Xbox Layoffs Announced: 1600 Now, 1600 More into 2028, Four Studios Leave and id Software Reportedly Gutted

Microsoft announced a major restructuring of its Xbox division on July 6, 2026, resulting in 3,200 total layoffs (1,600 immediate, 1,600 by end of fiscal year 2027). The shake-up comes under new CEO Asha Sharma and represents what Microsoft describes as “the most significant restructure in Xbox history.”

Four internal studios are departing: Double Fine and Compulsion Games are returning to independence with their IP and runway funding from Microsoft, while Ninja Theory and Undead Labs have been sold to unnamed buyers. A fifth studio, Arkane, is reviewing strategic options.

The restructuring follows mounting losses from aggressive expansion efforts. Bloomberg reported Microsoft spent nearly $80 billion over the past decade on acquisitions and deals intended to fuel Xbox Game Pass growth—efforts that “did not grow at the pace we expected,” according to Sharma. The previous strategy under former CEO Phil Spencer attempted to reach beyond Xbox’s core business, but Sharma stated the company “spread ourselves too thin.”

Moving forward, Xbox will refocus on its console hardware, which currently represents 80% of its business. Plans include prioritizing major franchises like Minecraft and Gears of War, returning to exclusives, expanding to mobile and PC, experimenting with hardware financing options, and dramatically reducing management layers from 14 to a maximum of five.

The layoffs affected multiple divisions, including accessibility leadership roles, with some studios hit particularly hard—Obsidian Entertainment lost approximately 25% of its staff. Bethesda’s id Software, ZeniMax Online Studios, and others also experienced significant cuts. The restructuring drew public criticism, including from U.S. Senator Bernie Sanders, who highlighted the contrast between Microsoft’s $101 billion annual profit and the layoffs.

Sharma set an ambitious goal of Xbox reaching “more than a billion people each day,” though this statement sparked widespread misunderstanding across social media and gaming media.

Sources