Nadella Calls Cutting 5,750 Jobs at Xbox a “Streamlining”

Microsoft CEO Satya Nadella has publicly summed up three years of layoffs in the gaming division and chose the word streamlining for them. On the Sources podcast he said he feels “fantastic” about the intellectual property Xbox has been left with, and that the process led by the division's new head Asha Sharma is “nice to watch”.

Since October 2023, when Microsoft closed its $68.7 billion acquisition of Activision Blizzard, the company has laid off at least 5,750 people working in games. That is the lower bound: some waves of layoffs passed without public figures, and the full scale of the post-merger restructuring has still not been disclosed.

What the head of Microsoft actually said

“I feel fantastic about the intellectual property we have now. If you look at the studios, at the IP portfolio and at our ability to turn that into great games going forward — I feel fantastic,” Nadella said. Then came the business model: “The team and Asha are doing some streamlining, it's nice to see, and we need to invent a sustainable business model that will let us deliver games to more and more people.” The goal, in his words, is unchanged — to be a major publisher and a platform for games on both PC and Xbox.

Sharma, who replaced Phil Spencer at the head of Xbox in February 2026, told Nadella the division would achieve “growth” in the next fiscal year while also shipping “great games”.

Five waves of layoffs in three years

The timeline looks like one continuous process:

• January and September 2024 — two waves, 2,550 people in total.
• May 2024 — the closure of Arkane Austin, Tango Gameworks and Alpha Dog Games, which added further job losses.
• 2025 — layoffs with no numbers disclosed; ZeniMax Online Studios and King were hit.
• July 2026 — the largest cuts were confirmed: 3,200 people will leave Xbox Game Studios before the end of the current fiscal year. That figure includes the sale of Compulsion Games, Double Fine and Undead Labs, while a real threat of closure hangs over Arkane and Ninja Theory.

Studios with a distinctive authorial style have fallen under sale and closure — Double Fine, Compulsion Games, Tango Gameworks.

“Like pulling half the threads out of a fabric”

Xbox employees caught in the latest wave described what is happening differently from management in conversation with Game Developer: they could not see how studios would recover after losing that many experienced specialists and find a “new normal” under the threat of the next round of cuts.

“AAA development is so collaborative and so dependent on specialists that laying off that many people is like taking a wide piece of fabric and pulling out half the threads. Everything falls apart, because we depend tightly on one another, and you can't yank out a third or nearly half of the people directly doing the work and expect the same level of content,” said one of them.

Meanwhile, the remaining internal studios have been tasked with reviving the key franchises Xbox is betting on — at the same time as the drain of experience and the uncertainty.

Growth is promised as consoles get more expensive

The promised growth coincides with a difficult situation around consoles: Xbox hardware is becoming ever less affordable because of the components crisis caused by massive investment in data centers for AI — including by Microsoft itself. The consoles' own position on the market meanwhile remains weak.

Why this is being called streamlining

Judging by Nadella's rhetoric, Microsoft measures the gaming division less and less by the number of studios and more and more by its portfolio of rights and how well exploiting it pays off. The logic is probably the same as in the rest of the corporation: cut everything that is not on a short list of core franchises, and look for growth in subscription and multiplatform distribution rather than in sales of its own console.

If the trend continues, the industry will probably see further stratification: a handful of large, big-budget franchises inside corporations — and a growing layer of former employees of closed studios who move into small independent teams or outsourcing contracts. For CG specialists this may mean a shift in employment from permanent positions at first-party studios toward contract work on a project, and for contractor studios an influx of experienced staff who until recently were hard to poach.

What lies behind the fifth wave of layoffs at Xbox: the bet on Game Pass, bloated studio budgets, the general downturn of the industry?