UPDATE: Microsoft has officially confirmed that 268 positions have been eliminated as part of a broad reorganization of its internal development studios, a move that also includes the anticipated shutdown of Ninja Theory. According to a report from The Information, Xbox is gearing up for a second round of layoffs scheduled for this week. An insider familiar with the process told the outlet that the company plans to "consolidate several of its game studios" as a continuation of the restructuring that began earlier in the year.
The speculation, echoed by coverage from Video Game Chronicles (VGC), suggests that the consolidation could take the form of mergers or internal realignments across Xbox Game Studios, Bethesda, Activision, and Blizzard. The aim appears to be streamlining operations, reducing redundancy, and sharpening focus on core projects that drive revenue and player engagement. The background to this development dates back to July, when Xbox first disclosed a massive layoff plan targeting 3,200 employees.
That initial wave resulted in roughly 1,600 redundancies, with notable cuts at studios such as Obsidian, Bethesda, Id Software, and Zenimax Online Studios. In parallel, the company also announced the divestiture of five internal studios: 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, and Arkane Lyon entered a consultation phase to determine its future.
Xbox’s chief executive, Asha Sharma, explained that the restructuring is driven by the realization that the organization had "simply spread itself too thin." In a candid memo to employees, Sharma noted that the company had made a series of ambitious bets on new IPs and technologies, but in doing so, it had inadvertently diverted attention and resources away from its core business. "The primary metric of any strategy is where you allocate your resources," Sharma wrote. "We overextended ourselves, and that has impacted our ability to deliver on the most important experiences for our community." The memo also highlighted that platform‑related teams had grown by 40% since the launch of the current console generation, even as both the player base and total playtime showed signs of decline.
To address this imbalance, Sharma outlined a plan to flatten the management hierarchy, capping the number of reporting layers at five. This is a significant reduction from some teams that previously operated with as many as 14 layers of management, a structure that often hampers agility and decision‑making. "As Xbox expanded its headcount, we became increasingly fragmented," Sharma continued.
"Studios, teams, and functional groups started to work in silos, making it harder to align on shared objectives, prioritize trade‑offs, and execute efficiently." The executive concluded the communication with an optimistic vision for the future: "These changes are about building a bigger future for Xbox, not shrinking it. I want Xbox to be one of the few companies that entertains more than a billion people each day and provides everyone the chance to create and connect." She added, "I am confident we can reach that goal. Xbox has long been one of the most beloved entertainment brands, supported by talented studios worldwide, and we will be back on a growth trajectory by 2027." In related news, earlier this month Xbox 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, prompting a shift in partnership. Sharma described the new collaboration with Kojima Productions as "a big moment" for Xbox, underscoring the company's commitment to securing high‑profile, exclusive content as part of its broader strategy to attract and retain players.
The upcoming layoffs and studio consolidations reflect a broader industry trend where major publishers are reassessing their portfolios in response to shifting market dynamics, rising development costs, and evolving consumer preferences. While the immediate impact on affected employees is undeniably painful, Xbox leadership argues that these difficult decisions are intended to create a leaner, more focused organization capable of delivering compelling experiences that resonate with a global audience. Analysts note that the success of this restructuring will hinge on how effectively Xbox can integrate the remaining studios, streamline decision‑making, and allocate resources toward high‑impact projects. The company's ability to maintain strong relationships with third‑party developers, such as the newly announced partnership with Kojima Productions, will also be a key factor in sustaining its competitive edge.
As the second wave of layoffs unfolds, the industry will be watching closely to see how Xbox balances cost‑cutting measures with the need to innovate and retain its position as a leading platform in a crowded gaming landscape. The ultimate goal, according to Sharma, is to emerge from this period of consolidation stronger, more cohesive, and better equipped to deliver the next generation of gaming experiences for millions of players worldwide.