Microsoft has officially confirmed that 268 positions have been eliminated as part of a broad re‑organization of its internal game development divisions, a move that also includes the planned shutdown of 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 company disclosed that the upcoming reductions will involve the "consolidation of several of its game studios" as a continuation of the restructuring that began earlier this year. Industry observers, including analysts at Video Game Chronicles (VGC), suggest that the consolidation could take the form of mergers, internal realignments, or the redistribution of resources across Xbox Game Studios, Bethesda, Activision, and Blizzard. The first wave of cuts, announced in July, originally targeted roughly 3,200 employees across the broader Microsoft gaming ecosystem.
That initial phase resulted in about 1,600 redundancies, with notable layoffs at studios such as Obsidian Entertainment, Bethesda, id Software, and Zenimax Online Studios. In parallel with the workforce reductions, Microsoft has been divesting several of its internal studios.
The companies affected include Compulsion Games, Double Fine Productions, Ninja Theory, Undead Labs, and Arkane. While Compulsion Games and Double Fine have been spun off as independent entities, Ninja Theory and Undead Labs are in the process of being acquired by external partners.
Arkane Lyon, meanwhile, has entered a consultation period to determine its future within the organization. Xbox chief executive Asha Sharma addressed the restructuring in a candid memo to staff, explaining that the company had become "simply too thin" in its focus.
"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.
She emphasized that the primary metric for any strategy is where resources are allocated, and she felt the company had spread those resources too broadly across too many projects. Sharma's internal communication highlighted a striking statistic: platform‑related teams had expanded by roughly 40% since the launch of the current generation of Xbox hardware, yet both the player base and total playtime had shown a downward trend. To address the inefficiencies created by this growth, she announced a plan to streamline management layers, capping them at five levels. This move aims to eliminate the excessive bureaucracy that, in some cases, had resulted in up to 14 hierarchical layers within a single team.
"As Xbox grew our headcount, we became more fragmented," Sharma explained. "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 memo on an optimistic note, stressing that the changes are intended to secure a larger, more sustainable future for Xbox rather than shrink the brand.
"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 said. Looking ahead, Sharma expressed confidence that the company would return to a growth trajectory by 2027. She pointed to Xbox's storied legacy as one of the most beloved entertainment franchises worldwide, supported by a network of talented studios across the globe.
"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.
In addition to internal restructuring, Xbox has been active on the partnership front. Earlier this month, the platform announced that 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 that Sony would step away from the project.
Sharma described this new collaboration as "a big moment" for Xbox, underscoring the strategic importance of aligning with high‑profile developers to bolster the company's content portfolio. The broader context of these moves reflects a shifting landscape in the gaming industry, where major publishers are reevaluating their studio portfolios, focusing on core franchises, and seeking to optimize operational efficiency.
Microsoft's approach mirrors similar strategies employed by competitors, who are also consolidating resources to better navigate the challenges of rising development costs, evolving consumer preferences, and the increasing importance of live services and subscription models. As the second round of layoffs approaches, employees across the affected studios can expect further communications outlining the specifics of the consolidation process, potential redeployment opportunities, and severance packages. The company's leadership has indicated that while the short‑term impact will be difficult for those directly affected, the long‑term vision is to create a more agile, focused, and innovative Xbox ecosystem capable of delivering compelling experiences to a global audience. Stakeholders, including investors and gamers, will be watching closely to see how these structural changes translate into product releases, service improvements, and overall market performance in the coming quarters.
The upcoming announcements this week will likely provide additional clarity on the exact nature of the studio mergers, the timeline for any further divestitures, and how Xbox plans to leverage its remaining assets to stay competitive in an increasingly crowded market.