Microsoft to cut 3,200 Xbox jobs and offload five game studios

On July 7, 2026, Microsoft announced the largest restructuring of its Xbox division ever: 3,200 employees will lose their jobs, and five game studios will be sold or closed, two of them in Europe.

What Asha Sharma announced

Xbox CEO Asha Sharma sent employees an official memo on July 7, 2026. In it she gave a blunt diagnosis of the business: "unhealthy." In her words, the coming changes will be the most significant restructuring in the division's history. The memo was written without the usual corporate cushioning; Sharma acknowledged the problems openly.

Key parameters of the announced restructuring:

• 3,200 Xbox employees will be laid off worldwide
• Five game studios will leave Microsoft's structure through sale or closure
• Two of the five studios are located in Europe
• The restructuring is described as "the most significant in Xbox history"
• The memo is dated July 7, 2026

The names of the specific studios had not been officially disclosed at the time of publication.

Why Xbox ended up here

Over the past several years, Microsoft sharply expanded its gaming business through large acquisitions. In 2023, the company completed its purchase of Activision Blizzard for $68.7 billion, the largest deal in video game industry history. Before that, Bethesda, ZeniMax and a number of other studios joined the Xbox portfolio. As a result, the division now has more than 30 development teams.

But scale did not translate into financial results. Xbox console sales continue to trail PlayStation, and maintaining the sprawling studio structure is expensive. The video game market is cooling after the pandemic-era boom: consumers have become more careful with spending, and the cost of producing big projects has risen.

Competitive dynamics make things worse: even though hits such as Call of Duty and Diablo were added to Xbox Game Pass, subscriber growth for the service has slowed. Keeping more than 30 studios on shrinking returns was becoming less and less sustainable.

"The business is unhealthy,"

Asha Sharma wrote bluntly in a memo addressed to the entire Xbox team.

Selling five studios, including European developers, is an attempt to move from a strategy of growing the portfolio to concentrating resources. Xbox's priorities remain the Xbox Game Pass subscription service and cloud gaming through Xbox Cloud Gaming.

What this means for the job market

The current cuts fit a broader trend: the games industry has been going through large-scale layoffs since 2023. According to industry sources, more than 30,000 professionals have lost their jobs over the past three years, at Electronic Arts, Sony, Embracer Group, Unity and other companies.

The closure of two European Xbox studios is especially painful for the regional job market, where game development has historically been strong. This is not the first round of cuts in Microsoft's gaming division: the company has previously shut down internal teams while integrating new acquisitions. The current restructuring is the largest single one in Xbox history.

What it means

The Xbox restructuring is a public admission that the "maximum studios = maximum success" strategy did not deliver the expected results. Microsoft is changing course: instead of building the biggest game portfolio, it is concentrating on services with durable revenue. The games industry is entering a period of harsh rationalization after several years of expansion, and Microsoft's move is one of the clearest signals of that turn.