Microsoft's gaming division is undergoing seismic upheaval. Xbox CEO Asha Sharma confirmed today that 1,600 employees will be laid off immediately, with another 1,600 departures planned before the fiscal year ends. The company is also spinning off four studios from Xbox ownership, marking what the company describes as its most sweeping restructure to date.
One studio faces particular uncertainty: it will be sold to external buyers or closed entirely if no acquisition materializes. The ripple effects are already spreading across major game franchises and development teams worldwide.
Double Fine and Compulsion Games have both released statements confirming their departure from Microsoft's fold. The studios, which were operating under Xbox ownership, are now transitioning to independent status. Their futures remain intertwined with iconic franchises like Psychonauts and the recently announced South of Midnight.
State of Decay 3 faces its own crossroads. Undead Labs, the studio developing the zombie survival game, will be sold off with what Sharma described as "funding to complete and grow" the title. The statement suggests the game will eventually reach players, though the buyer remains unnamed and the studio's employment count post-acquisition remains unclear.
State of Decay 3 only debuted publicly last month at Xbox's Games Showcase, where Undead Labs released a new trailer targeting a 2027 launch window. Now that timeline could shift depending on the studio's new ownership structure and any staffing changes that follow the transition.
The layoffs and restructuring carry wider consequences for games in development pipelines. Senua, Marvel's Blade, and numerous other projects are tied to affected staff across multiple studios. Each development team now faces uncertainty about resources, deadlines, and whether current projects will survive the cuts.
Microsoft has not immediately detailed which franchises will be shelved, which will continue, or how the studio departures will reshape its gaming roadmap for the coming years. The sheer scale of the restructure suggests major strategic shifts in how Xbox operates and which games it prioritizes going forward.
Author Emily Chen: "This is the kind of industry earthquake that ripples for years. Losing 3,200 people and four studios in one day signals Microsoft is willing to sacrifice near-term output for a radically leaner operation."
Comments