Microsoft has officially confirmed that 268 positions have been eliminated as part of a broad reorganization of its internal development teams, which also includes plans to shut down Ninja Theory. According to a recent report from The Information, Xbox is gearing up for a second round of layoffs that is slated to occur later this week. A source close to the situation told the outlet that the company intends to "consolidate several of its game studios" as a continuation of the restructuring that began earlier in the year.
The consolidation could take many forms, ranging from outright mergers of existing studios to internal realignments that shift projects, talent, and resources across the Xbox Game Studios umbrella, Bethesda, Activision, and Blizzard divisions. Industry tracker VGC speculated that the upcoming changes might involve combining development pipelines, reallocating staff, or even shuttering under‑performing teams to streamline operations and reduce overhead. The background to this latest move dates back to July, when Xbox announced a massive layoff plan targeting roughly 3,200 employees across its global operations.
The first wave of that plan resulted in about 1,600 job cuts, affecting a wide array of studios including Obsidian Entertainment, Bethesda Game Studios, Id Software, and Zenimax Online Studios. In addition to the workforce reductions, the platform holder also spun off five of its internal studios: Compulsion Games, Double Fine Productions, Ninja Theory, Undead Labs, and Arkane. While Compulsion Games and Double Fine were allowed to become independent entities, Ninja Theory and Undead Labs entered acquisition agreements, and Arkane Lyon entered a consultation process to determine its future. Xbox's chief executive, Asha Sharma, framed the restructuring as a necessary correction after the company spread 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 staff memo. She emphasized that the primary metric for any strategic plan is where resources are allocated, and the company had overextended its reach, diluting its focus. Sharma's memo also highlighted some stark internal data: since the launch of the current hardware generation, platform teams had expanded by roughly 40%, yet both the active player base and total playtime had shown a downward trend.
To address this mismatch, she outlined a plan to trim management layers to a maximum of five levels, noting that some teams previously had as many as 14 layers of oversight, which hampered decision‑making and agility. "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." She concluded her communication with an optimistic vision for the future, stating that the changes are intended to secure a larger, not smaller, future for Xbox. "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 wrote. "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 restructuring comes at a time when Xbox is also navigating high‑profile publishing deals.
Earlier this month, the company announced it would publish Kojima Productions' upcoming title "Physint" after the developer received an unexpected notice from Sony in mid‑June that it would step away from the project. Sharma described the partnership with Kojima Productions as "a big moment" for Xbox, underscoring the strategic importance of securing marquee titles to bolster its content portfolio.
Analysts view the second round of layoffs as a sign that Microsoft is doubling down on a leaner, more focused operational model. By consolidating studios, the firm hopes to eliminate redundancies, improve cross‑studio collaboration, and better align its development pipeline with the evolving expectations of gamers.
The move also reflects a broader industry trend where large publishers are reassessing their studio portfolios, often trimming or merging units to stay competitive amid rising development costs and shifting consumer preferences. While the exact details of which studios will be merged or restructured remain undisclosed, insiders suggest that the changes could affect both first‑party and third‑party teams under the Xbox umbrella.
Potential outcomes include the integration of smaller studios into larger, more established ones, the reassignment of key talent to priority projects, and the possible shuttering of underperforming divisions. For employees, the announcement brings uncertainty, but Microsoft has pledged to provide severance packages and support for those impacted.
The company also indicated that it will continue to invest in its core franchises and upcoming releases, aiming to maintain a pipeline of high‑quality games that can compete with rival platforms. Overall, the second wave of layoffs and studio consolidations marks a pivotal moment for Xbox as it seeks to streamline its operations, refocus on core strengths, and position itself for sustainable growth in the coming years. The strategic realignment is expected to lay the groundwork for a more cohesive development environment, ultimately delivering a stronger portfolio of games and services to its global audience.