Xbox cuts 3,200 people and five studios

Last week, Microsoft announced that several of its gaming studios were at risk of being closed. Xbox CEO Asha Sharma pointed to the usual: hardware costs, over-extension and a subsequent need to “reassess the balance,” and diminishing profits. And, like every other time the C-suite needs to fix their mistakes, this meant that a lot of people are about to lose their jobs — 3,200 people as we learned today.

Just over a month ago, Xbox made a lot of noise at Summer Games Fest with big, crowd-pleasing announcements. But, starting mere days after all of those flashy and exciting trailers, the news out of Xbox had a much different tone. Xbox CEO Asha Sharma and Chief Content Officer Matt Booty have released a pair of memos that warn of bad things to come.

The first, titled “The Next 100 Days: Xbox Reset,” lays out how little money Xbox is making for Microsoft, citing a 3% accountability margin — which is Microsoft-speak for “profit margin.” The memo cites a spend of $20 billion on “content, platform, and hardware subsidy” at the same time that annual revenue dropped. The hardware subsidy, by the way, is because both Microsoft and Sony sell their consoles for less than they cost to manufacture and make up the difference as you buy more and more games from them.

The hardware component crisis — namely, AI data center hyperscalers gobbling up every piece of electronic hardware they can get their hands on — makes that subsidy a big problem. That’s why prices are going up for new Xboxes, PlayStations, Steam Decks, and basically everything computer-related.

The tone of the “The Next 100 Days” is serious and vaguely threatening, but it doesn’t mention any job cuts or studio closures directly. They saved that for today’s memo, “Resetting Xbox.”

It comes out of the gate strong, calling what’s coming “the most significant restructure in Xbox history” right in the first sentence. After the standard “careful consideration” and “difficult decision” bullshit, we get the numbers — 3,200 people are getting fired and five studios are leaving Xbox.

The memo, as is always the case, only uses the dehumanizing language of "reducing the team size" and "eliminating roles" rather than admitting that they're firing people. The 3,200 cuts announced make up about 20% of Xbox’s workforce. And half of them — 1,600 people — are gone today.

Sharma cites over-expansion and over-investment as the reason that “our business today is not healthy.” Over the last several years, Xbox has made big bets on Game Pass and on buying up a lot of studios to broaden their portfolio. But now, as stated in the memo, they've realized:

It is neither possible nor desirable to own every great independent studio. We have also learned that we are not the best home for every type of studio; in a typical year, we lost 64 cents for every dollar we invested.

Hey, fun fact, since 2019, Microsoft has spent over $100 billion on direct investments, infrastructure, and hosting in its partnership with OpenAI. Just thought that was interesting.

The four studios leaving Xbox are Compulsion Games (We Happy Few, South of Midnight), Double Fine Productions (Psychonauts, Gang Beasts), Ninja Theory (Hellblade), and Undead Labs (State of Decay). Compulsion and Double Fine are going independent and will own themselves along with their IP and catalogue. Ninja Theory and Undead Labs sound like they’re in negotiations to be sold to someone else.

A bonus fifth studio, France’s Arkane (Deathloop, Dishonored), is “beginning required consultation with its Works Council to review potential strategic options.” A lot of those words don’t mean anything, but the short version is that France has national laws in place that protect workers from getting shafted. Xbox is still selling the studio, but they can’t do it as callously as everywhere else.

The 3,200 people who are getting fired are spread across what's left — "These changes vary in size across Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and Xbox Game Studios."

Buried in with the announcements is an assurance that "none of our first party publicly announced games or projects are being cancelled as part of these reductions."

The rest of the memo is an admission of how bloated Xbox has become (“as many as 14 layers of management”), the announcement of some new roles, a lot of corporate-speak, and one retirement. There is one line — "and we will streamline how we work across our tools, with a cleaner code base, [and] shared services” — that raises my hackles given that Asha Sharma’s previous position was as president of the CoreAI division. I don’t know if that means anything, but I’m just putting it out there.

She wraps up her memo with:

These changes are about a bigger future for Xbox, not a smaller one. The next decade of gaming will be larger, more global, and more creative than anything we’ve seen before. This year, we’ll invest as much in Xbox as we ever have, but we’ll invest with greater focus, greater discipline, and greater clarity.

And with 3,200 fewer people.