Xbox will undergo a significant restructure over the coming financial year at the cost of 3200 jobs and the divestment of at least four studios. The news was shared with staff first, before being posted publicly in an effort to be transparent.
Regardless of delivery, the news is fairly shocking.
Thousands of Xbox staff across studios worldwide will be laid off, with 1600 employees being informed overnight, and another 1600 facing the chopping block by the end of FY27.
Xbox layoffs – quick links
What’s going on at Xbox currently
Hundreds of employees have recently taken to social media to confirm their role eliminations. Hundreds more remain at Xbox, caught in the knowledge that their job is insecure and may be made redundant in the coming months.
Xbox is also currently in the midst of divesting many of its major studios to streamline its operations.
Compulsion Games (South of Midnight) and Double Fine Productions (Kiln, Keeper, Psychonauts) will ‘return to management’ and become independent, as they were before their acquisition by Microsoft. Both teams will retain ownership of their IP, which is a rare and welcome move.
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Ninja Theory (Hellblade) and Undead Labs (State of Decay) have reportedly been purchased by new ownership, with this to be announced in the coming months. At this stage, both studios will continue to work on their upcoming, in-development projects Senua and State of Decay 3.
In addition, tenured studio Arkane, which is currently developing Marvel’s Blade, is in the process of consultation to ‘review potential strategic options’. A buyer has not been mentioned, nor has the possibility of the studio becoming independent.
Should this consultation process end in the studio’s closure, it will be a sad day for Arkane and its legacy in this industry – not to mention for projects in development, and the teams that have been tirelessly working on them.
Xbox has also confirmed other teams across the company will be reduced, with layoffs taking place at Activision, Bethesda, ZeniMax, Blizzard, King, Mojang and Xbox Game Studios globally.
We don’t currently know what this means for local teams in Australia.
No announced first-party Xbox games have been cancelled
As far as appearances go, Xbox is aiming for minimal public-facing change. It has announced that none of its already-announced games will be cancelled. Presumably, that applies to incoming projects like Fable, Halo: Campaign Evolved, Gears of War: E-Day, and others.
For those watching the Arkane news closely, it’s possible this also applies to Marvel’s Blade, although the game’s future does appear less certain, even if it would come under that ‘first party publicly announced’ banner.
Many of the other changes happening at Xbox are internal, with the restructure focused on streamlining management processes and reducing layers of oversight. As Asha Sharma, CEO and EVP of Xbox said in her statement, there can be as many as 14 layers of management in some areas of Xbox production.
In future, the aim is to reduce these layers to ‘no more than five, and where possible three’ in the hopes that a stronger, more responsibility-focused structure will drive growth and change forward.
‘We will deliver success through a flatter organisation that is built around makers (individual contributors focused on building), player-coaches (leaders who remain deeply involved in the work while developing their teams), and directly responsible individuals (DRIs) who own key decisions and outcomes,’ Sharma said.
The team will also ‘streamline’ how it works with a ‘cleaner code base,’ more shared services, and a ‘50% reduced vendor spend’.
Why Xbox believes change is necessary
Xbox’s recent announcement is all part of what’s being called a major ‘reset’ for the business, which is necessary after years of overspending, aggressive studio acquisitions and an increasingly costly operation structure.
‘Our business today is not healthy,’ Sharma said.
As she admitted, bets on the Game Pass subscription service as a viable alternative to purchasing games have not paid off, nor has a broader portfolio of content.
‘While those businesses have created meaningful value, they did not grow at the pace we expected. As that happened, our core business weakened, and we added more teams, more investment, and more time, hoping for a better outcome.’
Xbox is reportedly operating at ‘margins that are 3-10x lower than comparable platform and publishing businesses.’ So, the decision has been made to shrink and overhaul the business, in the hopes of finding growth in future.
While the company’s goal of entertaining ‘more than a billion people each day’ is frankly unachievable given current game install bases, Sharma believes this lofty goal will help to guide Xbox back to some measure of profitability.
‘History is full of companies that mistake longevity for inevitability. We will not be one of them,’ she said.
Our thoughts are with those thousands of developers now out of work, or soon to be out of work, as a result of long-term mismanagement, and that assumed inevitability.
