Xbox is undergoing a significant restructuring that includes 3,200 layoffs and the divestment of five internal game studios, according to Xbox CEO Asha Sharma. The changes are aimed at realigning resources and refocusing on the company’s core business following recent financial declines and a need to streamline management.
Strategic Realignment and Studio Divestments
Sharma explained in an interview with Fortune that the company had previously “spread ourselves too thin” by making numerous bets to foster growth. This expansion, she noted, led to a lack of focus on the core business. To address this, Xbox will divest five internal studios. Compulsion Games and Double Fine will become independent entities. Ninja Theory and Undead Labs are slated to seek new acquisition and funding. Arkane Lyon will enter a consultation process to explore strategic options.
The restructuring is also driven by financial performance. Sharma previously stated that Microsoft had invested over $20 billion in Xbox over the past five years, excluding Activision Blizzard. During this period, revenue reportedly dropped by an estimated $500 million annually. Sharma noted in a memo to staff that Xbox is operating at margins significantly lower than comparable platform and publishing businesses.
Financial Performance and Growth Strategy
Sharma elaborated on the company’s growth strategy, stating, “We entered this generation with a smaller install base and a higher cost structure. To grow, we bet on Game Pass, multi-platform, and a broader portfolio of content. While those businesses have created meaningful value, they did not grow at the pace we expected.” She added that as these ventures developed, the core business weakened, prompting further investment and time allocation in hopes of a better outcome.
Management Structure and Future Vision
The company’s management structure has also been identified as an area for improvement. Sharma pointed out that Xbox’s management layers have expanded, with platform teams now 40% larger than at the start of the current generation, even as the player base and overall playtime have declined. To combat fragmentation and improve efficiency, Sharma plans to reduce management layers to a maximum of five, and ideally three, from current structures that sometimes involve up to 14 layers.
“As Xbox grew our headcount, we became more fragmented,” Sharma said. “Teams, studios, and functions often operate independently, and it became harder to work towards a shared goal, make the right tradeoffs, and get things done.”
Sharma concluded with a forward-looking statement, emphasizing that these changes are intended for a “bigger future at Xbox.” She expressed a vision for Xbox to become one of the few companies that entertains over a billion people daily and provides opportunities for creation and connection. Sharma expressed confidence in achieving this goal, citing Xbox’s legacy, its studios, and projecting a return to growth in 2027.
Helene Elliott is the senior reporter for News Raise. She covers Science news. She also has a keen interest in photojournalism. Helene holds a nomination for the prestigious Red Smith Award. She is married to author Dennis D’Agostino, a former publicist with the New York Mets.
