Microsoft's new Xbox CEO says the all you can play subscription hasn't attracted enough paying customers to justify the studios she inherited. The 3,200 job cut is the bill coming due.
Microsoft is cutting 1,600 Xbox employees on Monday and roughly 1,600 more by June 2027, totaling about 3,200 gaming jobs. The cuts are part of a wider 4,800-person reduction across the company, or about 2.1% of Microsoft's total headcount. The Monday wave lands hardest at four studios Microsoft is handing off to outside management: Compulsion Games, Double Fine, Ninja Theory, and Undead Labs, which together employ around 350 people. A fifth, Arkane Studios in France, is described in coverage as a candidate for sale or spin-off, not a confirmed offload.
What binds the four studios together is the cut itself. Every one was acquired by Microsoft within the last eight years, during the build-out that peaked with the $68.7 billion Activision Blizzard purchase in 2023. Gaming trade publication Game File has framed the current contraction as Xbox's "reverse-2018": a deliberate unwind of the studio-shopping spree that defined Phil Spencer's last years running the division. New Xbox CEO Asha Sharma, who took over the gaming business in February, is the one publishing the memo that names the cut.
Sharma's framing carries more weight than the headcount. In an internal memo published Monday on news.xbox.com, she called the gaming business "not healthy," said costs are too high and the customer base too low, and described the cuts as a "reset." The trade outlets that corroborated the 3,200 figure and the four-studio list read the same memo. Sharma also pointed at Game Pass as the engine that has not grown fast enough to justify the studios and staff now being removed. Game Pass prices were already lowered earlier this year.
This is the part the wire coverage tends to leave implicit. Microsoft's pitch for the Activision Blizzard deal was that owning Call of Duty, Diablo, World of Warcraft, and the rest of Activision's library would let Xbox fold them into Game Pass and pull in enough new subscribers to cover the cost. The years of studio acquisitions that ended with the 2023 Activision deal were meant to give Game Pass a content moat no competitor could match. Instead, the strategy has produced a portfolio Xbox is now contracting rather than expanding.
Double Fine (Psychonauts), Ninja Theory (Hellblade), and Undead Labs (State of Decay) made narratively ambitious, cult-favorite games rather than the franchise-sized hits the Activision deal was supposed to deliver at scale. Compulsion Games (We Happy Few, Contrast) sits in the same lane. The pattern is consistent: Microsoft is keeping the platform and the mega-franchises, and returning the experimental studios to independence.
The platform-versus-portfolio question now sits on Sharma's desk. Microsoft still owns Call of Duty, Minecraft, the Elder Scrolls, Doom, Diablo, and Halo. It still runs Game Pass, Xbox Cloud Gaming, and the Xbox console line. It has stopped paying the running cost of the studios sitting between those franchises and the ones too small to defend on their own. The second round of roughly 1,600 cuts, scheduled to land before June 2027, will determine whether "reset" was the first move of a multi-year unwind or a one-time correction that lets the surviving division run leaner.
The next marker is whether any of the four studios re-emerge as independent shops with Microsoft publishing deals, a structure that has worked for some of Sony's smaller acquisitions, or whether they simply close. Sharma's memo does not commit to either path.