Today was a day many were waiting for, as it was described in the journalist communities as a Microsoft bloodbath. Asha has discussed it internally as a reset for XBOX. Oddly enough, rather than it being a PR manager or a community manager behind the XBOX account, the details were given straight from Asha herself on Twitter.
This is an important email I sent today to all employees at XBOX:
Team,
We are beginning the most significant restructure in XBOX history. After careful consideration, I've made the difficult decision to reduce our team by approximately 3,200 throughout FY27. This will include…
— ASHA (@asha_shar) July 6, 2026
There are a lot of details in this post she has made for the news. First off is the number. Today, there will be 1,600 people in the gaming side of Microsoft laid off. This includes teams across XBOX Game Studios, ZeniMax, and Activision Blizzard. The gaming side of Microsoft will see another 1,600 people cut across the financial year of 2027. The financial year of 2027 for Microsoft ends on June 30th, 2027.
The next information Asha reveals about XBOX is probably the most transparent we have seen in terms of information about this side of the business as a whole. “Our business today is not healthy. We are operating at margins that are 3–10x lower than comparable platforms and publishing businesses.” Essentially, the size of the gaming department of Microsoft as a whole is giant. With recent acquisitions of ZeniMax and Activision Blizzard, they have essentially acquired giant third-party publishers and everything that comes with being a giant publisher.
One of the hardest parts of acquiring a publisher is not just taking on development costs, but also transitioning them out of their work environments into your work environment. It comes with much more than just people and IPs; it comes with work cultures, power dynamics, and everything that comes out of having a giant group of people who had their own way of doing things. All of these things add up to increased operating costs. PlayStation has had its own troubles with this with Bungie.
“To grow, we bet on Game Pass, multi-platform, and a broader portfolio of content. While those businesses have created meaningful value, they did not grow at the pace we expected. As that happened, our core business weakened, and we added more teams, more investment, and more time, hoping for a better outcome.”
Asha points out the elephant in the room with this quote. They bet on Game Pass and moved all the titles that XBOX was working on to all other platforms. As well as adding more diversity and variety to its Game Pass offerings. It forced management to try to grab more and more games and developers to add more games to Game Pass. All this, plus the hardware crisis, has added to the need for the XBOX reset, as Asha calls it.
The first thing that Asha wants to reset is the content portfolio that XBOX is working on. “We now find ourselves competing not only with the largest publishers, but also with smaller independent studios. 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.”
XBOX is planning on removing studios from its umbrella. The first two that have been granted independence are Compulsion Games and Double Fine. When the first email from Asha was shown about removing smaller games from their portfolio and focusing on larger IPs, these were the first two studios I thought were in trouble. Rather than closing them down, they secured agreements that not only allowed them to leave without having to close their studio, but also to keep the rights to their games and IPs. Honestly, a great alternative to having a studio closure in my opinion.
The next two studios are in a different deal. “Ninja Theory and Undead Labs have entered terms to join new ownership with funding to complete and grow Senua and State of Decay 3“. Essentially, Ninja Theory and Undead Labs are going to be owned by someone else now. We have no idea currently who the publisher for these titles is, but I imagine we will have more news once it is revealed officially. Arkane Lyon is also in negotiations to figure out how they want to leave XBOX.
You may be wondering how this affects their lineup of future games. Especially considering three of these studios have active projects in the works. Luckily, Asha has stated that no announced titles are getting cancelled.
The next aspect of the reset is the platform. Apparently, there are currently 14 layers of management to get decisions approved. That means it takes a good while before things go from the planning phase to the production phase. Asha plans to have three to five layers of management on decisions to simplify the pipeline at XBOX. This also means that part of the layoffs could have been the other layers of management.
The last part of the reset was one I was most surprised by. Not because I didn’t think it was an essential thing to reset, but because it has been an issue at Microsoft itself for a while now. Not just XBOX. That is how they operate.
“As XBOX grew our headcount, we became more fragmented. Teams, studios, and functions often operate independently, and it became harder to work towards a shared goal, make the right tradeoffs, and get things done.” If you have listened to any of the podcasts we have done over the years, talking about XBOX. One of my core issues with the company was this aspect. They treated everything as an independent entity with no oversight. This is a problem that has shown itself with the release of Redfall, where developers actively did not want to work on the title and wanted to ask Microsoft management for help. Microsoft did not do anything and let the problems of ZeniMax persist.
Asha’s response to this problem was to create a new position inside XBOX. “For the first time, we are establishing a Chief Operating Officer with end-to-end P&L responsibility across content, hardware, platform, and services. Helen Chiang has been promoted to this role and will report directly to me.” Helen Chiang is someone who has a lot of experience under her belt. She has worked with XBOX since 2007, managing many different projects. One of her main projects was integrating Minecraft into the fold of the XBOX umbrella. She was, until now, the head of the Minecraft franchise.
Essentially, this reset is going to hurt a lot in the short term, but it might be worth it for a stronger XBOX. XBOX might go back to its core franchises only with a few new ones here and there, but essentially, it’s so that XBOX won’t have to bleed money away on every project under the sun.
If XBOX commits to having a faster but better managed pipeline, it would mean less vagueness in the company when it comes to decisions. It would also help to have a management system that actually knows what’s going on with the company, not just in what games are getting worked on, but also in the development teams and their strengths and weaknesses. This would make projects faster to production and less likely to get cancelled.
Source: Asha’s Twitter
