Xbox is laying off 3,200 employees — 1,600 immediately and another 1,600 over the next year — as part of what its CEO Asha Sharma calls the biggest overhaul in the division's history The Verge.

On July 6, 2026, Xbox announced the restructuring in a post titled "Resetting Xbox" news.xbox.com. The layoffs affect not just Xbox itself but also gaming studios Microsoft owns, including Bethesda, id Software, and Obsidian.

Instead of shutting them down, Xbox is letting four studios operate independently: Double Fine, Compulsion Games, Undead Labs, and Ninja Theory. The rest of Xbox's internal teams will focus all their energy on just four game franchises: Halo, Gears of War, Minecraft, and Candy Crush.

Helen Chiang, who previously managed the Minecraft franchise, got promoted to Chief Operating Officer of Xbox. Her promotion matters because Minecraft is one of the four franchises Xbox is now prioritizing.

In an internal memo, Sharma gave a reason for the cuts: Xbox loses 64 cents for every dollar it spends. She also set a goal for Xbox to reach over a billion people every day.

The restructuring did not come out of nowhere. In early June 2026, Bloomberg reported that Xbox was planning major layoffs under the new CEO Bloomberg. News outlets also reported that Microsoft had briefly considered spinning Xbox off as a completely separate company before deciding against it Reuters.

Xbox's layoffs are happening as part of something much bigger. Microsoft cut thousands of jobs across the company in late June and early July 2026. In June, the company cut under 2.5 percent of its total workforce across sales, support, and gaming Reuters. Then on July 6, the same day as the Xbox announcement, Microsoft announced an additional 4,800 job cuts Reuters. During this time, Microsoft's stock price dropped nearly 23 percent over the first six months of 2026.

All these announcements over a few weeks paint a picture of a company dealing with serious financial pressure in gaming. The 64-cent loss per dollar figure that Sharma mentioned is the clearest explanation she has given for why these cuts are happening. But Xbox has not explained what exactly is costing all that money — whether it is from buying video game studios, paying for the Game Pass subscription service, or selling consoles at a loss.

Worth flagging is that Sharma's goal of reaching "a billion people daily" is the kind of language you hear from social media companies like Facebook or mobile game platforms, not traditional console gaming companies. This suggests Xbox now thinks of itself as a platform for reaching as many people as possible rather than just selling game consoles.

The choice to spin out the four studios instead of closing them down reflects what independent game developers have asked for in recent years: let us own our own companies again, but still keep selling games through Xbox if we want to. Whether these four studios can actually survive on their own is still unclear.