Microsoft confirmed on July 6 that it is cutting 3,200 jobs from its Xbox division, roughly a fifth of the unit's workforce, in what the company is calling the most significant restructuring in Xbox's history. Alongside the layoffs, Double Fine and Compulsion Games are being spun off into independent studios, while two other studios are headed toward new ownership entirely.
The Scale of the Cuts
Microsoft's broader layoffs total 4,800 jobs, representing 2.1% of the company's overall workforce, but Xbox is absorbing the largest share of that reduction with 3,200 positions eliminated. The cuts are being rolled out in stages: the first 1,600 roles were eliminated immediately on July 6, while the remaining 1,600 employees are scheduled to exit by June 30, 2027, the end of Microsoft's fiscal year. This marks the fifth distinct wave of Xbox layoffs since Microsoft closed its Activision Blizzard acquisition in October 2023.
Double Fine and Compulsion Games Go Independent
Double Fine, the studio behind Psychonauts, and Compulsion Games, known for We Happy Few and South of Midnight, have both been confirmed as independent spin-offs. Both studios are set to "return to management and transition to independent studios with their IP, catalog, and runway for their next games," giving them ownership of their existing libraries as they leave the Xbox umbrella.
Ninja Theory and Undead Labs Head Toward New Owners
Unlike Double Fine and Compulsion, Ninja Theory and Undead Labs are proceeding toward sale to undisclosed buyers rather than becoming independent. Both studios are effectively leaving Xbox's first-party stable, though what happens to their existing projects and IP under new ownership remains unclear. A fifth studio, Arkane, is reportedly one legally required French labor review away from facing a similar fate, suggesting the restructuring is not yet finished.
Conclusion
This latest round of cuts continues a pattern that has defined Xbox's post-Activision era, with five separate layoff waves in under three years reshaping the division's internal structure. With Double Fine and Compulsion charting independent paths and Ninja Theory and Undead Labs headed for new ownership, the shape of Xbox's first-party studio roster looks meaningfully different than it did just a few years ago, and further changes at Arkane may still be coming.
FAQ
How many jobs is Xbox cutting?
Xbox is cutting 3,200 positions, part of a broader 4,800-job reduction across Microsoft announced July 6, 2026.
When do the layoffs take effect?
The first 1,600 roles were eliminated immediately on July 6. The remaining 1,600 are scheduled to exit by June 30, 2027.
What is happening to Double Fine and Compulsion Games?
Both studios are being spun off as independent companies, retaining their IP and existing game catalogs.
Are Double Fine and Compulsion Games being sold?
No, they are transitioning to independent management rather than being sold to another owner.
What is happening to Ninja Theory and Undead Labs?
Both are proceeding toward sale to currently undisclosed buyers, separate from the independent spin-off path taken by Double Fine and Compulsion.
Is this the first round of Xbox layoffs since the Activision Blizzard deal?
No, this is the fifth distinct wave of Xbox layoffs since Microsoft closed the Activision Blizzard acquisition in October 2023.
