Today, Microsoft is laying off 2.1% of its workforce. This equates to 4,800 people that are being let go. The company's XBOX division is cutting about 20% of its entire workforce. All of this is being done in an effort to cut costs due to rising prices and expenses brought about by artificial intelligence (AI).
As a quick reminder: Microsoft plans to spend $190 billion on AI in 2026. In 2025, the company spent $80 billion on AI.
The layoffs at XBOX were announced to all XBOX employees today with a company-wide message written by XBOX lead Asha Sharma. In short, there will be around 3,200 employees laid off across all XBOX divisions over the next year. This figure includes about 1,600 employees that were laid off today alone. Four XBOX studios have either gone independent or are in the process of being sold off. A fifth studio, Arkane, is currently in limbo mainly due to regulations in France that require longer consultation meetings. At present, XBOX is leaning heavily into selling or outright closing Arkane.
Another internal memo sent to all Microsoft employees was penned by executive vice president and Microsoft's chief people officer Amy Coleman. Coleman says these layoffs arose from a "need to adjust resources and roles and shift how we operate." Coleman at least clarifies that the people that were laid off today "are not being replaced by AI." Though she also notes, "at the same time, what is true is that AI is changing how work gets done."
I again remind you that Microsoft plans to spend $190 billion on AI this year.
In Sharma's message, she states that their "platform teams are 40% larger than they were at the start of this generation." This is despite a smaller player base and lower playtime overall for the XBOX brand. XBOX currently sees about 1 billion players per year. Sharma states that she wants to see XBOX hit 1 billion players per day.
We know that great technology gets better when it gets simpler, not bigger. Today, in some parts of the company, work passes through as many as 14 layers of management.(...)
We will reduce management layers to no more than 5, and where possible, 3. We will deliver success through a flatter organization that is built around makers (individual contributors focused on building), player-coaches (leaders who remain deeply involved in the work while developing their teams), and directly responsible individuals (DRIs) who own key decisions and outcomes. And we will streamline how we work across our tools, with a cleaner code base, shared services, and 50% reduced vendor spend.
We will reduce management layers to no more than 5, and where possible, 3. We will deliver success through a flatter organization that is built around makers (individual contributors focused on building), player-coaches (leaders who remain deeply involved in the work while developing their teams), and directly responsible individuals (DRIs) who own key decisions and outcomes. And we will streamline how we work across our tools, with a cleaner code base, shared services, and 50% reduced vendor spend.
Ninja Theory and Undead Labs are in the process of being sold to undisclosed buyers. Even though they are being sold, there are agreements in place to ensure that both the new Senua title from Ninja Theory and State of Decay 3 from Undead Labs continue to ship. State of Decay 3 is no longer obligated to release on Game Pass when it does come out.
As mentioned, XBOX wants to also get rid of Arkane. Sharma basically says that they were unable to get rid of Arkane as quickly as the other four studios due to regulations in France. At present, it seems like if a buyer is not found for Arkane they will be shuttered by XBOX.
In France, Arkane’s management is beginning required consultation with its Works Council to review potential strategic options.
Layoffs have basically impacted all studios under XBOX. Unconfirmed reports on social media say that about half of the team from ZeniMax Online Studios were let go. id Software, the makers of DOOM, have also lost about half of their workforce today. It's also been said that a "good number" of people were laid off from Obsidian today. Another social media remark from an employee that was laid off (since deleted) suggests that the Accessibility staff at Bethesda were heavily impacted by layoffs, with multiple people let go from the Bethesda User Research Team.
Speaking of Bethesda and ZeniMax, a Bloomberg reports that they will now focus on just a handful of franchises moving forward: Fallout, The Elder Scrolls, Wolfenstein, DOOM, and Quake. There are at least three games in these franchises already in development across the various Bethesda studios.
Newly independent studios, Compulsion Games and Double Fine, both issued public statements today.
An important update from Compulsion Games.
— Compulsion Games (@compulsiongames.bsky.social) July 6, 2026 at 9:37 AM
[image or embed]
— Double Fine (@doublefine.com) July 6, 2026 at 10:06 AM
It may be some time before we fully understand the impact of today's layoffs. We do not know firm figures on how many employees were laid off from each studio. And while we are told that announced projects will not be impacted, there is no telling how these cost cutting measures will impact unannounced projects within each studio.
We wish nothing but the best for those employees that were laid off today and those who will now have to spend upwards of a year anxiously waiting to see if they will be one of the additional ~1,600 laid off over the coming year.
