, Kiln, Keeper, and Broken Age) are going independent, which means they are officially moving out of the Xbox Games Studio banner. These studios will also be moving out with their IP, catalog, and runway intact.
More importantly, Ninja Theory and Undead Labs are also finding new owners. Ninja Theory developed some of the most recognizable Xbox games of the past few years, including Senua, Senua’s Saga : Hellblade II, Hellblade: Senua’s Sacrifice, and Bleeding Edge, to name a few. Undead Labs, which developed the State of Decay series, has also been shown the exit door.
