Xbox Starts Major Layoffs To Save Its Lagging Business

One of the biggest names in gaming could use an infinite money glitch right now. With revenue falling and a string of acquisitions not paying off, Microsoft-owned Xbox will slash about one-fifth of its staff and divest from some development studios, CEO Asha Sharma said yesterday.

Sharma called it “the most significant restructure” in the company’s history. Xbox will…

• Lay off 1,600 people this week and another 1,250 over the next year.
• Sell or spin off four to five game studios that it acquired within the past decade, which will cut another 350+ people from Xbox’s staff (games that are already announced won’t be canceled, Sharma said).

“Our business today is not healthy,” Sharma wrote in a memo, acknowledging the company’s measly 3% profit margin. Its quarterly revenue recently declined 5% year-over-year.

The Game Pass gamble

One big reason for Xbox’s slowdown appears to be its struggling subscription service, Game Pass.

TL;DR: To build up an enticing Game Pass library, Xbox bought production giant Activision Blizzard for $69 billion in 2023 and ZeniMax Media, the parent company of Skyrim-maker Bethesda, for $8.1 billion in 2021.

Those splurges didn’t pan out. (Xbox is keeping both companies, but the fifth studio it wants to divest is part of ZeniMax.):

• Game Pass currently has 30 million subscribers, a far cry from the 77 million that Xbox projected it would reach this year.
• In a normal year, the company lost 64 cents for every dollar it invested, Sharma wrote.

But now…Sharma, who became CEO in February, said Xbox will return to growth in 2027. Since taking the helm, she has moved to reduce the number of games Microsoft publishes and reprioritize its most popular franchises, like Minecraft, Fallout, and Candy Crush. This streamlining comes as the AI boom sends memory chip prices soaring, pushing Xbox and its competitors to raise console prices.

Zoom out: Xbox’s layoffs are part of 6,400 planned job cuts across Microsoft, whose massive AI spend is spooking investors. It’s the worst-performing megacap tech stock so far this year.—ML

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