Microsoft’s Xbox division hit a hard wall in July 2026. On July 6, the company announced layoffs cutting 3,200 Xbox jobs. Half of those cuts—1,600 positions—were immediate. The other 1,600 will vanish over the next year.
This is more than a trimming. Xbox tried to close five development teams, including Arkane Studios, Compulsion Games, Double Fine, Ninja Theory, and Undead Labs. Four studios were divested. Arkane’s fate remains unclear.
Id Software, the Doom creator, lost half its staff. Double Fine dropped a third of its employees. Obsidian Entertainment canceled multiple projects, including the awaited Avowed sequel. The fallout is unmistakable.
Xbox CEO Asha Sharma and chief content officer Matt Booty admitted the division’s “business today is not healthy.” Their June memo outlined broad issues with games, consoles, infrastructure, and marketing. They promised a “reset” to fix it.
They also revealed Xbox will end FY 2026 with a mere 3 percent accountability margin, down year-over-year. Revenue plunged more than $2 billion, a 10 percent drop in Q4 alone.
Money hasn’t been the problem. Excluding Activision Blizzard King, Xbox spent over $20 billion on content, platform, and hardware subsidies over five years. Yet annual revenue dropped nearly half a billion dollars in that time.
Including Activision Blizzard King, acquired in 2023, Xbox’s expenditures ballooned by $69 billion. Despite this, the division’s growth stalled. Microsoft CEO Satya Nadella said, “We are making the necessary decisions to reset the business for long-term growth.”
Meanwhile, Nadella’s own income hit $96 million in 2025. Union members urged Microsoft to consider the human and creative costs of these mass layoffs.
Microsoft’s broader business showed stark contrasts. Cloud revenue soared 27 percent to $59 billion, crossing $100 billion for the first time. Productivity revenue jumped 14 percent to $37.8 billion. But Windows OEM and devices dropped 7 percent.
To offset losses, Microsoft plans to raise Xbox console prices by $100 starting August 1. Sharma set a goal for Xbox to gain in casual games, leveraging King’s assets. She vowed to invest in Minecraft, which surpassed Tetris as the best-selling game five years after Microsoft’s 2014 acquisition.
Sharma aims for faster revenue growth in fiscal years 2028 and 2029, targeting sustained double-digit growth and industry-leading margins by 2030. “By FY30, our ambition is to be halfway to our long-term daily-player goal,” she wrote.
“It is neither possible nor desirable to own every great independent studio,” one industry voice noted. Xbox’s reset shows the painful price of chasing too many dreams without sustainable returns.
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