Xbox CEO Asha Sharma has unveiled a sweeping reset of how the gaming division operates and invests, cutting 3,200 roles and spinning off four internal studios as Microsoft moves to refocus the business around its core console franchise amid stagnant industry-wide spending.
Console Focus Drives Strategy Reset
Global consumer spending on games has grown slowly over the past five years, putting severe pressure on Xbox's business. Microsoft appointed Asha Sharma as Xbox CEO earlier in 2026, following her two-year tenure as Microsoft's President of CoreAI Product, after gaming revenue fell 9% year-on-year and Xbox hardware sales plunged 32%.
Microsoft's latest quarterly report showed a 7% decrease in gaming revenue, driven by a 33% drop in Xbox hardware revenue and a 5% decline in content and services. Despite investing more than US$20 billion into content and hardware over five years, excluding Activision Blizzard, annual revenue has still declined by nearly half a billion dollars, with operating margins running three to ten times lower than comparable businesses.
The restructure will cut 20% of the Xbox workforce, with more than 1,600 roles eliminated immediately and another 1,600 scheduled for reduction over the next year. It forms part of a broader Microsoft realignment cutting 4,800 jobs company-wide, roughly 2.1% of its global workforce.
"In order to grow, we made a bunch of bets and as we did that, we inherently didn't focus on the core business. The number one measure of your strategy is what you put your resources behind, and we simply spread ourselves too thin."— Asha Sharma, CEO, Xbox
Offloading Gaming Studios to Preserve Culture
Four Xbox development studios, Compulsion Games, Double Fine Productions, Ninja Theory, and Undead Labs, will be spun off as part of the changes. Double Fine Productions and Compulsion Games will return to independent management and depart with their intellectual property.
Analyst Piers Harding-Rolls of Ampere Analysis says the restructuring underlines a sharper Xbox focus on its biggest IP and audiences, noting the company had previously acquired numerous studios to build out its Game Pass subscription offering, some of which are now better suited to operate outside the Xbox organisation.
Content budgets will instead flow toward high-growth franchises such as Minecraft, as Xbox shifts from a decentralised studio model toward a more centralised structure.