After a period marked by promises of transformation, the introduction of a new visual identity and an ambitious campaign to take the lead in the market, the scenario in the Xbox division has proven challenging throughout 2026. Significant increases in the prices of Xbox consoles, variations in the value of the Game Pass service and the cancellation of several collaborative projects signal a complicated time for platform enthusiasts. The situation, however, gets even worse for employees and fans of studios linked to the brand.
In recent weeks, Microsoft has emphasized the need for the Xbox division to achieve greater profitability. Rumors about layoffs at Xbox, speculated for July 6, have gained strength. After a series of acquisitions made in the late 2010s and early 2020s, Xbox considerably expanded its portfolio of studios and collaborators. Now, many of those names appear to be under review, with the gaming division seeking a leaner structure, a strategy that echoes the optimization and cost-cutting movement seen at other tech giants after a period of intense expansion.
The current focus is on staff reduction and asset review. Several studios would have been put up for sale and, if they do not find buyers, they face the possibility of closing their activities.
This Monday, which may be remembered as one of the most difficult days in the history of Xbox, the announced transformations impacted several studios.
20% workforce cut impacts Xbox division
Microsoft has officially confirmed that 3,200 Xbox employees will be laid off throughout the current fiscal year. A first group of 1,600 layoffs begins immediately, and the remainder will be gradually removed during an internal restructuring process at Xbox.
Asha Sharma, CEO of Xbox, detailed the situation, stating that “our business today is not healthy.” The executive highlighted profit margins of 3 to 10 times lower than those of competing platform and publishing companies. Sharma explained that “Generation 9” started with a smaller installed base and higher costs. Bets on Game Pass, multiplatform and a broader content portfolio did not generate the expected growth. As a result, the core business has weakened, and the industry faces the most severe hardware crisis in its history, requiring an Xbox “reset.”
Compulsion Games returns to operating independently
Compulsion Games, the studio responsible for developingSouth of Midnight, announced its departure from Xbox Game Studios to resume its operations as an independent company. The studio will retain ownership of its intellectual properties and its entire game catalog following this transition.
Through a statement, the studio team stated: “Today, we are sharing that Compulsion Games will return to independent management following our time as part of Xbox.” The text adds: “As part of this transition, we will maintain the rights ofContrast, We Happy Fewand our award-winningSouth of Midnight. We’re grateful for the years we’ve spent with Xbox, the support they’ve given our team, and the opportunity to bring these games to gamers around the world. As an independent studio, we’re excited to continue creating the unique games that define Compulsion as we take the next steps on our journey.”
Double Fine Productions reassumes creative and asset control
Double Fine Productions also leaves Xbox, returning to independent studio status. The company will retain its intellectual properties, its games catalog and the freedom to develop its next projects.
Studio head Tim Schafer commented, “Once again, Double Fine Productions will be an independent studio.” Ele expressou gratidão: “Agradecemos a todos na Xbox por sete ótimos anos juntos e por trabalharem conosco para chegar a um resultado que preserve nossa história e cultura e nos devolva a propriedade de nossos jogos. A todos que entraram em contato conosco nas últimas semanas: muito obrigado por todas as suas palavras gentis, ficamos profundamente tocados com todas as suas mensagens. Compartilharemos mais novidades em breve sobre o que vem a seguir.”
Future of Ninja Theory in negotiations for new acquisition
Ninja Theory is in the process of being sold to an undisclosed company. The studio will continue development of its acclaimed franchiseSenua. According to information from Game File, the identity of the new buyer should be announced later this year.
Undead Labs also seeks new investor to develop State of Decay 3
Just like Ninja Theory, Undead Labs, developer ofState of Decay 3, is in the negotiation phase to find a new buyer, although there is no confirmation whether it will be the same as Ninja Theory. The studio will continue production on its popular zombie apocalypse-themed open-world series. According to Game File, the expectation is that the new owner will be revealed during the summer (in the northern hemisphere).
Arkane in consultation with works council in France
Microsoft reported that Arkane leadership has begun conversations with the Works Council in France to evaluate possible strategic alternatives. Local labor laws may cause a delay in the possible sale of the studio. The fate of the studio’s next release,Marvel’s Blade, remains undefined.
Restructuring at Bethesda/ZeniMax focuses on priority franchises
Bethesda and ZeniMax will also be affected by layoffs, and their investments will be directed to more relevant projects. Bloomberg reported that Bethesda will undergo a revamp, prioritizing its main franchises:Doom, Fallout, Quake, Wolfenstein e The Elder Scrolls.
Blizzard will also be impacted by cuts and project realignment
Blizzard will also face layoffs, and Microsoft has directed the veteran developer to focus its efforts on creating more impactful games, following a similar strategy to that adopted with Bethesda.
King will now report directly to Xbox CEO
The King studio, known for its mobile games, will now report directly to Asha Sharma and will also be hit by layoffs.
Mojang, creator of Minecraft, will also undergo layoffs and new management
Similar to King, the Mojang studio, creator of the phenomenonminecraft, will face layoffs and will have Sharma as his new direct interlocutor.
Asha Sharma explained the decision: “These two studios have become increasingly platform-based and are our largest in terms of monthly active players. They bring crucial geographic, demographic and demographic differentiation to Xbox.”
