Xbox is reportedly gearing up for a second round of workforce reductions this week, according to a story published by The Information. Insiders familiar with the plan say the company intends to "consolidate several of its game studios" as a key component of the broader restructuring effort that has been under way for several months. The source, who asked to remain anonymous, explained that the consolidation could take the form of studio mergers, internal realignments, or the absorption of smaller teams into larger, more established divisions within the Xbox ecosystem.
Analysts at Video Game Charts (VGC) have speculated that the moves may involve entities such as Xbox Game Studios, Bethesda, Activision and Blizzard, potentially reshaping the way these brands collaborate on future titles. This is not the first wave of cuts at Microsoft’s gaming arm.
In July, the firm announced a plan to eliminate roughly 3,200 positions across its gaming division. The initial round of layoffs resulted in about 1,600 redundancies, with notable job losses reported at studios like Obsidian Entertainment, Bethesda Game Studios, id Software, and Zenimax Online Studios. Those cuts were part of a broader strategy to streamline operations and focus resources on high‑impact projects. In addition to the personnel reductions, Xbox has been divesting several of its internal studios over the past year.
The five studios that have been spun off include Compulsion Games, Double Fine Productions, Ninja Theory, Undead Labs, and Arkane Lyon. Compulsion Games and Double Fine have been allowed to operate independently, while Ninja Theory and Undead Labs are in the process of being acquired by external partners.
Arkane Lyon, meanwhile, entered a consultation phase to determine its future within the larger corporate structure. Xbox’s chief executive, Asha Sharma, has repeatedly emphasized that the restructuring is driven by a need to stop "spreading itself too thin." In a recent internal memo, Sharma explained that the company made a series of ambitious bets on new IPs and platforms, but in doing so, it inadvertently neglected its core business. "The number one measure of your strategy is what you put your resources behind, and we simply spread ourselves too thin," she wrote. Sharma’s memo also highlighted a stark contrast between headcount growth and player engagement metrics.
Since the launch of the current generation of Xbox hardware, platform‑related teams have expanded by roughly 40%, yet both the active player base and total playtime have shown a downward trend. To address this imbalance, Sharma announced a plan to flatten the management hierarchy, capping the number of reporting layers at five. This is a significant reduction from the existing structure in some areas, where as many as fourteen layers of management have been reported. "As Xbox grew our headcount, we became more fragmented," Sharma said.
"Teams, studios, and functions often operate independently, and it became harder to work towards a shared goal, make the right tradeoffs, and get things done." The executive framed the upcoming changes not as a sign of contraction but as a pathway to a more ambitious future. "These changes are about a bigger future at Xbox, not a smaller one. I want Xbox to be one of the few companies that entertains more than a billion people each day and gives everyone the opportunity to create and connect," she asserted.
Sharma concluded the memo with an optimistic outlook, stating, "I know we can achieve this goal. Xbox has been one of the most beloved franchises in entertainment history, with talented studios around the world, and we will return to growth in 2027." This forward‑looking statement suggests that the leadership expects the restructuring to bear fruit within the next few years, positioning Xbox for renewed expansion and market relevance.
The restructuring news arrives amid other notable developments for the platform holder. Earlier this month, Xbox announced it would take on publishing duties for Kojima Productions' upcoming title "Physint" after the developer received an unexpected notice from Sony in mid‑June, indicating Sony would step away from the project. Sharma described the partnership with Kojima Productions as "a big moment" for Xbox, underscoring the company's intent to attract high‑profile third‑party talent and broaden its exclusive portfolio.
Industry observers view the second wave of layoffs as a continuation of Microsoft’s effort to streamline its gaming business after the massive Activision Blizzard acquisition. By consolidating studios, reducing managerial overhead, and focusing on projects with the highest potential return, Xbox hopes to improve operational efficiency and re‑align its product pipeline with evolving consumer preferences. While the immediate impact on employees will be painful, the leadership believes these measures are essential for long‑term sustainability and for delivering the kind of innovative experiences that keep millions of gamers engaged worldwide.
Overall, the upcoming announcements are expected to provide more clarity on which specific studios will be merged or restructured, how remaining teams will be re‑tasked, and what new strategic priorities will guide Xbox’s development roadmap moving forward. The gaming community, investors, and employees alike will be watching closely to see how these changes reshape the future of one of the industry’s most iconic brands.