Microsoft’s Xbox division is bracing for significant job cuts after new chief executive Asha Sharma admitted the business “isn’t particularly healthy,” with layoffs expected shortly after the close of Microsoft’s fiscal year on 30 June as part of what has been dubbed the “Xbox Reset.”
The cuts were first reported by Bloomberg’s Jason Schreier on Wednesday, citing sources familiar with the company’s strategy who said the exact scale remained unclear but that reductions were likely once Microsoft’s financial year closes. The Verge reported separately that its sources suggested the planned layoffs and budget cuts could include the closure of a studio.
Hours after the Bloomberg report, Sharma and Xbox Chief Content Officer Matt Booty published a message to staff on Xbox Wire titled “Next 100 Days: Xbox Reset,” following on from Sharma’s first 100 days in the role since taking over from Phil Spencer on 23 February. The post did not explicitly mention layoffs but laid out a stark picture of the division’s finances. “We will end this fiscal year at about a 3% accountability margin, down year-over-year,” the post read, noting that excluding the $69 billion Activision Blizzard King acquisition, Xbox has spent more than $20 billion over the past five years on content, platform and hardware investment — even as annual revenue fell by nearly half a billion dollars over the same period.
Sharma and Booty acknowledged the division had lost focus. “We expanded our studio system when we needed a pipeline of content to meet multiple strategies across subscription, streaming, and devices,” the post said. “In the process, we have found ourselves over extended as we executed on changing strategies in a landscape of more readily available content. We are the fortunate stewards of industry-defining franchises that have enormous potential and player demand, but we have not adequately funded them to compete and win.” They added that “a reliable pipeline of first- and third-party exclusives and new IP are critical to our success” and that the company needed to “reassess the balance between these and our investment priorities for the next five years.”
Rising hardware costs have compounded the pressure. According to Game Informer, the cost of console storage components has risen to five times what it was two years ago, with Sharma and Booty writing that Xbox needs a new business model and partnerships for hardware as the company remains committed to its next-generation console, codenamed Project Helix. The current platform infrastructure, they said, “is not built for the battle ahead,” describing existing systems as too complex and overly reliant on vendor dependencies.
Despite the grim financial picture, the memo struck an optimistic note about Xbox’s underlying audience, stating that more than one billion players engage with Xbox and its games each year across console, PC, mobile and streaming, totalling 72 billion hours of play. Sharma and Booty framed the company’s real competition as being for “attention” amid an unprecedented volume of games, TV, film and content available to consumers.
The news comes despite recent goodwill towards Sharma, who won praise after Microsoft cut the price of its Game Pass Ultimate subscription from $29.99 to $24.99 and ended day-one releases of future Call of Duty titles on the service. Defending the price cut on X, Sharma wrote: “Game Pass Ultimate has become too expensive for too many players… We’ll keep learning and evolving Game Pass to better match what matters to players.”
Bloomberg also reported that Xbox plans to significantly cut spending on marketing and other areas of the business as part of the reset, which follows years of broader layoffs across Microsoft as the company has worked to streamline its operations.
