Xbox is kicking off what it describes as the most significant restructure in its history, with a message sent to Team Xbox employees globally on July 6, 2026 confirming that the company is reducing its team by approximately 3,200 people throughout FY27 and moving four studios to new management.
The message, published on Xbox Wire and signed by Asha, does not sugarcoat things. It confirms approximately 1,600 role eliminations today, with the remaining cuts spread across the fiscal year. As the note puts it, a year-long restructuring creates additional challenges, and it is not possible to make all the necessary changes in a single day.
All of this comes a couple of months after Microsoft Gaming as a brand was killed off.
We are beginning the most significant restructure in Xbox history. After careful consideration, I've made the difficult decision to reduce our team by approximately 3,200 throughout FY27. This will include approximately 1,600 role eliminations today, and in addition, four studios will leave Xbox to new management.
Why is Xbox making these changes now?
The reasoning laid out in the message is blunt about the state of the business. Xbox says it is operating at margins that are 3-10x lower than comparable platform and publishing businesses, and that it entered Gen 9 with a smaller install base and a higher cost structure. To grow, the company bet on Game Pass, multi-platform, and a broader portfolio of content, but says those businesses did not grow at the pace it expected.
According to the note, as the core business weakened, Xbox added more teams, more investment, and more time hoping for a better outcome. It also frames the wider context as the most severe hardware crisis in the industry's history, which is why the company says it must reset Xbox.
Which studios are leaving Xbox?
The most eye-catching part for players is the content portfolio reset. The message says that since 2018, Xbox aggressively expanded its studio portfolio, and it acknowledges that it is neither possible nor desirable to own every great independent studio. It even notes that in a typical year, it lost 64 cents for every dollar it invested. Here is how the studio changes break down:
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.
Importantly, the note is clear on one point that will matter to a lot of us: none of Xbox's first party publicly announced games or projects are being cancelled as part of these reductions. The message also states there are reductions across other units, varying in size across Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and Xbox Game Studios, with investment in some cases shifting toward higher priority projects.
On top of that, Mojang and King will now report directly to Asha. The note describes these two as increasingly becoming platforms and being Xbox's largest by monthly active players, bringing critical geographic, demographic, and differentiation value to Xbox.
What is changing about the Xbox platform?
The second pillar of the reset is the platform itself, and the message leans on the idea that great technology gets better when it gets simpler, not bigger. It notes that in some parts of the company, work passes through as many as 14 layers of management, and that platform teams are 40% larger than they were at the start of this generation, even as player base and playtime have declined. Here is what the reset promises:
Reduce management layers to no more than 5, and where possible, 3.
Build a flatter organization around makers (individual contributors focused on building), player-coaches (leaders who remain deeply involved in the work while developing their teams), and directly responsible individuals (DRIs) who own key decisions and outcomes.
Streamline how the company works across its tools, with a cleaner code base, shared services, and 50% reduced vendor spend.
How is Xbox changing the way it operates?
The third pillar is about operations. The note says that as Xbox grew its headcount it became more fragmented, with teams, studios, and functions often operating independently, making it harder to work towards a shared goal. To address that, Xbox is establishing a Chief Operating Officer role for the first time, with end-to-end P&L responsibility across content, hardware, platform, and services.
Helen Chiang has been promoted to that role and will report directly to Asha. The message credits Chiang with nearly two decades at Xbox, helping build businesses from Xbox Live to leading Mojang and the Minecraft franchise, and says she will bring the businesses together under one operating model.
The note also thanks Dave McCarthy, who is retiring after 17 years with Xbox, describing him as having played a defining role in building the platform and being a trusted partner through many of Xbox's biggest moments.
What does this mean for Xbox's future?
Despite the scale of the cuts, the message frames all of this as being about a bigger future for Xbox, not a smaller one. It says this year Xbox will invest as much as it ever has, but with greater focus, discipline, and clarity. Asha states a goal of Xbox being one of the few companies that entertains more than a billion people each day, and says the company will return to growth in 2027.
History is full of companies that mistake longevity for inevitability. We will not be one of them.
It is a lot to take in, and our thoughts are with the developers affected by these cuts. What do you make of Xbox's reset, and are you worried about your favorite studios? Let us know in the comments.
Source: Xbox Wire.
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