Xbox has announced that, as part of a company-wide restructuring, 3,200 workers across the business will be let go through fiscal year 2027, with 1,600 of those being effective today. It was also announced that Xbox will be parting ways with five of its internal studios, with four confirmed to be living on through independence or alternate ownership.

Credible rumours have been swirling for months now, and it turns out they were spot on. Today, Xbox CEO Asha Sharma penned a statement that was initially sent internally before being posted to Xbox Wire, detailing the significant layoffs and major changes to the company’s portfolio as part of a massive restructuring effort.

“We are operating at margins that are 3-10x lower than comparable platform and publishing businesses,” Sharma stated, “We entered Gen 9 with a smaller install base and a higher cost structure. To grow, we bet on Game Pass, multi-platform, and 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. And now the industry is facing the most severe hardware crisis in its history. We must reset XBOX.”

After detailing the dire situation Xbox has found itself in, Sharma goes on to highlight how the industry giant looks to turn things around. Job cuts. Job cuts and studio downsizing.

First of all, let’s talk about the studios that are on the way out. In news that is shit but could have been shitter, Compulsion Games, the team behind We Happy Few and South of Midnight, and Double Fine Productions, the legendary team responsible for Psychonauts and, most recently, Keeper, will both return to being independently owned, regaining autonomy and retaining their own IP. Ninja Theory, of Hellblade fame, and Undead Labs, the studio behind the State of Decay series, have been sold to new ownership, though details on the new owners haven’t yet been shared. Importantly, both Undead Labs and Ninja Theory have secured funding to complete work on State of Decay 3 and Senua, both of which were ironically and callously shown off during the most recent Xbox Games Showcase.

If you’re counting along and only count four studios, you’re not wrong. The fifth and final studio affected by this restructuring (for now) is Arkane, the team known for Dishonored and Deathloop. While the other four have found ways to remain alive, Arkane is still in the process, said to be in “consultation with its Works Council to review potential strategic options.” Despite this, there is no word on the in-development Blade game that Arkane has been working on in silence for years now.

If there is any silver lining to take away from this horrific news, it’s that these creative teams weren’t shuttered immediately and will have the opportunity to live on. So far, Double Fine and Compulsion have both come out with statements regarding the change, with Double Fine studio head Tim Schafer proclaiming that “Once again, Double Fine Productions will be an independent studio.”

In a far lengthier statement, Compulsion Games ran down the studio’s history, including its beginnings as an independent team, before talking about its return to that status. “Today, we’re sharing that Compulsion Games will return to independent management following our time as part of XBOX. As part of this transition, we will retain the rights to Contrast, We Happy Few, and our award-winning South of Midnight.”

Parting ways with studios isn’t where these restructuring efforts end, however. The blog post also details “reductions” that will be made across various other segments of the portfolio, including within “Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and XBOX Game Studios.” No specifics were given in terms of the “XBOX Game Studios’ portion of that statement, but it was made clear that no publicly announced first-party titles will be affected by the layoffs. Great.

Lastly, Sharma explained changes to the management structure and the reduction of sign-offs required to make things happen within Xbox. “Today, in some parts of the company, work passes through as many as 14 layers of management. Our platform teams are 40% larger than they were at the start of this generation, even as our player base and playtime have declined. That complexity has slowed decisions, blurred accountability, and made it harder to deliver for players. As we reset XBOX, we will simplify. We will reduce management layers to no more than 5, and where possible, 3.”

I’m less concerned about the clerical changes to the business than I am about the destruction of 3,200 jobs held by people with bills to pay, but the hope would be that the knock-on effect will see this kind of ruthless reduction of “assets” happen less frequently. I won’t hold my breath, though. If you cast your minds back to this time last year, Xbox and Microsoft cut roughly 9,100 jobs and cancelled multiple projects.

Don’t worry, though; that was in the name of stability, ensuring that further cuts would be necessary. That worked out well.