Microsoft to cut 4,800 jobs, reshape Xbox business and spin off gaming studios

Microsoft will cut 4,800 jobs, or about 2.1% of its global workforce, as the technology giant undertakes a sweeping overhaul of its Xbox gaming business and seeks better returns from years of heavy investment in the division.

The company’s gaming arm will account for 3,200 of the job losses, with 1,600 employees being laid off immediately. The restructuring will also see several Microsoft-owned game developers separated from the company or placed under strategic review.

The changes mark one of the biggest resets at Xbox since Microsoft completed its $69-billion acquisition of Activision Blizzard. While the deal significantly expanded Microsoft’s catalogue of games, Xbox has continued to trail Sony’s PlayStation and Nintendo in the console market.

Microsoft has also been moving away from a strategy centred on exclusive Xbox titles. The company is increasingly releasing its games on rival platforms as it looks to expand its audience and reduce its dependence on hardware sales.

Asha Sharma, the new head of Xbox, told employees that four studios would be divested as part of the restructuring.

Compulsion Games, the developer behind South of Midnight, and Double Fine Productions, which made Psychonauts, will become independent companies.

Ninja Theory and Undead Labs will also be spun off, allowing them to independently develop franchises including Senua and State of Decay 3, Sharma said in a note to employees.

The future of Arkane Studios, known for the Dishonored series and currently developing a game based on Marvel character Blade, remains uncertain. The company has begun consultations with the studio’s workers’ union in France to examine possible options.

The moves underscore Microsoft’s attempt to streamline a gaming portfolio that expanded rapidly through acquisitions but has struggled to deliver the expected growth in console sales.

The job cuts also come as major technology companies face mounting pressure to justify record levels of spending on artificial intelligence infrastructure.

AI-related investments by large technology firms are expected to exceed $700 billion this year, increasing pressure on companies to control costs and show that the technology can improve productivity and generate revenue.

Amazon and Meta Platforms have also announced thousands of job cuts this year as they redirect spending towards AI, data centres and computing infrastructure.

Microsoft, however, said the latest job reductions were not the result of employees being directly replaced by artificial intelligence.

“The roles eliminated today are not being replaced by AI,” Microsoft Chief People Officer Amy Coleman said in a memo to employees.

“At the same time, what is true is that AI is changing how work gets done,” Coleman added.