Xbox Boss Asha Sharma Announces 3,200 Layoffs, 1,600 Effective Today, Four Studios Depart Under New Management — Full Staff Email Inside

Microsoft has confirmed that 3,200 Xbox employees will be laid off over the current financial year, with 1,600 of those cuts taking place today, July 6. As part of a major restructuring, four studios are leaving Xbox to new management, while one studio enters consultations regarding its future.

In an internal email obtained by IGN, Xbox head Asha Sharma described this as the "most significant" restructuring in Xbox history, stating bluntly that Microsoft's gaming business "is not healthy."

Compulsion Games, the developer behind South of Midnight, and Double Fine Productions, known for Psychonauts, will return to independent studio status, taking their intellectual properties, catalogs, and "runway for their next games," according to Sharma. These upcoming titles have not yet been announced. Notably, Double Fine's departure means Microsoft retains the Psychonauts IP.

Meanwhile, Ninja Theory (Hellblade) and Undead Labs (State of Decay) "have entered terms to join new ownership with funding to complete and grow Senua and State of Decay 3." This indicates both games will eventually launch under new owners, though Microsoft has not disclosed who those owners are.

In France, Arkane, the studio behind Marvel's Blade, will enter mandatory consultations with its Works Council to "review potential strategic options." The fate of Marvel's Blade specifically remains unclear.

Layoffs are also occurring across other Xbox divisions, including Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and Xbox Game Studios. Microsoft insists that none of its first-party publicly announced games or projects are being canceled as part of these reductions, meaning titles like Fable, Gears of War: E-Day, Call of Duty: Modern Warfare 4, and The Elder Scrolls 6 remain safe.

Bethesda also owns id Software, responsible for Wolfenstein, Doom, and Quake. Activision Blizzard produces Call of Duty, World of Warcraft, Diablo, Overwatch, and Candy Crush.

These devastating cuts follow last July's layoffs at Microsoft, when 9,000 employees lost their jobs across the company. Those cuts resulted in game cancellations, including Rare's Everwild, and studio closures, such as Perfect Dark developer The Initiative. Now, just 12 months later, the company is again reducing its workforce.

A recent report suggested Sharma wanted to accelerate development on new The Elder Scrolls, Fallout, and Halo games as part of a company reset. Details from The Information (via Reuters) indicated that Microsoft hasn't ruled out turning Xbox into a wholly-owned subsidiary, potentially operating as a joint venture with other partners or even being sold.

Below is the full email sent to staff as part of this developing story.