Gaming

Xbox cutting 3,200 jobs and parting ways with Double Fine, Compulsion, Ninja Theory, and Undead Labs

Jul 06, 2026 | 5 min read

'It is neither possible nor desirable to own every great independent studio.'

Microsoft has commenced what it describes as the "most significant restructure in Xbox history" and confirmed it will be eliminating 3,200 roles across its video game division by the end of the current fiscal year.

The company has laid off 1,600 workers immediately with more cuts to follow. Four studios are being jettisoned from the Xbox Game Studios ecosystem, with South of Midnight developer Compulsion Games and Psychonauts maker Double Fine both returning to independence with full ownership of their respective IP catalogs. Ninja Theory and Undead Labs have agreed to join new ownership with the financing required to bring Senua and State of Decay 3 to market.

Arkane Lyon has begun a consultation process that Microsoft said will allow the studio to "review potential strategic options." It's unclear whether this will result in the closure of the Blade developer or another studio exit.

In a message sent to Team Xbox employees earlier today (published on Xbox Wire), newly-appointed Xbox CEO Asha Sharma said the cuts are required in order to course correct after bets on Xbox Game Pass and multiplatform releases failed to pay off.

Notably, Sharma said the company must reset to navigate a "severe hardware crisis" that has dramatically inflated memory prices and by extension console hardware. It's vital to note that component shortage is driven by rampant investment in AI data centers (thanks, Reuters) at the hands of companies like Microsoft.

This is the fifth major round of layoffs announced by Microsoft since the company acquired Activision Blizzard in 2023 for almost $70 billion. Despite taking ownerships of major franchises such as Call of Duty and World of Warcraft as a result of that merger, Sharma said Xbox's core business has "weakened" in recent years.

"Since 2018, we have aggressively expanded our studio portfolio while the number of games created each month across the industry now outpaces the last ten years combined. We now find ourselves competing not only with the largest publishers, but also with smaller independent studios," she wrote.

"It is neither possible nor desirable to own every great independent studio. We have also learned that we are not the best home for every type of studio; in a typical year, we lost 64 cents for every dollar we invested. As we reset Xbox, we will help independent creators succeed by providing open development tools and audiences to realize their vision."

Xbox is not cancelling any publicly announced first-party projects, but confirmed it will be downsizing across a myriad of divisions such as Activision, Bethesda/ZeniMax, Blizzard, King, and Mojang. In addition, Minecraft developer Mojang and Candy Crush studio King will now report directly to Sharma, who will also be instating a chief operating officer with end-to-end profit and loss responsibility across content, hardware, platform and services.

Xbox veteran Helen Chiang, who has spent the past decade overseeing the Minecraft franchise, will step into that role and will report directly to Sharma. "[Chiang] will bring our businesses together under one operating model, making sure we make clear investment decisions, learn from our successes and failures, and hold ourselves accountable for results," continued Sharma.

The Xbox boss added that the redundancies will enable the division to streamline operations to meet player expectations.

"Today, in some parts of the company, work passes through as many as 14 layers of management. Our platform teams are 40 percent larger than they were at the start of this generation, even as our player base and playtime have declined. That complexity has slowed decisions, blurred accountability, and made it harder to deliver for players. As we reset Xbox, we will simplify," continued Sharma.

"We will reduce management layers to no more than 5, and where possible, 3. We will deliver success through a flatter organization that is built around makers (individual contributors focused on building), player-coaches (leaders who remain deeply involved in the work while developing their teams), and directly responsible individuals (DRIs) who own key decisions and outcomes. And we will streamline how we work across our tools, with a cleaner code base, shared services, and 50 percent reduced vendor spend."

Game Developer has reached out to Xbox for more information.

If you're an Xbox employee impacted by this story and would like to share your views confidentially, you can email our news editor Chris Kerr or contact him on Signal (kerrblimey.43).

Game Developer news editor Chris Kerr is an award-winning reporter with over a decade of experience in the game industry. His byline has appeared in notable print and digital publications including Edge, Stuff, Wireframe, International Business Times, and PocketGamer.biz. Throughout his career, Chris has covered major industry events including GDC, PAX Australia, Gamescom, Paris Games Week, and Develop Brighton.

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Source: Chris Kerr · https://www.gamedeveloper.com/business/xbox-cutting-3-200-jobs-and-parting-ways-with-double-fine-compulsion-ninja-theory-and-undead-labs