Microsoft has officially confirmed that 268 positions have been eliminated as part of a broad reorganization that touches many of its internal development studios, including 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. An insider familiar with the situation told the outlet that the company intends to "consolidate several of its game studios" as a key component of its continuing restructuring strategy.
Industry analyst VGC has suggested that this consolidation could take the form of mergers or internal realignments across the Xbox Game Studios umbrella, as well as within its recently acquired Bethesda, Activision and Blizzard divisions. The background to this latest move dates back to July, when Xbox first disclosed a massive workforce reduction plan that would affect roughly 3,200 employees. The initial wave resulted in about 1,600 redundancies, hitting major studios such as Obsidian, Bethesda, Id Software and Zenimax Online Studios hard.
In the months that followed, the platform holder also spun off five of its internal studios: Compulsion Games, Double Fine Productions, Ninja Theory, Undead Labs and Arkane. Two of those studios—Compulsion Games and Double Fine—were allowed to become independent entities.
Ninja Theory and Undead Labs are currently in the process of being acquired by external partners, while Arkane Lyon has entered a consultation phase to determine its future. These moves reflect a broader effort by Xbox to streamline its development pipeline and focus resources on core projects. Xbox chief executive Asha Sharma addressed the restructuring in a candid memo to staff, explaining that the company had become "simply too thin" across its many 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 said. "The number one measure of your strategy is what you put your resources behind, and we simply spread ourselves too thin." Sharma highlighted that, since the launch of the current console generation, the headcount of platform teams had swelled by roughly 40 percent, even as the player base and total playtime showed signs of decline.
To counteract this inefficiency, she outlined a plan to cap the number of management layers at five, noting that some teams had previously operated with as many as fourteen hierarchical tiers. "As Xbox grew our headcount, we became more fragmented," Sharma continued.
"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 the memo with an optimistic vision for the future: "These changes are about a bigger future at Xbox, not a smaller one. 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. 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 take on publishing duties for Kojima Productions' upcoming title "Physint" after the developer received an unexpected notice from Sony in mid‑June, prompting them to step away from the project. Sharma described this new partnership as "a big moment" for Xbox, underscoring the company's ambition to broaden its portfolio and attract marquee talent.
Industry observers note that the second wave of layoffs could signal a deeper shift in how Microsoft manages its gaming ecosystem. By consolidating studios, the firm hopes to eliminate duplicated effort, streamline decision‑making, and allocate capital more efficiently toward projects with the highest potential return.
This could involve merging smaller teams into larger, more versatile units, or repurposing existing talent to focus on emerging technologies such as cloud gaming, AI‑driven development tools, and cross‑platform experiences. While the exact list of studios affected in the upcoming cuts has not been disclosed, speculation points to further integration of Bethesda's internal pipelines with Xbox Game Studios, as well as possible realignments within the Activision‑Blizzard segment, which continues to grapple with its own post‑acquisition challenges.
Analysts also warn that continued job reductions could impact morale and the creative output of remaining teams, making clear communication and a compelling strategic narrative essential for retaining top talent. In summary, Xbox's second round of layoffs appears to be part of a broader, methodical effort to trim excess, sharpen focus, and position the brand for sustainable growth in a competitive market.
By consolidating studios, reducing managerial complexity, and forging new publishing partnerships, the company aims to emerge leaner, more agile, and better equipped to deliver experiences that resonate with a global audience of gamers.