Xbox to Lay Off Approximately 3,200 Employees; Double Fine and Compulsion to Regain Independence

"Our business is not healthy today." This is how Xbox CEO Phil Spencer framed one of the opening paragraphs of the Xbox Wire blog post, which finally addresses many of the pressing questions about Xbox's immediate and future situation.

Spencer explains that Xbox "operates with margins 3 to 10 times lower than comparable platforms and publishers" while losing "64 cents for every dollar invested." Combined with a particularly harsh hardware crisis, this means "we have to restart Xbox from scratch." But what does this mean for the employees of Microsoft's gaming division?

The article states that a total of 3,200 Xbox employees will be laid off during fiscal year 2027. Approximately 1,600 positions are being eliminated today, with the remainder to follow over the next 12 months. One of the goals is to significantly reduce the management hierarchy, shrinking the number of management levels from an "absurd" 14 down to a maximum of five, with the ultimate aim of reaching three.

Studios are also affected, but Xbox has found a solution that appears to be in the best interest of all parties involved. Firstly, Compulsion Games (South of Midnight) and Double Fine Productions (Kiln, Keeper) are regaining their independence, allowing them to operate as they see fit without being part of the larger Microsoft or Xbox Game Studios structure.

As for Ninja Theory (Senua) and Undead Labs (State of Decay 3), both teams have now "reached an agreement to join a new owner who will provide the necessary funding to complete and develop Senua and State of Decay 3."

The big question mark is Arkane: although Jerk Gustafsson has joined the studio as the new CEO, the company "is entering mandatory consultations with its works council to explore possible strategic options."

Elsewhere, Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and Xbox Game Studios are all experiencing workforce changes and focusing on "more prioritized projects," while Mojang and King are now expected to report directly to Spencer.

The article clarifies that "none of our publicly announced first-party games or projects are being canceled as part of these workforce reductions."

Spencer further specifies that the goal will be to operate under a single model and ensure it allows for "clear investment decisions, learning from our successes and failures, and taking responsibility for our results."

All of this comes as Spencer prepares Xbox for the years ahead, concluding with: "These changes are intended to deliver a bigger future for Xbox, not a smaller one. The next decade of gaming will be bigger, more global, and more creative than anything we’ve seen before. This year, we’ll invest as much in Xbox as we always have, but we’ll do it with more precision, more rigor, and more clarity, all to make Xbox the place where the world plays and creates."