<p>Microsoft plans to cut around 3,200 jobs in the Xbox division by July 2027, with 1,600 layoffs happening immediately, according to a public memo from Xbox CEO A</p>
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<p><a href="https://www.ghacks.net/2026/06/17/microsoft-shareholders-sue-over-allegedly-overhyped-ai-performance-and-hidden-cloud-slump/">Microsoft</a> plans to cut around 3,200 jobs in the <a href="https://www.ghacks.net/2026/04/24/microsoft-renames-gaming-division-back-to-xbox-as-asha-sharma-scraps-microsoft-gaming-label/">Xbox division</a> by July 2027, with 1,600 layoffs happening immediately, according to a public memo from Xbox CEO Asha Sharma.</p><p>The company also intends to spin off Compulsion Games, Double Fine, Ninja Theory, and Undead Labs. Meanwhile, Arkane Lyon is in negotiations with its work council about its future. The layoffs will also affect Bethesda, ZeniMax, id Software, Activision, Obsidian, and Microsoft's Accessibility Team.</p><p>Additional reports suggest that another 1,600 redundancies may occur across other Microsoft divisions, bringing the total layoffs to approximately 4,800.</p><p>So far, no studios have been fully closed, and Sharma has confirmed that no publicly announced games have been canceled.</p><h2>Which Xbox Studios Microsoft Is Spinning Off</h2><p>Four studios are departing from Microsoft's ownership:</p><ul>
<li><strong>Compulsion Games</strong>, the developer behind South of Midnight, will remain independent, retain its intellectual property, and receive funding for its next project.</li>
<li><strong>Double Fine</strong>, creators of Psychonauts, will also become independent while keeping their IP and funding.</li>
<li><strong>Ninja Theory</strong>, known for Hellblade, is set to be sold to a new owner with the resources to complete Senua.</li>
<li><strong>Undead Labs</strong>, responsible for State of Decay, will be sold to a different owner who has the resources to finish State of Decay 3.</li>
</ul><p>Arkane Lyon, the studio behind Dishonored and Deathloop, is currently in negotiations with its work council instead of facing immediate layoffs.</p><p>French labor laws are likely to have protected the studio from the same fate as Arkane Austin. Its upcoming title, Blade, based on the Marvel Comics character, has reportedly been delayed from a late 2026 release to late 2027 after exceeding its budget.</p><p>ZeniMax and its subsidiaries continue to operate under Microsoft ownership but are undergoing significant staff reductions. According to Bloomberg's Jason Schreier, the studios are redirecting their focus toward franchises such as Fallout, The Elder Scrolls, Doom, Quake, and Wolfenstein. Despite being announced eight years ago, The Elder Scrolls VI remains a project years away from release.</p><p>Scott Miller, founder of 3D Realms, and Jeff Gardiner, a former lead at Bethesda Game Studios, provided some insights. They noted that id Software has laid off about 95 employees, including most of its coders.</p><p>Bethesda has reduced its staff by around 35 employees, while the exact number of layoffs at Obsidian Entertainment is not clear. The Elder Scrolls Online team has also cut staff, which has impacted its upcoming content schedule.</p><p>The layoffs at id Software could affect Microsoft's internal game engine development. The studio, known for titles like Doom and Quake, has developed some of the most influential graphics engines in the history of video games.</p><p>Recent technical work on projects such as Doom: The Dark Ages and Indiana Jones and the Great Circle has been considered among the most ambitious efforts on current hardware.</p><h2>How The Cuts Affect Bethesda, ZeniMax, And Other Teams</h2><p>Microsoft's Accessibility Team, known for designing controllers for disabled gamers, has recently experienced layoffs. The company's hardware division appears to be unaffected. The upcoming Xbox console, codenamed Helix and slated for release in late 2027 or 2028, remains on schedule.</p><p>Blizzard Entertainment has not announced any layoffs at this time, although there may be staffing changes at the Diablo IV studio in the coming months.</p><p>Mojang, the studio behind Minecraft, and King, the creator of Candy Crush, will now be directly managed by Xbox. Helen Chiang, a former Mojang executive, has been promoted to chief operating officer as Microsoft aims to simplify management layers across its studios.</p><h2>Why Microsoft Is Restructuring Xbox And What It Means For Players</h2><p>Sharma explained that Xbox's previous approach of expanding Game Pass with a broad range of content and cross-platform releases did not meet Microsoft's growth expectations.</p><p>He noted that the company's profit margins are three to ten times lower than those of similar businesses, and that Xbox has lost about 64 cents for every dollar invested in most years.</p><p>Sharma also mentioned to Fortune that Xbox had overextended itself. Additionally, shortages of memory, partly caused by Microsoft's own investments in AI, have increased the company's hardware costs.</p><p>This has led manufacturers like Apple, Sony, and others to raise their prices, with Microsoft planning to add at least 100 dollars to the cost of Xbox Series consoles in August.</p><p>For players following the affected games, here are some practical implications:</p><ul>
<li>Announced games are still in development, according to Sharma</li>
<li>The South of Midnight and Psychonauts franchises continue under the independent ownership of Compulsion Games and Double Fine.</li>
<li>The Senua and State of Decay 3 are expected to be completed by the new owners of Ninja Theory and Undead Labs.</li>
<li>The Blade from Arkane Lyon is reportedly delayed until late 2027. The timeline for</li>
<li>The Elder Scrolls VI remains uncertain.</li>
<li>The Elder Scrolls Online roadmap is being extended beyond the current content season.</li>
</ul><p>Players who purchased games from any of the affected studios should not see immediate changes in how the games operate. Game Pass will continue to include titles from Microsoft-owned studios, and the original studios' back catalogs are expected to remain available through existing storefronts.</p><p>By July 2027, about 44,000 Microsoft employees are expected to have lost their jobs over four years of layoffs that began in 2023. The Xbox division has undergone its largest restructuring in history.</p><p>Microsoft has not released a full list of the roles or projects affected. More details are likely to be shared as affected studios and employees start speaking publicly about the changes in the coming weeks.</p>
<p>Thank you for being a Ghacks reader. The post <a href="https://www.ghacks.net/2026/07/07/microsoft-cuts-3200-xbox-jobs-and-spins-off-four-game-studios-in-largest-xbox-reset/">Microsoft Cuts 3,200 Xbox Jobs and Spins Off Four Game Studios in Largest Xbox Reset</a> appeared first on <a href="https://www.ghacks.net">gHacks</a>.</p>