The gaming division of Microsoft is undergoing significant changes following a lengthy and frank open letter from the new Xbox CEO. The letter reveals massive layoffs and organizational changes, including the immediate cut of 1,600 jobs, followed by another 1,600 over the next fiscal year. This represents 20 percent of the division's workforce across the Xbox hardware team and Xbox Game Studios.
As part of these changes, Microsoft is spinning off or selling some of its major studios. Double Fine Productions and Compulsion Games will return to management, effectively becoming independent studios under their current notable leaders. Ninja Theory and Undead Labs have entered terms to join new ownership, while the fate of Arkane Studios remains uncertain. In contrast, other Microsoft-owned developers and publishers, such as Activision-Blizzard and Bethesda, are noted as safe.
The new Xbox CEO has spoken candidly about the dire state of the company's business. She cited low margins, a low install base on the console side, and disappointing growth from the Game Pass subscription service since 2018. "Our business today is not healthy," she wrote, adding that the company lost 64 cents for every dollar invested in a typical year.
Microsoft is already investing in new technologies to compete with the gaming industry, including Project Helix, a next-generation console that will play both Xbox console games and PC games. The company is also investing in Windows-focused gaming with a new streamlined user interface and a handheld gaming PC partnership with Asus.
With this announcement, Microsoft appears to have given itself a timeline to stem the losses and show measurable improvements in profitability by the end of fiscal year 2027. Project Helix's alpha hardware is scheduled to be in developers' hands next year, with a possible launch at holiday 2027. However, the feasibility of this goal remains uncertain due to the rising costs of RAM and storage.
