Xbox crisis: Microsoft lays off 3200 employees in the gaming sector

Microsoft is radically restructuring its Xbox division and cutting 3,200 jobs worldwide. Weak sales figures and stagnating Game Pass subscriptions are forcing the company to take tough austerity measures. Five well-known development studios are being spun off.

Reorganization of Microsoft’s gaming division

Microsoft today announced a major restructuring of its Xbox division. By the end of the 2027 financial year, the group will cut around 3,200 jobs in the gaming sector worldwide. That corresponds to around 20 percent of the workforce there. On the day of the announcement, 1,600 employees had to leave the company. Xbox boss Asha Sharma justifies the move with a change in business development and weak sales figures.

According to internal information, the gaming division’s profit margins are below those of comparable platforms. Despite high investments, such as the acquisition of Activision Blizzard for 69 billion dollars (around 60 billion euros), the hoped-for growth rates for the Game Pass subscription service did not materialize. The group has recently lost money on many projects, which is now forcing a strategic realignment. The company wants to reduce costs and focus on more profitable business areas.

Sales and spin-offs

As the company stated in a post Xbox Wire reports, the conversion also affects the developers’ portfolio. Microsoft will separate from a total of five well-known development studios. The goal is to slim down the business and focus on high-selling brands like Minecraft, Fallout and Doom. The changes to the studios are different:

Flatter hierarchies planned

In addition to reducing staff and studios, management is planning a significant reduction in administrative levels. Decisions at Xbox currently go through up to 14 management layers. This has slowed down processes and diluted responsibilities. In the future, the structure will be reduced to a maximum of five levels. In order to further increase efficiency, Microsoft is introducing the position of Chief Operating Officer for the gaming division for the first time. Helen Chiang will take over the new position and will be responsible for hardware, platforms and content across all departments. Although no games that have already been announced will be canceled, the action represents a major cut for the department. On the one hand, the company secures its own financial stability through austerity measures.

On the other hand, thousands of developers are losing their jobs in a tight market environment, further increasing uncertainty in the video game industry. In addition to the personnel changes, Microsoft plans to limit physical game production. The focus is increasingly shifting to digital sales and cloud gaming. Subscription services should become more central to the sales strategy in the future in order to generate long-term predictable income. The hardware division will be limited to a few core products, while peripheral devices will increasingly be licensed from partners. Management hopes to increase profitability within the next two years through this focus.