Xbox cuts 3,200 jobs and drops four studios — but no games are canceled yet
Xbox is laying off 3,200 people and divesting four game studios as new CEO Asha Sharma tries to pull the business back to profitability. Half of those cuts — 1,600 jobs — took effect immediately on 7 July 2026, hitting teams across Activision, Bethesda, Blizzard, King, Mojang, and other Xbox studios. It's the largest single round of layoffs in Microsoft's gaming history.
The margin problem
Sharma didn't soften the diagnosis. In a memo cited by Insider Gaming, she wrote that Xbox is operating at margins "3–10 times lower" than comparable platforms and publishers — a direct shot across PlayStation's bow. Xbox entered the current console generation with a smaller installed base and a higher cost structure, and bets on Game Pass, multiplatform releases, and broader content haven't grown fast enough to compensate. The $69 billion Activision acquisition now looks expensive in that light.
To fix it, Sharma is stripping management layers from 14-plus down to five or even three, creating a new COO role, and handing it to Helen Chiang — the executive who built Minecraft into a generational franchise. Mojang and King (the Candy Crush studio) move under Sharma's direct oversight, signaling a hard pivot toward live-service businesses that already make money.
Four studios out, no games canceled
Double Fine and Compulsion Games are being spun off as independent studios and will keep their intellectual property. Ninja Theory and Undead Labs have been sold — per VGC, both have "entered terms to join new ownership," though Microsoft has not disclosed the buyers. Both studios will continue work on their announced projects: Senua's next chapter and State of Decay 3 remain in development.
Arkane Lyon is the one unresolved case. The French studio behind Dishonored and Prey is in mandatory Works Council consultation — required under French labor law before any restructuring decision can be finalized. That means the fate of Marvel's Blade, Arkane Lyon's in-development game, is on hold pending the outcome.
Sharma's statement explicitly says no already-announced game is being canceled. That includes titles from studios beyond the four being divested.
What comes next
The restructuring is meant to close the profitability gap — not just trim headcount. Bloomberg first reported the scale of the cuts weeks before the announcement. Sharma, only six months into the CEO role, is betting that a leaner structure and a tighter focus on Game Pass and proven franchises can stabilize the business before the next hardware cycle forces another round of hard choices.
