Microsoft Corp’s Xbox plans to eliminate 3,200 jobs, or around 20% of its staff over the next year, as part of a massive reorganisation to spur growth in the struggling gaming division. Xbox will also divest four of its video-game development studios and is beginning the process to part ways with a fifth.
"Our business today is not healthy,” chief executive officer Asha Sharma wrote in a note to staff on July 6, adding that Xbox is operating at margins three to 10 times lower than comparable businesses. "We must reset Xbox.”At Xbox, 1,600 jobs will be eliminated on July 6, the rest over the next 12 months, according to the letter. The reductions come amid another 3,200 layoffs at Microsoft outside of Xbox, largely among sales divisions. They are being fueled by changes in how products are built and what customers want, chief people officer Amy Coleman wrote in a memo to staff seen by Bloomberg.
The goal at Xbox is to streamline the business and reinvest in bigger projects, Sharma wrote. It’s the most significant move yet for Sharma, who became Xbox CEO in February, inheriting what she has described as a business in distress. Despite making big investments, including the US$69bil (RM281.3bil) purchase of Activision Blizzard in 2023, Xbox has struggled to release hit games, seen hardware sales decline significantly and faced an increasingly tumultuous market.
Last month, Sharma wrote in a memo to employees that Xbox’s "accountability margin,” the metric Microsoft uses to reflect profit margin, had fallen to three per cent and that annual revenue had plummeted. "Going forward, this cannot continue,” she wrote then.
In all, planned cuts across Microsoft announced on July 6 total 6,400. That amounts to less than three per cent of the total headcount of about 228,000.
Coleman suggested that more divisions of Microsoft will see these kinds of restructurings. "We are still early on this journey, and there will be more changes ahead; other parts of our business will need to make similar changes,” she said.
The world’s largest software maker is spending huge sums on data centres to power artificial intelligence (AI) work, leading to austerity in other parts of the company. Microsoft engaged in two waves of major job reductions last year that affected a total of about 15,000 workers. Reducing headcount has been a common tech industry approach to save cash.
The changes at Xbox will have significant repercussions throughout the video game industry, where the organisation competes with Sony Group Corp’s PlayStation and Nintendo Co. Xbox has also suffered from the global, AI-fueled chip shortage, which has led all of the gaming hardware makers to raise prices this year. Last month, Sharma told staff that the division is expecting to pay five times as much for memory and storage in 2027 than it did in 2024.
Xbox will sell the studios Ninja Theory (Hellblade) and Undead Labs (State of Decay) to undisclosed buyers. Both studios will continue working on their current game projects, Senua and State of Decay 3, with Xbox.
Two other studios, Double Fine (Psychonauts) and Compulsion Games (South of Midnight), will be spun out and return to private ownership under their founders. Sharma wrote that these two studios will receive runway funding and full ownership of the intellectual property they have developed, including their catalogues of previous games.
Xbox will also begin a consultation process with Arkane Studios (Blade), based in Lyon, France, to "review potential strategic options” in the coming months in hopes of selling or spinning out the studio. Unlike the other four studios, this process has not yet started and will take longer than the others due to stringent French labour laws.
All five of the studios were purchased by Xbox under former CEO Phil Spencer, who oversaw a spending spree over the last decade that scooped up both small game makers and large publishers, such as Activision Blizzard and ZeniMax, the parent company of Arkane. His hope was to use their games to boost the popularity of Xbox Game Pass, the company’s Netflix-like subscription program for video games, but growth of the service plateaued.
Sharma wrote that those acquisitions "created meaningful value” but "they did not grow at the pace we expected,” adding that "in a typical year” Xbox was losing US$0.64 (RM2.61) for every dollar it invested in the business.
"It is neither possible nor desirable to own every great independent studio,” she wrote. "As we reset Xbox, we will help independent creators succeed by providing open development tools and audiences to realise their vision.”
Sharma wrote that no publicly announced projects will be cancelled as part of the restructuring, but the cuts will take place across the entire organisation, including the studios that Xbox is retaining, in part "to focus on higher priority projects.”
ZeniMax will face a significant overhaul and will pivot to focus on its biggest franchises: Fallout, The Elder Scrolls, Doom, Quake and Wolfenstein.
Xbox will make deep cuts to its platform division in order to reduce management layers and release products more quickly, Sharma wrote. Xbox will implement a number of other changes to invest more in blockbusters like Minecraft, such as shifting around reporting structures and moving to a more centralised studio model.
Sharma wrote that she wants Xbox to reach one billion players per day.
"These changes are about a bigger future for Xbox, not a smaller one,” she wrote. "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.”
Xbox has laid off thousands of staff and cancelled many projects since closing its US$69bil (RM281.3bil) acquisition of Activision Blizzard in the fall of 2023. Even subsidiaries that make popular games like Candy Crush and Call of Duty have been impacted by the ongoing job cuts.
Bloomberg previously reported that Double Fine, Compulsion and Ninja Theory were among the studios in negotiations with Xbox to avoid closure. – Bloomberg
