Microsoft’s gaming division is undergoing what has been described as the biggest restructuring in Xbox history, with Xbox President Asha Sharma confirming sweeping changes that will reshape the company’s studios, leadership structure and long-term strategy.
The announcement includes approximately 3,200 job cuts throughout fiscal year 2027, with around 1,600 employees leaving immediately. Alongside the layoffs, several first-party studios will either become independent again or move under new ownership as Xbox attempts to streamline its business after years of rapid expansion.
According to Sharma, the changes are designed to put Xbox on a more sustainable path after increasing costs, slower-than-expected growth and declining engagement across parts of the platform.
Xbox Admits Its Current Business Model Is Unsustainable
In an internal message sent to employees, Sharma acknowledged that Xbox’s current business is “not healthy.”
She explained that Xbox entered the current console generation with a smaller install base than its competitors while carrying significantly higher operating costs. Investments into Xbox Game Pass, multiplatform publishing and studio acquisitions created value for the company, but they failed to grow quickly enough to offset weakening performance in its traditional console business.
Sharma also pointed to what she described as the gaming industry’s most severe hardware downturn, saying Xbox now needs to reset both its business model and its priorities.
Four Studios Leaving Xbox
Perhaps the biggest surprise is the future of several well-known Xbox Game Studios.
Compulsion Games and Double Fine Productions will become independent studios once again, taking ownership of their intellectual property, back catalogue and funding to develop their next games.
Meanwhile, Ninja Theory and Undead Labs are expected to transition to new ownership, with funding remaining in place to complete both Senua and State of Decay 3.
In France, Arkane Studios has also entered consultation with its Works Council as management explores strategic options for the studio’s future.
Xbox stressed that none of its publicly announced first-party games have been cancelled as part of these changes.
Mojang and King Become Even More Important
The restructuring also sees Mojang and King report directly to Asha Sharma.
The company believes both studios now operate more like gaming platforms than traditional development studios, thanks to the enormous success of Minecraft and Candy Crush. Their huge monthly active player numbers make them central to Xbox’s future strategy.
Xbox Wants a Smaller, Faster Organisation
A major focus of the restructuring is reducing internal complexity.
Xbox says some departments currently require work to pass through as many as 14 layers of management, slowing decision-making and making accountability more difficult.
The company plans to reduce this to a maximum of five management layers, with some areas operating with as few as three.
Xbox also intends to simplify its development tools, share more internal services and reduce external vendor spending by around 50%.
A New Leadership Structure
To oversee the transformation, Helen Chiang has been promoted to the newly created role of Chief Operating Officer.
Having previously led Mojang and worked on Xbox Live, Chiang will now oversee Xbox’s content, hardware, platform and services under a single operating model designed to improve investment decisions and company-wide accountability.
The announcement also confirmed the retirement of long-serving Xbox executive Dave McCarthy, who leaves after 17 years with the company.
Looking Towards 2027
Despite the scale of the restructuring, Sharma insisted the changes are intended to build a stronger Xbox rather than shrink it.
She stated that Xbox will continue investing heavily across its business this year but with greater discipline and clearer priorities. The long-term ambition remains to grow Xbox into a platform capable of entertaining more than a billion people worldwide while returning the business to sustained growth by 2027.
While the announcement marks one of the most significant shake-ups in Xbox’s history, Microsoft says its commitment to first-party games and future hardware remains unchanged, even as it dramatically reshapes how the gaming business operates.
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