Microsoft has officially confirmed that 268 positions have been eliminated as part of a broad reorganization affecting its internal development studios, a move that also includes the anticipated 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 matter revealed that the company intends to "consolidate several of its game studios" as a continuation of the restructuring strategy that has been underway for months.
Industry observers, including analysts at Video Game Chronicle (VGC), suggest that this consolidation could take the form of mergers or internal realignments across Xbox Game Studios, Bethesda, Activision, and Blizzard. The first wave of reductions was announced back in July, when Xbox disclosed plans to cut roughly 3,200 jobs. That initial round resulted in about 1,600 redundancies, hitting major studios such as Obsidian, Bethesda, Id Software, and Zenimax Online Studios particularly hard.
In addition to the layoffs, 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 parties. Arkane Lyon, on the other hand, has entered a consultation phase to determine its future within the broader corporate structure.
Xbox’s chief executive, Asha Sharma, explained that the restructuring was necessary because the organization 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 said.
She emphasized that the primary metric for any strategy is where resources are allocated, and the company had spread those resources across too many initiatives. In an internal memo, Sharma highlighted that platform teams had expanded by 40 percent since the start of the current hardware generation, yet both the player base and total playtime had shown a decline. To address the inefficiencies, she outlined a plan to cap the number of management layers at five, noting that some teams previously operated with as many as fourteen hierarchical levels.
"As Xbox grew our headcount, we became more fragmented," Sharma observed. "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." Sharma concluded her communication by framing the upcoming changes as a pathway to a larger, not smaller, future for Xbox. She expressed confidence that the company could become one of the few entertainment firms that engages more than a billion people each day, providing opportunities for creation and connection worldwide.
"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 news arrives amid other significant developments for the platform. Earlier this month, Xbox announced that it would take on publishing duties for Kojima Productions' forthcoming title, "Physint," after the developer unexpectedly received a notice from Sony in mid‑June indicating that Sony would withdraw from the project.
Sharma described the new partnership with Kojima Productions as "a big moment" for Xbox, underscoring the strategic importance of aligning with high‑profile creators to bolster the company's game portfolio. The broader context of these moves reflects a shifting landscape in the video‑game industry, where major publishers are re‑evaluating their studio portfolios, talent allocation, and strategic priorities in response to evolving consumer habits and competitive pressures. While the immediate impact of the layoffs will be felt by the affected employees and their families, the leadership at Xbox hopes that a leaner, more focused organization will be better positioned to deliver compelling experiences, innovate in emerging technologies, and ultimately regain momentum in the market by 2027. Analysts caution that such restructuring efforts, while potentially beneficial in the long term, carry short‑term risks, including morale challenges and the loss of institutional knowledge.
However, they also note that consolidating resources can lead to more cohesive development pipelines, clearer creative direction, and improved financial performance if executed thoughtfully. As the second wave of layoffs approaches, the industry will be watching closely to see how Xbox balances cost‑cutting measures with the need to maintain a robust pipeline of high‑quality titles. The outcomes of these decisions will likely influence not only Microsoft's position within the gaming sector but also set precedents for how other large publishers navigate similar restructuring challenges in the years ahead.