Microsoft to cut 3,200 Xbox jobs and divest four studios

Microsoft will eliminate 3,200 positions from its Xbox division, with 1,600 cuts taking effect immediately and the remaining 1,600 scheduled through fiscal 2027. Xbox CEO Asha Sharma said in an internal email that the business is "not healthy" and operates at margins 3-10 times lower than comparable platform and publishing companies.

She also announced plans to divest four studios and implement leadership changes.

Industry-wide pressures The video game sector has seen repeated layoffs after pandemic-era spending growth subsided. An industry tally compiled by technical artist Farhan Noor recorded 4,600 job cuts across studios in 2026 through Monday, following 5,300 cuts in 2025 and 14,600 in 2024.

Development costs for major titles have risen sharply. Analyst Michael Pachter of Wedbush Securities noted that console hardware requires dedicated components whose prices have increased due to AI-driven demand for memory and storage. Microsoft and Sony both plan to raise console prices by $100 to $150 starting this summer, reversing the historical pattern of price declines during a console generation.

Microsoft-specific challenges Xbox consoles have trailed Sony's PlayStation and Nintendo's Switch in sales. The company's Game Pass subscription service has also failed to deliver expected growth despite two large acquisitions. Microsoft bought ZeniMax Media, parent of Bethesda Softworks, for roughly $8 billion in 2021 and Activision Blizzard for about $69 billion in 2023.

Sharma stated that in a typical year the company lost 64 cents for every dollar invested in its game studios.