Microsoft lays off 3,200 employees from its Xbox division and sells five studios.

      Microsoft has addressed its Xbox employees candidly, stating that the business “is not healthy.” The solution? A reduction of 3,200 jobs, with five studios being shut down, two of which are located in Europe. Xbox CEO Asha Sharma outlined this in an official memo on Monday, referring to it as the most significant restructuring in the division's history. Xbox is set to eliminate approximately 3,200 positions, which represents about 20% of its workforce, over the next year, with around 1,600 positions being cut immediately. Five studios will cease operations under the Xbox umbrella.

      The European impact includes two studios. Microsoft intends to sell Ninja Theory, the Cambridge studio known for the Hellblade series, along with Undead Labs. Both will continue working on their current titles, Senua and State of Decay 3. Meanwhile, Arkane Studios in Lyon, France, is now entering a formal consultation process with its Works Council. This process may proceed more slowly than others due to stricter French labor laws. Compulsion Games and Double Fine will return to their founders as independent entities, retaining their teams, game catalogs, and rights.

      The financial situation is grim. According to Sharma, Xbox operates with profit margins three to ten times lower than its competitors. Typically, it has lost 64 cents for every dollar invested. The division, which previously spent $69 billion on acquiring Activision Blizzard, is now incurring losses on the studios it acquired, and the Game Pass subscription service, which was thought to drive growth, has ceased expanding.

      The timing of these cuts aligns with Microsoft’s increased investment in AI data centers supporting its cloud operations. This financial commitment necessitates cost-cutting measures in other areas. On the same day, chief people officer Amy Coleman announced an additional 4,800 job cuts across the broader organization, with most occurring in sales. In a separate communication, she emphasized that AI has not replaced the jobs that were lost but acknowledged that AI “changes how work gets done.”

      This situation is not unique to Xbox, as many companies, including Starling Bank, are reducing staff while reallocating resources toward AI. Over the past year, Microsoft has laid off over 15,000 employees. Sharma assures that a more streamlined Xbox will return to growth by 2027. For the game developers behind titles like Hellblade, this transition is happening now. “History is full of companies that mistake longevity for inevitability,” she stated. “We will not be one of them.”