Xbox restructure 2026: Asha Sharma announces 3,200 layoffs and five studios leave Xbox Game Studios

Microsoft's Xbox division will undergo what CEO-level Xbox lead Asha Sharma called “the most significant restructure in XBOX history,” with the company planning to eliminate approximately 3,200 roles during fiscal 2027. Sharma communicated the decision in an internal email shared publicly on X on July 6, 2026, saying roughly 1,600 role eliminations would take place immediately. The reductions affect teams across Activision, Bethesda/ZeniMax, Blizzard, King, Mojang and Xbox Game Studios. Sharma framed the move as a response to financial performance and complexity within the business, noting that Xbox was “operating at margins that are 3–10x lower than comparable platform and publishing businesses.” She said the company entered the current console generation with a smaller install base and higher cost structure, and that prior bets on Game Pass, multi-platform releases, and a broader portfolio had not grown at the expected pace. Sharma acknowledged the human cost of the decisions, saying the changes would directly affect people who had poured their creativity into building Xbox and emphasizing that today’s decisions do not reflect employees’ talent or dedication. She also reassured staff that none of the first‑party publicly announced games or projects were cancelled as part of the reductions. Several studio-specific outcomes were detailed. Double Fine Productions (developer of Psychonauts) and Compulsion Games (developer of South of Midnight) will transition back to independent operation and retain ownership of their intellectual property and catalog. Ninja Theory (Hellblade) and Undead Labs (State of Decay) have been sold to new owners with funding commitments to continue their flagship projects, and Arkane — known for the Dishonored series and involved in the upcoming Marvel’s Blade — has begun required consultation with its Works Council to review strategic options. Organizational changes include elevating Mojang and King to report directly to Sharma and the creation of a new Chief Operating Officer role. Helen Chiang has been promoted to COO with end‑to‑end P&L responsibility across content, hardware, platform and services. Longtime Xbox executive Dave McCarthy will retire after 17 years with the company. Sharma said the reset aims to simplify decision‑making, reduce management layers, and focus investment on higher‑priority projects. The announcement comes against the backdrop of the current console generation — Microsoft’s Xbox Series X and Series S launched on November 10, 2020 — and alongside an industry that includes platform players such as Nintendo, whose Switch console (released March 3, 2017) and services like the Nintendo eShop and Nintendo Direct continue to shape market dynamics. Studios and affected employees will be closely watched as transitions proceed. Double Fine and Compulsion have publicly thanked Xbox for the partnership and said they are excited to continue as independent studios.