'We lost 64 cents on every dollar invested': Xbox CEO Asha Sharma on gaming cuts, studio reset

Microsoft is planning to lay off nearly 3,200 employees as part of its latest round of restructuring, with more than 1600 role eliminations expected to coming from the company's Xbox division today. The sweeping reductions will affect multiple teams across Xbox and include plans to spin off four gaming studios into independent entities.

Xbox's 'reset moment'

The layoffs are being described internally as an "Xbox reset" and are expected to affect around 1,600 Xbox employees, according to an internal memo from Xbox CEO Asha Sharma. Microsoft also plans to reduce its Xbox workforce by a further 20 percent by the end of the 2027 financial year.

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Addressing employees, Sharma acknowledged the scale of the restructuring and the uncertainty it has created.

“I recognize that a year-long restructuring creates additional challenges. Unfortunately, it is not possible to make all the necessary changes in a single day, and I wanted to be direct about the scale,” Sharma wrote.

She also recognised the contributions of the affected employees, saying:

“I know this is painful. These changes will directly affect people who have poured their creativity into building Xbox. Many joined us through acquisitions, while others were recruited here, or sought us out because they loved this industry and loved Xbox. Today’s decisions do not reflect their talent or dedication.”

Studio Changes 

As per Sharma “Compulsion Games and Double Fine Productions will return to management and transition to independent studios with their IP, catalog, and runway for their next games. Ninja Theory and Undead Labs have entered terms to join new ownership with funding to complete and grow Senua and State of Decay 3. In France, Arkane’s management is beginning required consultation with its Works Council to review potential strategic options.”

Going by what the CEO has detailed, Arkane's French studio has begun a mandatory consultation process with its Works Council to evaluate strategic options, including a possible sale or restructuring. Compulsion Games and Double Fine Productions spin off from Microsoft and operate as independent studios while retaining their intellectual property, game catalogues, and funding for future projects. Ninja Theory and Undead Labs will transition to new ownership, with the new backers expected to fund the development of Senua and State of Decay 3.

Explaining the shift in strategy, Sharma said the gaming industry has become increasingly competitive, with Microsoft now competing not only against major publishers but also against smaller independent studios.

She added that it was "neither possible nor desirable to own every great independent studio" and acknowledged that Microsoft's investments in several acquired studios had failed to deliver the expected returns.

Sharma noted that, on average, Microsoft lost 64 cents for every dollar it invested in these studios. As part of Xbox's reset, she said the company will focus on supporting independent developers by providing open development tools and access to broader audiences, rather than continuing to expand through acquisitions.