Xbox braces for a sweeping 'reset' as layoffs and studio closures loom after 30 June

Microsoft's Xbox division is steeling itself for one of the most consequential overhauls in its history, with a wave of layoffs and studio closures expected to land once the company's financial year closes on 30 June. The move follows a bluntly worded internal memo from new Microsoft Gaming chief Asha Sharma, who told employees that the unit's pattern of heavy spending against thin margins 'cannot continue'.

The restructuring caps a period of extraordinary churn at the top of Xbox. Phil Spencer, the long-serving face of the brand, is set to retire, while Xbox president and chief operating officer Sarah Bond has resigned, leaving Sharma — barely 100 days into the role — to drive what insiders are calling a full 'reset' of hardware, studios, marketing and exclusives strategy.

Reports from Bloomberg and The Verge suggest the cuts could be significant in scale, affecting staff across Xbox Game Studios, Bethesda and Activision Blizzard, with detail expected to be confirmed only after the fiscal-year line is drawn.

The numbers behind the reset

The memo, co-authored with chief content officer Matt Booty, laid out an uncomfortable picture. According to the company's own framing, Xbox poured more than $20 billion into content, platform and hardware over five years while annual revenue slipped by close to $500 million across the same span — a combination Sharma characterised as leaving the business 'over extended'.

Hardware economics have only sharpened the pressure. The memo noted that console storage components now cost more than five times what they did two years ago, a knock-on effect of AI-driven shortages across the semiconductor supply chain, and acknowledged that Xbox cannot build consoles fast enough to meet demand even as it commits to its next-generation Helix platform.

“It is important to have both optimism and realism as we work to reset the business.”

— Asha Sharma and Matt Booty, in a memo to Xbox staff

Which studios are in the firing line

The most painful element of the reset is its effect on the studios Microsoft spent years and tens of billions acquiring. Reports indicate the company is planning to close Compulsion Games — the award-winning Montreal team behind South of Midnight and We Happy Few — in a move said to affect more than 100 staff, reportedly arriving the same day Xbox Game Studios head Craig Duncan announced his own departure.

Beyond outright closure, Microsoft is said to be in preliminary talks to spin off or find external buyers for several other studios rather than fold them entirely. Among the names reported to be on the table:

• Compulsion Games — facing closure, more than 100 jobs affected
• Double Fine — reportedly in spin-off or sale discussions
• Ninja Theory — reportedly in spin-off or sale discussions
• Wider cuts expected across Xbox Game Studios, Bethesda and Activision Blizzard after 30 June

The picture remains fluid, and Microsoft has not formally confirmed individual studio outcomes. But the direction of travel — consolidating a sprawling portfolio assembled in a different economic era — is now unmistakable.

Background

Between 2018 and 2023 Xbox embarked on an aggressive acquisition spree, absorbing Bethesda parent ZeniMax and, in its largest-ever deal, Activision Blizzard, alongside a string of smaller developers. The strategy was designed to flood Xbox Game Pass with first-party content and close the exclusives gap with PlayStation. Sustaining that many teams, however, required either strong revenue growth or eventual consolidation — and with revenue flat to falling, consolidation has become the answer.

The coming cuts would not be the first under Microsoft's ownership of Activision. The company has already conducted several major layoff rounds since the takeover closed, shuttering studios including Arkane Austin, Alpha Dog Games and The Initiative. The 2026 reset, however, is being described internally as broader and more structural than anything that preceded it.

What it means: for developers, the reset signals that even the deepest-pocketed owner in gaming is no longer willing to carry studios that do not pay their way, a sobering message for an industry already battered by a multi-year wave of job losses. For players, the immediate impact is uncertainty over in-development projects and the long-term shape of Xbox's exclusive line-up. The full scope will become clear only after 30 June, when Microsoft is expected to confirm the numbers — and the names — behind a reset it insists is unavoidable.