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

      Microsoft communicated directly to its Xbox employees that the situation is “not healthy.” The solution? Eliminating 3,200 jobs, shutting down five studios, with two of them located in Europe. Xbox CEO Asha Sharma outlined this in an official memo on Monday, describing it as the most significant reorganization in the division's history. Xbox plans to reduce its workforce by approximately 20 percent over the next year, with around 1,600 positions being cut immediately. Five studios will be completely removed from Xbox.

      European Impact

      Two of the studios affected are based in Europe. Microsoft intends to sell Ninja Theory, the Cambridge studio known for the Hellblade series, along with Undead Labs. Both studios will continue to develop their current titles, Senua and State of Decay 3. In France, Arkane Studios in Lyon is entering a formal consultation with its Works Council, a process that is expected to take longer due to stricter French labor laws. Compulsion Games and Double Fine will return to their founders as independent studios, retaining their employees, game catalogs, and rights.

      A Harsh Financial Reality

      Sharma did not sugarcoat the financial situation. She noted that Xbox operates with margins three to ten times lower than its competitors, stating that in an average year, it loses 64 cents for every dollar invested. The division that spent $69 billion on acquiring Activision Blizzard is now losing money on the studios it bought, and growth for Game Pass, the subscription model driving that acquisition, has stagnated.

      Cutting Games to Fund AI

      The timing of these cuts is intentional. Microsoft is investing unprecedented amounts into AI data centers that support its cloud operations, necessitating budget cuts in other areas. On the same day, chief people officer Amy Coleman announced an additional 4,800 job cuts across the broader company, primarily affecting sales. In a separate memo, she asserted that AI has not taken over the roles that were eliminated, although she acknowledged that AI is “changing how work gets done.”

      Significance

      Xbox is not alone in this trend. Numerous companies, including Starling Bank, are reducing their workforce while reallocating funds toward AI initiatives. Microsoft has cut more than 15,000 jobs within the year. Sharma asserts that a streamlined Xbox will return to growth by 2027. For developers of games like Hellblade, the repercussions of this reset are immediate. “History is filled with companies that confuse longevity with inevitability,” she stated. “We will not be one of them.”