Xbox cuts 3,200 jobs and sells off five studios in historic reset

The announcement

On 6 July 2026, Microsoft confirmed it is cutting 3,200 jobs from its Xbox gaming division — roughly 20% of the entire unit — in what new CEO Asha Sharma called "the most significant restructure in Xbox history." Half of those roles, 1,600 positions, were eliminated on the day of the announcement. The remaining cuts will follow over the next 12 months.

The Xbox reductions sit inside a broader Microsoft company-wide cull of 4,800 roles, or about 2.1% of its global workforce of roughly 228,000 people. That means Xbox alone has absorbed two-thirds of the entire company's July layoff total, despite representing a fraction of Microsoft's overall headcount — a stark illustration of how acute the division's problems have become.

Five studios are going

Alongside the job losses, Xbox is divesting five of its first-party studios: Arkane Lyon, Compulsion Games, Double Fine, Ninja Theory, and Undead Labs. The fates of each differ in detail.

• Double Fine and Compulsion Games will return to independence, with management teams taking full ownership of their IP, catalogues, and revenue streams.
• Ninja Theory and Undead Labs have entered terms with new, as yet unnamed buyers, who will provide funding to complete Senua (Ninja Theory) and State of Decay 3 (Undead Labs). The deals are not yet finalised.
• Arkane Lyon, the France-based studio, is "beginning required consultation with its Works Council to review potential strategic options," Sharma wrote. Its American sister studio, Arkane Austin, was already shuttered in 2024 following the poor reception of Redfall.

The studio spinoffs affect around 350 employees of the 1,600 immediately impacted, excluding Arkane. Compulsion Games responded publicly to the news: "We're grateful for the years we spent with Xbox, for the support they provided our team, and for the opportunity to bring these games to players around the world. As an independent studio, we're excited to continue building the distinctive games that define Compulsion while taking the next steps in our journey."

Why Xbox says it had to act

Sharma's note to staff was unusually blunt. "Our business today is not healthy," she wrote, adding that Xbox is operating at margins three to ten times lower than comparable businesses. Most strikingly, she disclosed that "in a typical year, we lost 64 cents for every dollar we invested." She also wrote: "It is neither possible nor desirable to own every great independent studio."

The financial pressure has been building for some time. In the most recent holiday quarter, gaming revenue fell 9% to $5.96 billion, with Xbox content and services coming in below internal projections. Meanwhile, a Game Pass price hike in October 2025 — which pushed Xbox Game Pass Ultimate up by 50% to $30 a month — caused subscriber numbers to drop by millions within a few months, according to Xbox chief strategy officer Matthew Ball. Microsoft subsequently cut the price of Ultimate to $22.99 a month in April 2026, though future Call of Duty titles will no longer be available on the service at launch. Instead, they will join the tier "the following holiday after launch — about a year later," Sharma explained.

How we got here

Between 2018 and 2023, Microsoft went on one of the most aggressive acquisition sprees in gaming history, snapping up Ninja Theory, Undead Labs, Compulsion Games, Double Fine, the entire ZeniMax portfolio — including Bethesda, id Software and Arkane — and finally Activision Blizzard King for $68.7 billion, the largest acquisition in the history of the games industry. That strategy is now being unwound. The 6 July announcement is the fifth distinct wave of Xbox layoffs since the Activision Blizzard deal closed in October 2023, with each successive round becoming more drastic: from generic efficiency cuts, to studio closures, to game cancellations, and now to active studio divestments.

The leadership driving that era has also gone. Phil Spencer retired from Microsoft in February 2026 after nearly four decades at the company. Sarah Bond, who had served as President of Xbox since 2023, also departed. Asha Sharma, who previously led Microsoft's CoreAI product organisation and held senior roles at Instacart and Meta, was named Executive Vice President and CEO of Microsoft Gaming on 20 February 2026, reporting directly to CEO Satya Nadella.

What this means for UK buyers right now

The consequences for consumers are immediate. From 1 August 2026, Xbox console prices will increase by $100 for 512 GB models and $150 for 1 TB models worldwide. Microsoft has also confirmed it is discontinuing the 2 TB model entirely. UK sterling prices have not been confirmed, but the increases will apply globally. Microsoft cited a components crisis, noting that console storage and memory prices have risen by more than 2.5 times and are expected to double again by autumn 2027. The company stated it does not typically sell consoles at a profit in the first place.

On the games side, Sharma confirmed that no previously announced first-party titles are being cancelled as a direct result of the restructure. However, Arkane Lyon's superhero title Marvel's Blade — already delayed from 2026 to late 2027 — is considered at risk given the studio's uncertain status, though Microsoft has made no official announcement about the project's future.

Looking further ahead, Microsoft's next-generation console Project Helix, designed to play both Xbox and PC games and powered by a custom AMD SoC, is not expected to reach consumers imminently — alpha hardware will begin going to developers in 2027. No official UK price has been set, and Sharma has already warned that memory costs "will impact pricing, and will impact availability." Leaked estimates of £900 to £1,200 or more remain unconfirmed speculation.