Microsoft Cuts 3,200 Xbox Jobs and Divests Studios as Gaming Revenue Drops $2 Billion

Microsoft is cutting 3,200 jobs within its Xbox gaming division and divesting four development studios following an annual gaming revenue drop of more than $2 billion. The gaming layoffs represent half of a broader corporate reduction totaling 6,400 positions across the company.

The restructuring plan eliminates 1,600 Xbox positions immediately, while another 1,600 roles are scheduled to be phased out over the coming year. As part of the retreat, Microsoft sought to close five development studios, ultimately divesting four. Studio Double Fine bought itself back from Microsoft while shedding one-third of its workforce, while the future of Arkane Studios remains unresolved. The cuts extended across multiple flagship developers, with id Software losing an estimated 50 percent of its staff and Obsidian Entertainment canceling several unreleased projects, including a sequel to Avowed.

The downsizing follows severe financial pressure within Microsoft’s gaming business. In a joint internal memorandum released prior to the cuts, Xbox Chief Executive Asha Sharma and Chief Content Officer Matt Booty—who assumed their leadership roles earlier this year—warned that the division’s accountability margin had fallen to approximately 3 percent. Over the past five years, Microsoft poured more than $20 billion into hardware subsidies, platforms, and content investments, excluding its acquisition of Activision Blizzard, even as annual core gaming revenue contracted by nearly $500 million.

Microsoft completed its record-setting $68.7 billion acquisition of Activision Blizzard in October 2023 to expand its footprint, but the broader video game sector has faced stagnating software sales and elevated operational costs. Competitors including Sony and Electronic Arts have similarly reduced staff over the past year to protect profit margins.

Financial results for Microsoft’s fourth fiscal quarter showed Xbox revenue falling 10 percent year-over-year, placing the division several billion dollars behind rival Sony and its PlayStation platform. The performance shortfall prompted organized resistance from labor unions representing tech workers.

The Communications Workers of America filed unfair labor practice lawsuits against Microsoft in the United States and Canada, alleging that management failed to negotiate in good faith regarding worker protections. Union members staged demonstrations outside corporate offices, citing Microsoft Chief Executive Satya Nadella compensation of $96 million in 2025 as evidence that the company possessed sufficient capital to avoid mass firings.

Compounding the division’s difficulties, Xbox suffered a near-daylong network outage in July that temporarily prevented users from playing physical disc games due to digital rights management authorization checks. Microsoft acknowledged the physical media restriction was an unexpected software bug slated for a technical fix.