Xbox Lays Off Nearly 20% Of Workforce Amid Restructuring, Multiple Studios Splintering Off

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A sad day we had all been anticipating for awhile is now here. After weeks of rumors and speculation Xbox CEO Asha Sharma has came out and announced that Xbox is cutting nearly 20% of its workforce. Part of those cuts includes 4 studios leaving the publisher with a 5 expected.

The news is nothing short of devastating as Xbox looks to reorganize and become more profitable. Since 2018 they have been growing and acquiring many studios in hopes to expand their portfolio. And while they have done that, the results have not been up to par according to Xbox.

In a post on social media Asha Sharma laid out exactly what is going on, and didn’t sugarcoat it at all.

“We are beginning the most significant restructure in XBOX history. After careful consideration, I’ve made the difficult decision to reduce our team by approximately 3,200 throughout FY27. This will include approximately 1,600 role eliminations today, and in addition, four studios will leave XBOX to new management. I recognize that a year-long restructuring creates additional challenges. Unfortunately, it is not possible to make all the necessary changes in a single day, and I wanted to be direct about the scale.”

Kiln will be the last game Double Fine releases under Xbox

1,600 employees today is a massive cut to the publisher. Where all these cuts are coming from exactly isn’t completely laid out, but it seems like a big part of it is management and the platform team that has ballooned 40% according to Sharma.

“We know that great technology gets better when it gets simpler, not bigger. Today, in some parts of the company, work passes through as many as 14 layers of management. Our platform teams are 40% larger than they were at the start of this generation, even as our player base and playtime have declined. That complexity has slowed decisions, blurred accountability, and made it harder to deliver for players. As we reset XBOX, we will simplify.”

“We will reduce management layers to no more than 5, and where possible, 3. We will deliver success through a flatter organization that is built around makers (individual contributors focused on building), player-coaches (leaders who remain deeply involved in the work while developing their teams), and directly responsible individuals (DRIs) who own key decisions and outcomes. And we will streamline how we work across our tools, with a cleaner code base, shared services, and 50% reduced vendor spend.”

4 Studios Splintering Off From Xbox, 5th Expected

Perhaps the biggest news of all of this is the studios leaving Xbox. For the last few weeks we have been seeing constant speculation about studios closing or spinning off. Today we have confirmation of what is going on.

The good news is that none of these studios appear to be closing. Compulsion Games and Double Fine are spinning back to being independent and will fully own their IP’s and catalog. This will likely still result in mass layoffs at these studios, but at least they will have survived.

Compulsion released one game under Xbox, the critically acclaimed South of Midnight

Part of these deals however does include some funding to give each studio runway to figure things out and how they can proceed.

Same can be said for Ninja Theory and Undead Labs, however their situation is a bit different as both studios will be sold off. There’s currently no word on who the buyers are, however these new publishers will help finish and grow Senua and State of Decay 3.

Lastly there is Arkane Lyon who is currently working on Blade. According to Sharma “Arkane’s management is beginning required consultation with its Works Council to review potential strategic options.” This essentially means they are looking for a buyer for the studio. Blade doesn’t appear to be affected at this time and it remains to be seen if all of these games will remain on Xbox Game Pass or not.

Being brutally honest, not much of this makes sense. I can understand Compulsion and Double Fine even if I don’t like the decision. Compulsion has long been a favourite studio of mine and Double Fine is beloved, but they didn’t appear to make profitable games for Xbox.

What makes no sense to me is Ninja Theory, Undead Labs and Arkane Lyon. All 3 have games that are close to completion. Why Xbox wouldn’t let those games release and see how they perform before deciding these studio’s fates is a puzzling one. You’ve already funded these games, why not see them through?

State of Decay 3 is expected next year, why not release it and see how it performs?

It feels like the days of Xbox allowing studios to create games that they are passionate about are over. Sharma says the company is still heavily investing in Xbox, it is simply changing how it invests. Think more Fallout and less Avowed and Outer Worlds.

For some that will be a welcome change. Xbox has lagged a fair bit when it comes to blockbuster titles, however they have been building a solid lineup of games. How this all plays out we will just have to wait and see, but no matter what way you slice it, today is a sad day for Xbox and their fans. We will get a first glimpse at what the future is next month at Gamescom as Xbox has already announced plans for the show.