Xbox Layoffs: Microsoft Cuts 3,200 Jobs, Sells 4 Studios

Xbox Layoffs: Microsoft Cuts 3,200 Jobs and Sells Off Ninja Theory, Undead Labs

Microsoft is cutting jobs and spinning off four studios, including Ninja Theory and Undead Labs, in the gaming division's biggest shake-up yet.

Jul 7, 2026

by Emmanuel Umahi

After weeks of speculation, Microsoft has announced that it’ll eliminate 3,200 jobs across its gaming division during Fiscal Year 2027, with 1,600 employees affected immediately.

Alongside the layoffs, Xbox is reshaping its first-party portfolio by spinning off two studios, selling two others, and exploring strategic options for another.

The announcement marks a dramatic shift in Microsoft's approach to Xbox Game Studios and follows months of reports that the company was reassessing its investments after $69 billion spent on acquisitions and content development.

Which Xbox studios are being sold or spun off?

One of the studios Xbox is restructuring is Compulsion Games. The studio behind We Happy Few and South of Midnight, and Double Fine Productions, known for Psychonauts 2 and Kiln, will become independent studios once again after its launch in 2009 and being a part of Xbox games in 2018.