Xbox is hitting the reset button.
Microsoft’s video game division plans to eliminate 3,200 jobs, or around 20% of its staff, over the next year as part of a sweeping reorganization to revive the company’s lagging games division.
The cuts are driven by an increasingly challenging gaming landscape, Xbox Chief Executive Asha Sharma said in a note to staff Monday.
“Our business today is not healthy,” Sharma wrote, adding that Xbox is operating at margins three to 10 times lower than comparable businesses. “We must reset Xbox.”
Although it has made some major investments, including the $69-billion acquisition of Activision Blizzard in 2023, Xbox hasn’t produced enough hit games even as it has faced mounting competition.
The Redmond, Wash.-based company has laid off thousands of staff and canceled many projects since the acquisition of Santa Monica-based Activision, best known for its popular “Call of Duty” franchise.
Some of the company’s biggest rivals are Sony’s PlayStation, Nintendo Switch and Steam, the digital storefront for PC games.
These layoffs are a part of a bigger effort to downsize Microsoft. In all, the tech giant is eliminating about 2% of its workforce.
At Xbox, 1,600 jobs are being cut Monday and the rest over the next 12 months, the company said.
In addition to slashing its workforce, the company is shedding four of its studios. Montreal-based Compulsion Games and San Francisco-based Double Fine Productions will be spun out and returned to private ownership. Ninja Theory and Undead Labs will be sold to new, undisclosed owners. Sharma said that these businesses added “meaningful value” to Xbox but did not grow at the pace that was expected.
“As that happened, our core business weakened, and we added more teams, more investment, and more time, hoping for a better outcome,” Sharma said in a statement. “And now the industry is facing the most severe hardware crisis in its history. We must reset XBOX.”
Xbox accounts for roughly 6% of Microsoft‘s business but remains one of its most influential brands. The division was launched in 2001 and has become one of the largest players in the gaming industry. Xbox is known for making gaming consoles and publishing games such as “Halo.”
During COVID-19 pandemic, the video game industry saw a massive surge as people looked for ways to entertain themselves at home. But since then, many companies have been struggling as they adjust to increased production costs and changes in demand.
Additionally, investing in artificial intelligence remains a priority for Microsoft. The tech company has spent over $100 billion on a partnership with OpenAI. Microsoft has a 27% ownership stake in the startup.
“They’re putting money into AI instead of workers, to put it bluntly,” said Kaitlin “KB” Bonfiglio, secretary of the United Videogame Workers union, which does not represent workers at Xbox.
Michael Pachter, the head of strategic planning for an investment management group, said the restructuring was a necessary step for Xbox as it looks to better cater to its players.
Instead of focusing on its console games, the company will emphasize its subscription service called Game Pass, free-to-play games and more mobile-driven programs.
“Xbox is going where consumers are,” Pachter said.
“These changes are about a bigger future for XBOX, not a smaller one. The next decade of gaming will be larger, more global, and more creative than anything we’ve seen before,” Sharma wrote. “This year, we’ll invest as much in XBOX as we ever have, but we’ll invest with greater focus, greater discipline, and greater clarity, all in service of making XBOX where the world plays and creates.”
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