Xbox Restructures Amidst Industry Changes

Xbox has announced what it terms the most significant restructure in its history. This move signifies a shift in how the company approaches its console business, game development, and customer experiences. On Monday, the company revealed plans to lay off 4,800 employees. This includes 1,600 immediate cuts within the Xbox division. The focus will be on priorities that ensure Microsoft remains competitive in a rapidly evolving industry.

Asha Sharma, who assumed leadership of Xbox in February, stated that four game-development studios would transition to new ownership, leading to another 1,600 layoffs. “These changes are about a bigger future for Xbox, not a smaller one,” Sharma communicated to employees. “The next decade of gaming will be larger, more global, and more creative than anything we’ve seen before.” She emphasized significant investment in Xbox this year, with increased focus, discipline, and clarity.

Newsweek has sought comment from Xbox via email.

Planned Changes for Xbox

The decision follows expected announcements due to Xbox’s financial difficulties and declining market share. Microsoft’s recent quarterly report showed a 7% year-over-year drop in gaming revenue and a 33% reduction in Xbox hardware revenue, despite revenue growth in other company sectors. In June, Sharma pointed out several “realities” affecting Xbox’s business reset. These included narrowing margins, a hardware component crisis, and issues from previous investment priorities.

Sharma explained, “Our business today is not healthy. We are operating at margins that are 3-10 times lower than comparable platform and publishing businesses.” The unit aims to become leaner and more centralized, focusing on larger, high-growth projects. Small development studios such as Compulsion Games, Double Fine Productions, Ninja Theory, and Undead Labs will be spun off. King, known for Candy Crush, and Mojang, the creator of Minecraft, will report directly to Sharma.

Implications for Gamers

The restructuring will mean fewer studios, fewer staff, and a focus on Xbox’s core business and major franchises. Piers Harding-Rolls, a games industry analyst at Ampere Analysis, remarked that there will be a renewed focus on the biggest IP and franchises, with games aimed at broad audiences.

“Studios producing more niche games that don’t drive Game Pass subscriptions are probably better served outside Xbox,” Harding-Rolls said. This shift suggests fewer niche games developed within Xbox studios, with increased attention on prominent franchises.

Xbox assured that the reductions will not halt any existing Xbox-owned games. Ninja Theory, under new ownership, received funding to complete Senua, part of the Hellblade series. Undead Labs also confirmed plans to release State of Decay 3 despite its transition to new ownership.

Sharma and Harding-Rolls indicated that Xbox would focus significantly on specific franchises, such as Minecraft, enhancing competition with Roblox and Fortnite, and expanding its mobile footprint with Candy Crush.

Xbox’s challenges have partly resulted from its investment in Game Pass, multi-platform publishing, and content portfolios, which did not grow as expected. The company acknowledged that its strategies since 2018, involving acquisitions and Game Pass expansion, did not achieve the anticipated growth. The restructuring will prioritize global franchises, with potential focus on making Game Pass more affordable. This includes a price reduction for Game Pass Ultimate and the possibility of an ad-supported version.

There is speculation about a next-gen Xbox console, with expectations for release around 2028.

Newsweek editors John Fitzpatrick and Shakeema Edwards contributed to this story.