Xbox isn’t doing so hot, and you don’t think an MBA to see that. Its console hardware sales are in a distant third place behind Sony and Nintendo, even as the prices of those boxes keep going up. Microsoft’s software side isn’t exactly tearing up the sales charts either. The end result? Huge layoffs and organizational changes, announced today.
In a lengthy and surprisingly frank open letter, new Xbox CEO Asha Sharma announced the immediate cut of 1,600 jobs in Microsoft’s gaming division, followed by another 1,600 over the next fiscal year. That’s 20 percent of the division’s workforce across the Xbox hardware team and Xbox Game Studios.
Microsoft is also spinning off or selling some of the major studios it’s spent the last few years acquiring. Double Fine Productions (Psychonauts, Keeper, Kiln) and Compulsion Games (South of Midnight, We Happy Few) will “return to management,” which basically means they’ll become independent studios under their current notable leaders, Tim Schafer and Guillaume Provost, respectively. Ninja Theory (Hellblade: Senua’s Sacrifice) and Undead Labs (State of Decay) have “entered terms to join new ownership.” The fate of Arkane Studios, makers of Dishonored and Deathloop, is still being decided.
Other Microsoft-owned developers and publishers are noted as safe: Activision-Blizzard (Call of Duty, World of Warcraft), Bethesda, Mojang (Minecraft), and King. “Xbox Game Studios” also includes Obsidian (The Outer Worlds), Rare, Halo Studios, The Coalition (Gears of War), and Playground Games (Forza). While these jewels are staying in Microsoft’s crown, I think it’s safe to assume a management shakeup and deep headcount reductions in all of them.
Microsoft
Sharma didn’t mince words about the dire state of Xbox’s business. “Our business today is not healthy,” she wrote, citing margins lower than the competition, a low install base on the console side, and disappointing growth from the Game Pass subscription service since 2018. “In a typical year, we lost 64 cents for every dollar we invested.”
Microsoft has already committed to the next generation of Xbox console in Project Helix, which will play both Xbox console games and PC games. It’s setting up to be a competitor to the Steam Machine, Valve’s hopeful beachhead into the living room console space, approached from the opposite side. Microsoft is also investing in Windows-focused gaming with a new streamlined user interface and a handheld gaming PC partnership with Asus. Again, these moves are seen as counters to Valve’s work on SteamOS and the Steam Deck.
With this announcement, Microsoft seems to have given itself a timeline. Stem the losses and show measurable improvements in profitability by the end of fiscal year 2027—that’s June 30th of next year—or get ready to make some even bigger decisions. Project Helix’s alpha hardware is scheduled to be in developers’ hands next year, presumably hoping for a launch at holiday 2027 at the earliest.
Whether that goal is still realistic, based on both the time allotted and the still-rising costs of RAM and storage, isn’t clear. Notably, there’s no mention of Project Helix in today’s letter.
