Xbox Layoffs Hit 3,200 Employees as Microsoft Reshapes Its Gaming Division

Xbox is facing one of its biggest shake-ups yet, as the gaming division plans to cut 3,200 jobs and move four studios away from Microsoft ownership. The decision marks a major reset for Xbox, with leadership now pushing for a smaller, more focused business built around fewer projects and tighter control.

According to the reference content, Xbox CEO Asha Sharma announced the layoffs and confirmed that the company will also divest several studios as part of the wider restructuring plan.

Compulsion Games and Double Fine Productions will return to independent ownership, with their own management teams taking control. Ninja Theory and Undead Labs will be sold to an unnamed buyer, though both studios reportedly have funding to continue work on Senua and State of Decay 3, which Xbox announced for a 2027 launch last month.

Arkane Lyon remains the biggest question in this process, as the studio has started talks with its Works Council to review strategic options. That means the studio behind Dishonored and Deathloop could become independent, find a buyer, or face a tougher outcome later.

Xbox says it has not canceled any announced first-party projects, which gives players some clarity during a difficult moment. However, the company has ended its third-party partnership with IO Interactive on Project Fantasy.

The layoffs also affect Activision, Bethesda, Blizzard, King, Mojang, and Xbox Game Studios. Sharma said Xbox became too fragmented, with too many teams and layers slowing decisions across the business.

Under the new structure, Xbox will centralize decision-making and place more responsibility under direct leadership. Mojang and King will now report directly to Sharma as Microsoft tries to build a leaner gaming division with clearer priorities.