The video games division of the American group is preparing to undergo a profound reorganization, marked by studio closures, massive layoffs and a strategic reorientation.
Microsoft is preparing to carry out a brutal “reset” of its Xbox division, with official announcements starting Monday. This large-scale restructuring comes as the American giant’s video game activities are struggling to achieve profitability, despite massive investments in recent years.
Several studios threatened with closure or resale
At the heart of this reorganization, the fate of several internal studios is pending. The Arkane studio, based in Lyon and employing 150 employees, is in the hot seat: Microsoft is considering closing it or reselling it. Arkane, recognized for the Dishonored license and currently engaged in the development of a game derived from Marvel’s Blade comics, could see this project canceled, its development taking more time and money than expected.
But Arkane is not an isolated case. Microsoft could close at least four more of its Xbox Game Studios: Compulsion Games (South of Midnight), Double Fine (Psychonauts), Ninja Theory (Hellblade) and Undead Labs (State of Decay). More than 600 positions are at risk if no buyer comes forward or if these structures fail to buy themselves out. In the meantime, their employees have been encouraged to look for new jobs.
Beyond the studio closures, a wave of layoffs could be announced as early as Monday, and would affect around 1,000 positions within the Xbox division. Furthermore, Microsoft is in the process of canceling numerous financing, publishing or distribution contracts within its Xbox Game Pass subscription, causing the third parties involved in great difficulties. Danish studio IO Interactive announced layoffs this week after losing funding from Microsoft for its future game, Project Fantasy.
“Xbox is reviewing its investments to focus on its priorities. We are not reducing our overall investment in video games, but we are changing the types of projects we support,” a spokesperson explained to Bloomberg.
This profound reorganization is motivated by the need to reassess investment priorities for the next five years. Asha Sharma, new head of Xbox, announced the “reset” of the division in an email to employees. “Excluding our acquisition of Activision, we have spent more than $20 billion over the past five years, while our annual revenues have fallen by half a billion dollars at the same time. This cannot continue,” she said.
Microsoft bought Activision in 2023 for $69 billion. However, Xbox Game Pass, an unlimited subscription to hundreds of games, has not allowed Microsoft to catch up with Sony PlayStation and Nintendo.
This cleaning at Kärcher is the consequence of the dissatisfaction of the CEO, Satya Nadella. “Microsoft has invested a lot in video games over the last twenty-five years. The problem is that we have not monetized this activity. On the contrary, we have rather subsidized it…” he publicly admitted. He added: “We actually monetize our Xbox games better on YouTube than we do at Microsoft.”
The restructuring of the Xbox division is part of a broader context of crisis in the video game industry. Since 2023, the sector has experienced a wave of restructuring and layoffs among several major players, faced with the need to adapt their economic model to increased competition and higher expectations of profitability.
