Microsoft has laid off thousands of workers over the past few years to correct its financial spreadsheets, but “significant layoffs” are on the way for Xbox as part of new CEO Asha Sharma’s “Xbox Reset,” according to a new report from Bloomberg. In a new Xbox Wire blog post that is a copy-paste of an email sent to Xbox employees globally, Sharma and Xbox chief content officer Matt Booty discuss problems facing Xbox’s future and plans to course-correct. Though she doesn’t mention layoffs, the messaging in this joint post seems to signal the layoffs Bloomberg reports are incoming, according to its sources within the company.
Bloomberg reports that, though the exact scale of the layoffs is unclear, they are expected to occur after the close of Microsoft’s fiscal year on June 30, alongside significantly slashed budgets for marketing and other areas of the Xbox business. Sharma and Booty say the company will end its fiscal year “at about a 3% accountability margin, down year-over-year,” with an annual revenue decline of nearly half a billion during that time alongside a $20 billion spend in ongoing investments in “content, platform, and hardware subsidy,” excluding Activision Blizzard King. Critically, a 3% accountability margin means that for every $100 Xbox makes, it keeps $3 as profit, as noted by Bloomberg reporter Jason Schreier over on Bluesky. Sharma and Booty’s email reads, “Going forward, this cannot continue.”
In that same email-now-Xbox-Wire-blog-post, Sharma and Booty indicate that Xbox overextended itself during its acquisition spree this generation, potentially hinting at studio closures to course-correct. “We expanded our studio system when we needed a pipeline of content to meet multiple strategies across subscription, streaming, and devices [editor’s note: Xbox has made clear it is pivoting away from recent “This is an Xbox” marking to return to exclusivity and a focus on Xbox-developed hardware],” it reads. “In the process, we have found ourselves overextended as we executed on changing strategies in a landscape of more readily available content. We are the fortunate stewards of industry-defining franchises that have enormous potential and player demand, but we have not adequately funded them to compete and win. At the same time, as we saw this past weekend at [the 2026 Summer Xbox Games Showcase], a reliable pipeline of first-and third-party exclusives and new IP is critical to our success. We need to reassess the balance between these and our investment priorities for the next 5 years.”
The Verge reports that its sources suggest the planned layoffs and budget slashes could include a studio closure.
Elsewhere in the post, Sharma and Booty write about the cost of console storage components, which has risen to five times their cost two years ago, and how Xbox needs a new business model and partnerships for hardware, “as we remain committed to [Project Helix].” The two also write that Xbox’s current platform infrastructure “is not built for the battle ahead,” with systems too complex and reliant on vendor dependencies to be as efficient as they feel the company needs to be.
“Now we start the next 100 days. It is important to have both optimism and realism as we work to reset the business,” the blog post reads. In its final paragraphs, Sharma and Booty write, “For some of you, these realities will be surprising and even frustrating to discover. We won’t succeed by hiding hard truths, nor will we succeed by doing the same thing and expecting results. Like the ‘everyday wins’ mentality from the first 100 days, we will sprint to make progress against hardware, content, experience, and services together.”
This Xbox Wire blog post comes just days after Xbox’s big SGF-related showcase, where it revealed that Gears of War: E-Day and Clockwork Revolution will be Xbox console-exclusive titles, alongside a new look at Fable, which will launch on PlayStation 5 as well as Xbox. We also interviewed Matt Booty at Summer Game Fest Play Days to discuss the current state of Xbox, which you can read here.
[Source: Bloomberg, The Verge]
