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 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 explained that the company intends to "consolidate several of its game studios" as a key component of its continuing restructuring strategy.
Industry observers, including analysts at Video Game Chronicle (VGC), suggest that this consolidation could manifest as mergers or internal realignments across Xbox Game Studios, Bethesda, Activision, and Blizzard. The background to this latest wave of cuts dates back to July, when Xbox first announced a massive layoff plan targeting roughly 3,200 employees. The initial phase of that plan resulted in about 1,600 redundancies, hitting major studios such as Obsidian, Bethesda, Id Software, and Zenimax Online Studios.
In addition to the workforce reductions, Xbox 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 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 to determine its future.
Xbox CEO Asha Sharma addressed the restructuring in a candid memo to staff, explaining that the company 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. Sharma's internal communication highlighted a striking statistic: platform teams had expanded by 40% since the launch of the current hardware generation, yet both the player base and total playtime had shown a decline. To counteract this imbalance, she outlined a plan to streamline management layers, capping them at five levels. This move addresses concerns that some teams had as many as 14 hierarchical layers, which she argued created fragmentation and hindered collaboration.
"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 concluded her memo with an optimistic vision for the future, stating that the changes are intended to build a larger, not smaller, 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 wrote. Sharma expressed confidence that the company could achieve this ambition, pointing to Xbox's legacy as one of the most beloved entertainment franchises worldwide, supported by talented studios across the globe.
She projected a return to growth by 2027, underscoring the long‑term nature of the restructuring plan. In parallel with these internal shifts, Xbox made a notable announcement earlier this month regarding its publishing partnership with Kojima Productions. The Japanese developer had unexpectedly been told by Sony in mid‑June that it would be removed from a collaborative project, prompting Kojima to seek a new publishing home. Xbox stepped in to publish the upcoming title, Physint, describing the partnership as "a big moment" for the platform.
The decision to bring Kojima Productions aboard reflects Xbox's broader strategy to strengthen its first‑party and exclusive portfolio, especially as the company navigates a competitive console market and seeks to differentiate itself through high‑profile, creator‑driven experiences. By aligning with a celebrated creator like Hideo Kojima, Xbox aims to attract both dedicated fans and new audiences, reinforcing its commitment to delivering unique, high‑quality content. Overall, the second wave of layoffs and studio consolidations signals a decisive pivot for Xbox. The company is trimming excess, refocusing on core competencies, and seeking to streamline its operational structure.
While the immediate impact includes job losses and studio realignments, the leadership hopes that a leaner, more cohesive organization will be better positioned to innovate, invest in marquee titles, and ultimately deliver a more compelling experience for its massive player base. The coming weeks will reveal how these changes unfold on the ground, but the overarching goal remains clear: to build a resilient, growth‑oriented Xbox that can thrive in an increasingly crowded gaming landscape.