Xbox has announced a large restructuring plan that will cut its workforce by around 3,200 people over the course of fiscal year 2027, with 1,600 of those roles being eliminated immediately. As part of the changes, four studios, Compulsion Games, Double Fine Productions, Ninja Theory, and Undead Labs, will no longer be part of Xbox.

Compulsion Games and Double Fine Productions will return to independent management, keeping their intellectual properties, existing game catalogs, and the ability to continue working on their next projects. Ninja Theory and Undead Labs have agreed to move to new ownership, with funding in place to help them finish and grow their upcoming games, the next entry in the Senua series and State of Decay 3.

Arkane Studios, known for Marvel’s Blade, is not being sold outright but has begun a required consultation process with its Works Council in France to look at possible strategic options for the studio going forward.

The restructuring was detailed in a memo from Xbox CEO Asha Sharma, who said the business is currently “not healthy,” pointing to profit margins that are far lower than other comparable platform and publishing companies. According to Sharma, Xbox had bet heavily on Game Pass, multiplatform releases, and a wider range of content to drive growth, but those efforts did not expand as quickly as hoped, which put strain on the core business over time.

Sharma also noted that Xbox has aggressively grown its number of studios since 2018, a period during which the company said it lost 64 cents for every dollar invested in a typical year. As part of the reset, management layers across the company will be reduced from as many as fourteen down to a maximum of five, or three where possible, in an effort to simplify decision-making and cut down on internal complexity. Vendor spending is also being reduced by half.

Alongside these changes, Xbox is restructuring its leadership. Dave McCarthy is retiring as Chief Operating Officer after 17 years with the company. Helen Chiang has been promoted to take over the newly created COO role, which will now carry full profit and loss responsibility across content, hardware, platform, and services, reporting directly to Sharma. Mojang and King will also begin reporting directly to Sharma going forward.

Xbox has stated that none of its previously announced first-party games or projects are being cancelled as a result of these changes. Sharma described the restructuring as an effort to build a stronger foundation for Xbox rather than shrink its ambitions, adding that the company expects to return to growth in 2027.