Xbox is reportedly gearing up to announce a second round of layoffs this week, according to a source cited by The Information. The internal memo suggests that the company plans to "consolidate several of its game studios" as a key component of its broader restructuring strategy, aiming to streamline operations and refocus resources on core priorities. Industry observers, including analysts at VGC, speculate that the consolidation could involve a series of mergers or internal realignments across Xbox Game Studios, Bethesda, Activision, and Blizzard. Such moves would likely see overlapping development teams combined, redundant functions eliminated, and leadership structures flattened to improve efficiency and reduce overhead.
The background to this latest wave of cuts dates back to July, when Xbox first disclosed a plan to lay off roughly 3,200 employees as part of a sweeping overhaul. The initial round resulted in about 1,600 redundancies, affecting a number of high‑profile studios. Notable job losses were reported at Obsidian, Bethesda, Id Software, and Zenimax Online Studios, signaling that even well‑established development houses were not immune to the cost‑cutting measures.
In addition to staff reductions, the platform holder also divested five internal studios earlier in the year: Compulsion Games, Double Fine Productions, Ninja Theory, Undead Labs, and Arkane. Compulsion Games and Double Fine were spun off as independent entities, while Ninja Theory and Undead Labs entered acquisition agreements with external partners.
Arkane Lyon, meanwhile, entered a consultation process that could lead to further organizational changes. Xbox’s chief executive, Asha Sharma, has framed the restructuring as a necessary response to the company spreading itself too thin across too many projects and initiatives. "In order to grow, we made a bunch of bets. As we did that, we inherently didn't focus on the core business," Sharma explained in a recent internal communication.
She emphasized that the primary metric for evaluating any strategy is where the organization chooses to allocate its resources, and admitted that the current approach had diluted focus. Sharma’s memo highlighted a striking statistic: platform‑related teams had expanded by roughly 40 % since the launch of the current console generation, even as the overall player base and total playtime showed a modest decline. This mismatch between headcount growth and user engagement prompted senior leadership to reconsider the size and structure of its management hierarchy.
The memo proposes capping the number of management layers at five, a significant reduction from some teams that previously reported as many as fourteen tiers of oversight. "As Xbox grew our headcount, we became more fragmented," Sharma wrote. "Teams, studios, and functions often operate independently, and it became harder to work towards a shared goal, make the right trade‑offs, and get things done." By tightening the chain of command, the company hopes to foster better collaboration, accelerate decision‑making, and eliminate bottlenecks that have hampered productivity.
Looking ahead, Sharma positioned the upcoming changes as a step toward a larger, more ambitious future rather than a contraction. She articulated a vision for Xbox to become one of the few entertainment companies that reaches more than a billion people daily, providing a platform where creators can connect and innovate. "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," she affirmed. The restructuring narrative also intersects with recent developments in Xbox’s publishing strategy.
Earlier this month, the company announced it would take on publishing duties for Kojima Productions' forthcoming title, "Physint," after the developer received an unexpected notice from Sony in mid‑June that it would withdraw from the project. Sharma described the partnership with Kojima Productions as "a big moment" for Xbox, underscoring the firm’s intent to bolster its first‑party portfolio and attract marquee talent. If the second round of layoffs proceeds as rumored, it could further reshape the landscape of Microsoft’s gaming division.
Analysts predict that the consolidation may lead to the merging of smaller studios into larger umbrellas, the reallocation of development resources toward high‑potential IPs, and a sharper focus on cloud‑gaming initiatives such as Xbox Game Pass. By reducing administrative overhead and concentrating on a smaller set of strategic priorities, Xbox hopes to improve its financial performance and position itself for sustainable growth in the highly competitive console market. Overall, the upcoming announcements are likely to signal a decisive shift in how Xbox manages its sprawling ecosystem of studios and services. While the immediate impact on employees will be challenging, the leadership’s stated goal is to create a leaner, more agile organization capable of delivering compelling experiences to a global audience and driving long‑term profitability for shareholders.
The coming weeks will reveal how these plans materialize, and whether the promised consolidation will indeed streamline operations, revive player engagement, and set the stage for a resurgence of growth by 2027.