Xbox is reportedly gearing up for a second round of workforce reductions 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 part of a broader restructuring strategy that has been unfolding over the past several months. Industry analysts believe this next phase could involve a mixture of studio mergers, internal realignments, and perhaps the redistribution of talent across Xbox Game Studios, Bethesda, Activision, and Blizzard.
The goal, as insiders explain, is to streamline operations, eliminate redundancies, and focus resources on the most promising projects while cutting down on bureaucratic overhead. The background to this development dates back to July, when Xbox first announced a massive layoff plan that would affect roughly 3,200 employees across its global operations. That initial wave resulted in about 1,600 job losses, with some of the most high‑profile cuts hitting studios such as Obsidian Entertainment, Bethesda, id Software, and Zenimax Online Studios.
Those reductions were framed as a necessary step to bring the organization back into financial balance after a period of rapid expansion. In the months that followed, the platform holder also divested five internal studios: Compulsion Games, Double Fine Productions, Ninja Theory, Undead Labs, and Arkane. Two of those studios—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 to determine its future within the larger Xbox ecosystem.
Xbox’s chief executive, Asha Sharma, has been candid about the motivations behind the restructuring. In a recent internal communication, Sharma explained that the company had become "simply [spreading itself] too thin" as it pursued a series of ambitious bets across multiple genres and platforms. "In order to grow, we made a bunch of bets.
As we did that, we inherently didn't focus on the core business," Sharma wrote. "The number one measure of your strategy is what you put your resources behind, and we simply spread ourselves too thin." Sharma's memo also highlighted a stark contrast between headcount growth and user engagement metrics. While platform teams have expanded by roughly 40% since the launch of the current hardware generation, both the player base and overall playtime have shown a decline. This mismatch, according to Sharma, has forced the leadership to reconsider how many layers of management are truly necessary.
Some teams reportedly had as many as fourteen hierarchical levels, prompting a plan to cap management layers at five to improve decision‑making speed and accountability. "As Xbox grew our headcount, we became more fragmented," Sharma continued. "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." Looking ahead, Sharma framed the upcoming changes as a positive step toward a larger, more sustainable future for the brand. "These changes are about a bigger future at Xbox, not a smaller one," she asserted.
"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 added a note of optimism about the company's long‑term trajectory: "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." The announcement comes on the heels of another notable development: earlier this month, Xbox revealed it would step in to publish Kojima Productions' upcoming title *Physint* after the developer received an unexpected notice from Sony that it would withdraw from the project in mid‑June. Sharma described the partnership with Kojima Productions as "a big moment" for Xbox, underscoring the strategic importance of securing high‑profile exclusive titles to bolster the platform's appeal. Industry observers see this move as part of a broader strategy to fill the gap left by the loss of Sony's involvement, while also signaling to developers that Xbox remains committed to supporting ambitious, narrative‑driven experiences.
The partnership could also serve as a catalyst for future collaborations, positioning Xbox as a more attractive home for creators seeking both financial backing and a global distribution network. In summary, the second round of layoffs and studio consolidations appears to be a calculated effort by Xbox to trim excess, sharpen its focus, and allocate resources more efficiently. By reducing management layers, merging overlapping studios, and reinforcing partnerships with marquee developers like Kojima Productions, the company aims to stabilize its financial footing and lay the groundwork for renewed growth by 2027. While the short‑term impact on employees will be challenging, the leadership hopes that a leaner, more cohesive organization will ultimately deliver stronger games, richer player experiences, and a more resilient position in the fiercely competitive gaming market.