Microsoft’s Xbox division is reportedly preparing to cut hundreds of jobs this week while consolidating several of its game studios, marking a new phase in the sweeping restructuring of the company’s gaming business.
The planned cuts were reported by The Information on September 22, citing a person briefed on Microsoft’s plans. The publication said the layoffs would represent Xbox’s second major staff reduction of 2026, while several game studios are also expected to be consolidated as the company continues reshaping its sprawling first-party development operation.
Microsoft has not announced the latest round publicly, and the exact number of positions affected remains unknown. Crucially, the report also does not identify which studios are facing consolidation, leaving the implications for individual developers and projects unclear for now.
Xbox reportedly preparing another round of layoffs this week
The September 22 report moves Xbox’s restructuring into its next stage only a little over two months after Microsoft announced what it called the most significant reorganisation in Xbox history.
According to The Information, Xbox CEO Asha Sharma is seeking to improve margins at Microsoft’s gaming business, which have lagged comparable platform and publishing companies. The latest plan reportedly includes hundreds of additional layoffs alongside the consolidation of several studios.
The report does not explain exactly what “consolidate” will mean for the affected developers. Video Games Chronicle notes that Xbox’s development organisation now stretches across Xbox Game Studios, Bethesda, Activision and Blizzard, but no specific studio has been confirmed as part of the September consolidation.
That distinction matters. Until Microsoft announces the changes or further reporting identifies the affected teams, claims that particular studios are being closed, merged or absorbed should be treated as unconfirmed.
Microsoft wants Xbox to focus on franchises like Fallout and Elder Scrolls
The reported studio changes also provide another indication of where Microsoft wants to take Xbox’s content strategy.
The Information reports that Sharma has pushed the division towards developing more games around its largest franchises, specifically citing The Elder Scrolls and Fallout, while reducing its exposure to some of the smaller studios Microsoft acquired during its years of aggressive expansion.
That would make the September restructuring about more than headcount. Microsoft assembled one of the industry’s largest collections of developers through acquisitions including ZeniMax Media and Activision Blizzard, bringing Bethesda Game Studios, id Software, Blizzard Entertainment, King, Treyarch, Infinity Ward and numerous other teams into its gaming operation.
The new report suggests Xbox is now trying to extract more value from that portfolio while concentrating investment around properties with established audiences.
This direction is consistent with Microsoft’s own explanation of its July reset. Sharma told employees that Xbox had expanded its studio portfolio aggressively since 2018 but had concluded that it was “neither possible nor desirable to own every great independent studio.” She said Xbox would shift investment towards higher-priority projects and simplify an organisation that had become increasingly fragmented.
September layoffs follow Xbox’s July reset
The July restructuring provides important context for the September 22 development, but the latest layoffs are not simply a repetition of that announcement.
On July 6, Sharma announced that Xbox would reduce its workforce by approximately 3,200 positions throughout Microsoft’s 2027 fiscal year. Around 1,600 roles were eliminated immediately, meaning a substantial portion of the planned reductions was still to come.
Sharma was explicit that the restructuring would take time, telling employees that it was not possible to make all of the required changes in a single day.
Microsoft also dramatically reshaped its studio portfolio in July. Compulsion Games and Double Fine Productions were set to return to independent ownership, while Ninja Theory and Undead Labs entered terms to move under new ownership. Arkane’s management in France also began consultation with its Works Council over potential strategic options.
Microsoft additionally announced reductions across Activision, Bethesda/ZeniMax, Blizzard, King, Mojang and Xbox Game Studios, although it said none of its publicly announced first-party games or projects were being cancelled as part of those July reductions.
The September 22 report therefore appears to describe the next implementation phase of a restructuring Microsoft had already warned would continue throughout the fiscal year.
Xbox is trying to become a smaller, less fragmented organisation
Microsoft’s July announcement also helps explain why studio consolidation has now emerged alongside another round of layoffs.
Sharma said Xbox had become increasingly fragmented as its headcount expanded, with studios, teams and functions frequently operating independently. Microsoft consequently began reducing management layers, introducing shared services and reorganising the division under a single operating model.
The company also planned to cut vendor spending by 50% and reduce the number of management layers across parts of the Xbox organisation. Helen Chiang was promoted to Chief Operating Officer with responsibility across content, hardware, platform and services as part of the restructuring.
Microsoft’s gaming expansion had been enormously expensive. Its acquisitions included the $7.5 billion purchase of ZeniMax Media and the approximately $69 billion takeover of Activision Blizzard, but the company has increasingly moved away from relying exclusively on Xbox hardware and console exclusives.
The latest reported layoffs suggest that process remains far from complete.
For now, the most consequential unanswered question is which Xbox studios will be affected by the consolidation. The Information’s report establishes that several studios are involved but does not name them, while Microsoft has yet to publicly announce the September changes.
If the reported announcement arrives this week, those studio names, and whether consolidation means mergers, absorption into larger teams or another structural arrangement, will determine just how significant this latest stage of the Xbox reset becomes.
