Microsoft initiates major Xbox restructuring and studio divestments

The scale of the reduction marks a significant pivot for the company, which is currently operating at margins significantly lower than its primary competitors. According to an internal memo from Xbox CEO Asha Sharma, the division is struggling with a smaller install base and a higher cost structure than anticipated. To address these financial headwinds, Microsoft is offloading Double Fine, Compulsion Games, Ninja Theory, and Undead Labs. While the former two will return to their founders’ control, the latter two have secured new ownership to ensure ongoing development of key titles like State of Decay 3 and the Senua series.

Beyond studio divestments, Microsoft is streamlining its internal hierarchy, capping management layers at five to combat the complexity that has hindered decision-making. Arkane Studios, currently developing Blade, faces an uncertain future as management enters consultations regarding the studio's strategic options. Despite the significant headcount reductions across Bethesda, Blizzard, and other units, the company maintains that no publicly announced games are being canceled. Moving forward, Mojang and King will report directly to Sharma, as the company shifts focus toward its largest franchises and a more disciplined operating model.