What Xbox Layoffs, Studio Changes Mean for Gamers

The announcement of the most “significant restructure” in Xbox history promises a drastic change in how the company approaches consoles, game-development and the experiences it delivers to customers.

On Monday, the company said it plans to lay off 4,800 employees-including 1,600 immediate reductions at its Xbox division-and focus its efforts on “the priorities that will keep Microsoft positioned to deliver for customers in a fast-changing industry.”

Asha Sharma, who took the helm at Xbox in February, also said four of its game-development studios would be transitioning to new ownership, resulting in a further 1,600 layoffs.

“These changes are about a bigger future for Xbox, not a smaller one. The next decade of gaming will be larger, more global, and more creative than anything we’ve seen before,” Sharma said in a message to employees. “This year, we’ll invest as much in Xbox as we ever have, but we’ll invest with greater focus, greater discipline, and greater clarity, all in service of making Xbox where the world plays and creates.”

Newsweek has contacted Xbox for comment via email.

What Changes Will Xbox Make?

Many had expected such an announcement from the video game giant given its ongoing financial struggles and dwindling market share. In its most recent quarterly report, Microsoft reported a 7 percent year-over-year decline in gaming revenue, as well as a 33 percent drop in Xbox hardware revenue, even as earnings increased across the company’s other arms.

In June, Sharma highlighted several “realities” that Xbox would contend with as it attempted to “reset the business.” These included narrowing margins, a “hardware component crisis” and the fallout from skewed investment priorities.

“Our business today is not healthy,” the executive said on Monday. “We are operating at margins that are 3-10x lower than comparable platform and publishing businesses.”

As a result, the unit plans to become leaner and more centralized, with greater emphasis on larger, high-growth projects. Four smaller development studios-Compulsion Games, Double Fine Productions, Ninja Theory and Undead Labs-are being spun off. Meanwhile, the Candy Crush maker King and Minecraft developer Mojang are set to begin reporting directly to Sharma.

What This Means for Gamers?

In simple terms, the restructuring involves fewer studios, fewer employees and greater emphasis on the Xbox’s “core” business and its major franchises.

Piers Harding-Rolls, a games industry analyst with Ampere Analysis, told Newsweek that a key element would be the “renewed focus on its biggest IP, franchises, and games with the biggest audiences.”

“Studios producing games that are more niche and that don’t drive Game Pass subscriptions are probably better served outside Xbox, and that’s why some studios are being sold,” he said. “This means that gamers will see fewer games like this developed within Xbox studios, which will be increasingly focused on the biggest franchises.”

Xbox said the reductions would not cause any Xbox-owned games already in the pipeline to be canceled, and that Ninja Theory had joined new ownership and secured funding to complete Senua-a stand-alone instalment in the Hellblade series. Separately, Undead Labs confirmed that it would still release State of Decay 3 despite the transition to new ownership.

And, as Sharma indicated, Harding-Rolls said Xbox would begin to exhibit “a significant focus on specific franchises, including Minecraft, across which there will be more investment to compete more actively with Roblox and Fortnite, and its biggest mobile property Candy Crush.”

As well as “aggressively” expanding its studio portfolio, Xbox said some of its difficulties stemmed from its investment in Game Pass, multi-platform publishing and its “portfolio of content,” but the company said these parts of the businesses “did not grow at the pace we expected.”

Xbox has effectively admitted that the strategy that defined the company since 2018-mass acquisitions, Game Pass expansion and growing first-party content-did not deliver the growth executives anticipated.

As well as restructuring the platform around giant global franchises, Harding-Rolls said this could mean “a focus on making Game Pass on Xbox more affordable.”

“There has already been a price drop for Game Pass Ultimate, and it is likely we’ll see an ad-supported version of the service in the future,” he said. “At present, there is also a high likelihood that we’ll see a next-gen console from Xbox probably in 2028.”

Contact Newsweek editors on this story: John Fitzpatrick and Shakeema Edwards.

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This story was originally published July 7, 2026 at 8:09 AM.