On July 6, at the dawn of a new fiscal year, Microsoft announced it was laying off 3,200 people in its Xbox division, plus an additional 3,200 employees across other departments. Of the Xbox layoffs, 1,600 jobs were cut immediately, while the remaining 1,600 will be lost over the coming year, the promise casting a morbid shadow over the immediate future of Microsoft’s gaming business. Additionally, Xbox attempted to shutter five of its development teams — Arkane Studios, Compulsion Games, Double Fine, Ninja Theory and Undead Labs — and it ended up divesting four of them, while the future of Arkane remains uncertain.
The layoffs hit Xbox at all levels: Doom creator id Software lost a reported 50 percent of its staff, Double Fine had to drop a third of its employees as it bought itself back from Microsoft, the platform team was gutted, and it appears that multiple projects were canceled at Fallout: New Vegas studio Obsidian Entertainment, including a sequel to Avowed.
Knowing it was coming didn’t ease the carnage.
Xbox CEO Asha Sharma and chief content officer Matt Booty, both of whom assumed their roles early this year in a surprise c-suite shakeup, outlined the brand’s dire financial situation in a June public memo. They highlighted broad internal issues with Xbox games, consoles, infrastructure and marketing, and ominously promised a “reset” for the business. Rumors of incoming mass layoffs and reports of potential studio closures swiftly followed, with the culling scheduled to begin just after Microsoft’s new financial year on July 1.
“We will end this fiscal year at about a 3 percent accountability margin, down year-over-year,” Sharma and Booty wrote in their memo. “Excluding Activision Blizzard King, over the past five years, we have spent over $20 billion on ongoing investments in our content, platform, and hardware subsidy, but our annual revenue has declined nearly half a billion during that time. Going forward, this cannot continue.” (Including Activision Blizzard King, which Xbox acquired in 2023, adds $69 billion to the company’s expenditures.)
Ahead of the layoffs, Xbox union members represented by CWA urged the company to consider the human and creative cost of repeated mass firings, and to negotiate in good faith over worker protections. Union members accused Microsoft of leaving proposals on the table for months at a time, paying little attention to meetings and unjustly allocating the company’s vast financial resources. UVW-CWA treasurer Sherveen Uduwana noted that Microsoft CEO Satya Nadella personally made $96 million in 2025.
“There is no shortage of wealth in the games industry, especially if we’re talking about Xbox, Sony, EA,” Uduwana said.
After Xbox announced the layoffs on July 6, the CWA in the United States and Canada filed lawsuits against Microsoft over unfair labor practices, and employees held protests outside their offices calling for “people over profits.”
Additionally in July, Xbox’s network went down for nearly a day and exposed that even physical media isn’t immune to DRM on the company’s consoles, though the disc issue was apparently a bug that will be fixed. Days later, Microsoft’s Q4 2026 financial results revealed a revenue decline of 10 percent for Xbox. Annually, Xbox’s reported revenue fell by more than $2 billion year-to-year, landing behind its closest competitor, PlayStation, by multiple billions.
All of this followed two years of rolling layoffs at Xbox, eight years of increasingly reckless studio acquisitions, and a systemic pattern of valuing potential revenue over any sort of creative process. But we’ll get to that at the end. First, an overview of Xbox’s terrible, horrible, no good, very bad July.
