Microsoft has officially confirmed that 268 positions have been eliminated as part of a broad reorganization that touches many of its internal development teams, including the slated shutdown of Ninja Theory. According to a recent report from The Information, Xbox is gearing up for a second round of layoffs that is set to take place later this week. A source close to the matter told the outlet that the company plans to "consolidate several of its game studios" as a core component of its continuing restructuring strategy.
Industry observers, including analysts at Video Game Chronicle (VGC), suggest that this consolidation could manifest as mergers, internal realignments, or other structural changes across the Xbox Game Studios umbrella, as well as within the broader Microsoft gaming portfolio that now includes Bethesda, Activision and Blizzard. This follows the first wave of reductions that were announced back in July, when Xbox initially disclosed plans to cut roughly 3,200 jobs across its gaming division. That first round resulted in about 1,600 redundancies, with notable layoffs at studios such as Obsidian Entertainment, Bethesda Game Studios, id Software, and Zenimax Online Studios. In addition to the headcount cuts, the platform holder has been divesting several of its internal studios.
The companies affected include Compulsion Games, Double Fine Productions, Ninja Theory, Undead Labs, and Arkane Lyon. While Compulsion Games and Double Fine have been spun out to operate independently, Ninja Theory and Undead Labs are in the process of being acquired by external partners.
Arkane Lyon, meanwhile, has entered a consultation phase as the company evaluates its future within the Microsoft ecosystem. Xbox chief executive Asha Sharma addressed the restructuring in a candid memo to employees, explaining that 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 wrote.
She emphasized that the primary metric for any strategy is where resources are allocated, and that the company had over‑extended itself across too many initiatives. Sharma's internal communication also highlighted a striking growth in the size of platform teams—up 40% since the launch of the current console generation—while noting a simultaneous dip in both the player base and overall playtime. To address the resulting inefficiencies, she announced a plan to streamline management layers, capping them at five levels.
This move is intended to correct a situation where some teams had as many as fourteen hierarchical layers, which she described as a barrier to swift decision‑making and cohesive execution. "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, asserting that the upcoming changes are aimed at securing 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 said. Sharma also reaffirmed her confidence in the company's long‑term trajectory, stating, "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." This forward‑looking statement underscores the belief that, despite short‑term turbulence, the reorganization will lay the groundwork for sustained expansion and innovation. The restructuring news coincides with a separate, high‑profile development in Xbox's publishing strategy.
Earlier this month, the platform announced it would take on publishing duties for Kojima Productions' upcoming title "Physint" after the developer received an unexpected notice from Sony in mid‑June that it would be stepping away from the project. Sharma described the new partnership with Kojima Productions as "a big moment" for Xbox, signaling the company's intent to deepen its relationships with marquee developers and expand its first‑party portfolio.
Overall, the second round of layoffs and studio consolidations reflects a broader industry trend where large publishers are reassessing their operational footprints in response to shifting market dynamics, rising development costs, and the need to prioritize high‑impact projects. While the immediate impact on employees and studio cultures will be significant, Xbox's leadership appears confident that the streamlined structure will enable faster innovation, clearer strategic focus, and ultimately, a stronger position in the competitive gaming landscape moving forward.