Microsoft is cutting 3,200 jobs from its Xbox division in the largest reset the platform has ever attempted. The cuts land days after CEO Asha Sharma sent an internal memo calling the gaming business “not healthy” and saying Microsoft “bet on Game Pass” in a way that “did not grow at the pace we expected.” The July 2026 Game Pass lineup, including Tony Hawk’s Pro Skater 1+2 and Palworld 1.0, still ships this week.
The reset names what is being shed: 3,200 jobs, four studios leaving Xbox, and a flatter management tree. The same week, Microsoft is shipping eleven new Game Pass titles.
The Memo and What It Cuts
Sharma sent the memo to Team XBOX on Monday, July 6. She framed the cuts as “the most significant restructure in XBOX history.” About 1,600 of the 3,200 cuts take effect the same day, with the rest spread across the rest of Microsoft’s fiscal year 2027.
The cuts reach every studio under the Xbox umbrella: Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and XBOX Game Studios. “None of our first party publicly announced games or projects are being cancelled as part of these reductions,” Sharma wrote. The pain is on the people, not the slate. The Xbox cuts form part of a broader 4,800-person layoff at Microsoft tied to the $190 billion AI build-out reported across the same week.
The full memo Asha Sharma sent to XBOX staff is the spine of the reset. It names three separate resets: the content portfolio, the platform, and the operating model.
Our business today is not healthy. We are operating at margins that are 3-10x lower than comparable platform and publishing businesses. We entered Gen 9 with a smaller install base and a higher cost structure. To grow, we bet on Game Pass, multi-platform, and a broader portfolio of content. While those businesses have created meaningful value, they did not grow at the pace we expected.
Asha Sharma, XBOX CEO, in the internal memo on July 6, 2026.
Why Now: Game Pass Came in at 30 Million
The reckoning has a number. The Wall Street Journal reported in July 2026 that Game Pass has about 30 million subscribers, well short of the 77 million Microsoft had targeted for the year. Documents revealed during the 2023 FTC trial over Microsoft’s Activision acquisition had shown a 100 million target by 2030.
The 30 million figure is a step backward. Then-Xbox President Sarah Bond said the service had 34 million subscribers in 2024. The Wall Street Journal called the latest tally a drop of 4 million from 2024. Microsoft has not released a public subscriber count since.
| Period | Figure | Source |
|---|---|---|
| 2024 | 34 million | Sarah Bond, then-Xbox President |
| July 2026 | about 30 million | Wall Street Journal |
| 2026 target | around 77 million | 2023 FTC trial documents |
| 2030 target | 100 million | 2023 FTC trial documents |
The Cost of the Game Pass Bet
The bet was made in pieces. In October 2025, Microsoft raised Game Pass Ultimate to $30 a month, a 50% jump, ahead of Call of Duty: Black Ops 7, which was poorly received. Xbox chief strategy officer Matthew Ball said earlier this year that the price hike cost the service “millions of subscribers.”
Bloomberg had reported separately that the day-and-date launch of 2024’s Black Ops 6 on Game Pass cost Microsoft roughly $300 million in lost revenue. A year later, Black Ops 7 launched, and the title was poorly received.
The April 2026 Game Pass price update lays out the changes in full. In April 2026, Sharma, who had taken over from Phil Spencer in February, cut the price back. Game Pass Ultimate dropped from $29.99 to $22.99 a month. PC Game Pass dropped from $16.49 to $13.99 a month. New Call of Duty games, the centerpiece of the $69 billion Activision deal, will no longer join Game Pass at launch. They will be added the following holiday season, about a year later.
The reversal is small in print and large in implication. Microsoft bought Activision in 2023 in part to feed Game Pass. Now the most valuable franchise in that deal waits a year before joining the service.
The Four Studios Leaving Xbox
The reset sheds the studio network Microsoft spent most of the 2010s building, after earlier reports had weighed a possible Xbox spin-off or sale. Compulsion Games and Double Fine Productions will return to their management teams and become independent studios, keeping their IP, catalog, and “runway for their next games,” per Sharma.
Ninja Theory and Undead Labs have signed terms to join new ownership, with funding to complete Senua’s Saga and State of Decay 3. In France, Arkane is beginning required consultation with its works council to “review potential strategic options.” Sharma put a number on the studio business: in a typical year, Xbox lost 64 cents on the dollar it invested. No publicly announced first-party game has been cancelled as part of the cuts.
- Compulsion Games (South of Midnight): independent, IP and catalog retained
- Double Fine Productions (Psychonauts): independent, IP and catalog retained
- Ninja Theory (Senua’s Saga): terms signed for new ownership, completion funding
- Undead Labs (State of Decay 3): terms signed for new ownership, completion funding
- Arkane (France): works council consultation in progress
A Flatter Xbox, Built Around Makers
The reset rebuilds the company beyond the studio list. In some parts of Xbox, work passes through as many as 14 layers of management, and the platform teams are 40% larger than at the start of the generation, even as player base and playtime have declined.
Both are about to shrink. The memo names a flatter organization built around “makers,” “player-coaches,” and “directly responsible individuals.” Management layers will fall to no more than 5, and where possible, 3. Vendor spending will be cut 50%.
A new Chief Operating Officer role with end-to-end P&L across content, hardware, platform, and services goes to Helen Chiang, a near-two-decade Xbox veteran who most recently led Mojang and Minecraft. Mojang and King will now report directly to Sharma.
The goal, as Sharma wrote it, is to “return to growth in 2027.” Her framing in the memo:
History is full of companies that mistake longevity for inevitability. We will not be one of them.
Asha Sharma, XBOX CEO, in the internal memo on July 6, 2026.
The July Lineup Lands Anyway
A day after the memo, Microsoft posted the July 2026 Game Pass Wave 1 lineup on Xbox Wire. The post opens with “We have more games, more benefits, and more updates” and gets straight to the list. It does not mention the layoffs, the studio exits, or the price cuts. The post covers eleven new additions and ten titles leaving the service on July 15.
Winds of Arcana: Ruination was available the same day, July 6. Gears of War: Reloaded and Tamashika land July 9, and Palworld reaches its full 1.0 release on July 10.
Ascend to Zero is the only day-one title, hitting Game Pass on July 13. Tony Hawk’s Pro Skater 1+2 and The Planet Crafter arrive on July 21. Tamashika, Mavrix by Matt Jones, FixForce, and PBA Pro Bowling 2026 round out the rest of the month. Ten games leave the service on July 15, including Powerwash Simulator, Stellaris, and Shadow of the Tomb Raider Definitive Edition.
| Date | Title | Type |
|---|---|---|
| July 6 | Winds of Arcana: Ruination | Available today |
| July 9 | Gears of War: Reloaded | Coming soon |
| July 9 | Tamashika | Coming soon |
| July 10 | Palworld 1.0 | Full release |
| July 13 | Ascend to Zero | Day one |
| July 21 | Tony Hawk’s Pro Skater 1+2 | Coming soon |
| July 21 | The Planet Crafter | Coming soon |
Where the Reset Stops Short
The reset addresses three things: the content portfolio, the platform, and the operating model. It does not address the fourth. Sharma’s own memo calls the current moment “the most severe hardware crisis in its history,” and the cuts assume slimming the studio network, flattening management, and resetting Game Pass economics will be enough to return to growth by 2027.
Sharma’s stated aim is to be “one of the few companies that entertains more than a billion people each day.” The reset is set up to return to growth in 2027, and it leaves the next console and the wider hardware side for another announcement.
Frequently Asked Questions
Why is Microsoft cutting 3,200 Xbox jobs?
Microsoft is shedding the studio network and overhead built up during its Game Pass and Activision years. The internal memo blames margins “3-10x lower than comparable platform and publishing businesses,” a Game Pass service at about 30 million subscribers against a 77 million target, and a wider hardware crisis in the console market. Sharma’s term for the moment is a “reset.”
How many Game Pass subscribers are there right now?
Around 30 million, per The Wall Street Journal, down from 34 million in 2024. Microsoft’s 2023 FTC trial documents had targeted 77 million by 2026 and 100 million by 2030.
What games are coming to Game Pass in July 2026?
The Wave 1 lineup includes Winds of Arcana: Ruination (available from July 6), Gears of War: Reloaded (July 9), Palworld 1.0’s full release (July 10), the day-one title Ascend to Zero (July 13), and Tony Hawk’s Pro Skater 1+2 alongside The Planet Crafter (July 21). Ten titles leave the service on July 15.
Which Xbox studios are being spun off?
Compulsion Games and Double Fine Productions are returning to their original management as independent studios, retaining their IP. Ninja Theory and Undead Labs have signed terms to move to new ownership with completion funding for Senua’s Saga and State of Decay 3. Arkane in France is in the early stages of a works council consultation.
