Microsoft has officially confirmed that 268 positions have been eliminated as part of a broad reorganization that targets 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.
A source close to the matter disclosed that the company intends to "consolidate several of its game studios" as a key element of its continuing restructuring strategy. The proposed consolidation could take many forms, ranging from outright mergers to internal realignments across Xbox Game Studios, Bethesda, Activision, and Blizzard, as suggested by industry tracker VGC. This follows the initial layoff announcement made in July, when Xbox revealed its intention to cut 3,200 jobs. The first wave resulted in roughly 1,600 redundancies, hitting major studios such as Obsidian, Bethesda, Id Software, and Zenimax Online Studios.
In addition to staff reductions, Microsoft has been divesting a handful 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 to operate independently, Ninja Theory and Undead Labs are in the process of being acquired by external parties.
Arkane Lyon, meanwhile, has 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." She emphasized that the company had made a series of ambitious bets in recent years, which inadvertently diverted focus away from its core business.
"The number one measure of your strategy is what you put your resources behind, and we simply spread ourselves too thin," Sharma said. In a memo circulated to employees, Sharma highlighted that the platform’s internal teams had expanded by roughly 40 percent since the launch of the current hardware generation, even as the player base and total playtime had begun to decline. To address this imbalance, she outlined a plan to streamline management layers, capping them at five levels.
This move is intended to remedy a situation where some teams were operating with as many as 14 hierarchical layers, creating inefficiencies and communication bottlenecks. "As Xbox grew our headcount, we became more fragmented," Sharma noted. "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 framed the upcoming changes as a forward‑looking effort rather than a contraction, stating, "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." Sharma expressed confidence that the company can achieve this vision, pointing to Xbox’s long‑standing reputation as one of the most beloved entertainment franchises worldwide.
She added that with the talent spread across its global studios, Xbox aims to return to a growth trajectory by 2027. The restructuring news arrives shortly after Xbox announced a new publishing partnership with Kojima Productions for the upcoming title "Physint." The collaboration came about after Kojima’s studio received an unexpected notice from Sony in mid‑June, prompting them to seek a new publishing home. Sharma described the alliance as "a big moment" for Xbox, underscoring the strategic importance of securing high‑profile, creator‑driven projects amid the broader organizational overhaul. While the immediate impact of the second wave of layoffs will be felt by the affected employees and their families, the broader industry is watching closely to gauge how these moves will shape Xbox’s competitive position against rivals such as Sony and Nintendo.
Analysts suggest that the consolidation could streamline decision‑making, reduce overhead, and enable a sharper focus on flagship titles and emerging technologies like cloud gaming and the metaverse. In summary, Xbox is preparing for another round of workforce reductions this week, part of a larger effort to merge and realign its development studios. The company’s leadership acknowledges past overextension and is taking steps to simplify its structure, limit managerial layers, and refocus resources on core products. With the added partnership with Kojima Productions and a clear timeline aiming for growth by 2027, Xbox hopes to emerge from this period of upheaval as a more cohesive and competitive force in the gaming industry.