Ah, remember the halcyon days where a tweet was limited to 140 characters? Now we live in a time where CEOs are posting 1,000 word emails on Musk’s X platform explaining why everyday coders, designers, artists, marketing and other normal folk have to pay the price for years of mismanagement at the top.
The letter doesn’t talk of ruined lives, months of worry and stress, it talks of “resets” and “reductions” and a happy “future”. Sharma talks of a future where “I want XBOX to be one of the few companies that entertains more than a billion people each day and gives everyone the opportunity to create and connect.” but doesn’t mention that the “want” must be done with so many fewer people. Pointedly, it doesn’t mention AI. At all, the closest we get to it is, “We will streamline how we work across our tools, with a cleaner code base, shared services, and 50% reduced vendor spend.”
Beyond some nebulous chat about making technology simpler, Sharma points out something that is frankly ridiculous if true, “Today, in some parts of the company, work passes through as many as 14 layers of management”. Why? And why now? Also though, while some of that management won’t be there, it is the departing studios that will feel the heat.
This is an important email I sent today to all employees at XBOX:
Team,
We are beginning the most significant restructure in XBOX history. After careful consideration, I've made the difficult decision to reduce our team by approximately 3,200 throughout FY27. This will include…
In one breath we learn there will be a new COO, Helen Chiang who will have “end-to-end P&L responsibility across content, hardware, platform, and services. She will bring our businesses together under one operating model, making sure we make clear investment decisions, learn from our successes and failures, and hold ourselves accountable for results.”
Three paragraphs earlier Sharma states: “In addition, Mojang and King will now report directly to me. These two studios have increasingly become platforms and are our largest by monthly active players. They bring critical geographic, demographic, and differentiation to XBOX.”
I don’t know which it is then? Helen or Asha, Asha or Helen?
It’s not all bad news hopefully. Excellent teams at Double Fine and compulsion will get their studios back and transition out of Microsoft’s mucky paws and back to independence. That will obviously not be easy, but better games will come from it. Don’t for one second though think that that is a generous act from the big M.
Percentage growth and margin: just corpo-speak for “we don’t give a flying monkeys about your job”
The thing that gets me the most is lines like this, “This will include approximately 1,600 role eliminations today, and in addition, four studios will leave XBOX to new management.”
Unacceptable. Let me point to why.
Since the Xbox Series consoles arrived, they have been worth some $80 billion, according to a report on TweakTown (yes you read it right) in revenue to Microsoft. Hardware, which has been sold at a loss is responsible for nearly $15 billion of that.
So, when you get lines like, “We are operating at margins that are 3–10x lower than comparable platform and publishing businesses.” that is the real crux hidden away. Xbox is not a struggling entity, it is just not making as much of that money stuff as its competitors. As ever, it’s all about percentage growth, not actual profit.
The actual problem is slipped in here, “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.”
Literally nobody outside the walled garden of super publishers thought handing away your exclusives, or ratcheting up the price of your subscription for Game Pass was a good idea – but they still made money, and a lot of it. Just, well, that pesky percentage again. So, you boy, clear your desk. Not to save the company, just to make sure it keeps printing money.
The gaming industry is rotten, has been for a decade or more and, as ever, the only ones who suffer are the people who work within it, and the people who are expected, yes expected, to buy the games. It’s all utter nonsense. The Xbox antics are like me keying your car because petrol prices went up.
What we actually need is a real competitor to Sony’s monopoly over consoles and prices. Changing Xbox to XBOX and removing 3,200 people from the workforce in order to bolster profit seems like we are as far away as ever.
We are beginning the most significant restructure in XBOX history. After careful consideration, I’ve made the difficult decision to reduce our team by approximately 3,200 throughout FY27. This will include approximately 1,600 role eliminations today, and in addition, four studios will leave XBOX to new management. I recognize that a year-long restructuring creates additional challenges. Unfortunately, it is not possible to make all the necessary changes in a single day, and I wanted to be direct about the scale.
I know this is painful. These changes will directly affect people who have poured their creativity into building XBOX. Many joined us through acquisitions, while others were recruited here, or sought us out because they loved this industry and loved XBOX. Today’s decisions do not reflect their talent or dedication.
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. As that happened, our core business weakened, and we added more teams, more investment, and more time, hoping for a better outcome. And now the industry is facing the most severe hardware crisis in its history. We must reset XBOX.
First, we will reset our content portfolio.
Since 2018, we have aggressively expanded our studio portfolio while the number of games created each month across the industry now outpaces the last ten years combined. We now find ourselves competing not only with the largest publishers, but also with smaller independent studios. It is neither possible nor desirable to own every great independent studio. We have also learned that we are not the best home for every type of studio; in a typical year, we lost 64 cents for every dollar we invested. As we reset XBOX, we will help independent creators succeed by providing open development tools and audiences to realize their vision.
Compulsion Games and Double Fine Productions will return to management and transition to independent studios with their IP, catalog, and runway for their next games. Ninja Theory and Undead Labs have entered terms to join new ownership with funding to complete and grow Senua and State of Decay 3. In France, Arkane’s management is beginning required consultation with its Works Council to review potential strategic options.
We are also making reductions across other units, and in some cases, shifting investment to focus on higher priority projects. These changes vary in size across 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.
In addition, Mojang and King will now report directly to me. These two studios have increasingly become platforms and are our largest by monthly active players. They bring critical geographic, demographic, and differentiation to XBOX.
Second, we will reset our platform.
We know that great technology gets better when it gets simpler, not bigger. Today, in some parts of the company, work passes through as many as 14 layers of management. Our platform teams are 40% larger than they were at the start of this generation, even as our player base and playtime have declined. That complexity has slowed decisions, blurred accountability, and made it harder to deliver for players. As we reset XBOX, we will simplify.
We will reduce management layers to no more than 5, and where possible, 3. We will deliver success through a flatter organization that is built around makers (individual contributors focused on building), player-coaches (leaders who remain deeply involved in the work while developing their teams), and directly responsible individuals (DRIs) who own key decisions and outcomes. And we will streamline how we work across our tools, with a cleaner code base, shared services, and 50% reduced vendor spend.
Third, we are resetting how we operate.
As XBOX grew our headcount, we became more fragmented. Teams, studios, and functions often operate independently, and it became harder to work towards a shared goal, make the right tradeoffs, and get things done.
For the first time, we are establishing a Chief Operating Officer with end-to-end P&L responsibility across content, hardware, platform, and services. Helen Chiang has been promoted to this role and will report directly to me. Over nearly two decades at XBOX, Helen has helped build some of our most important businesses, from XBOX Live to leading Mojang and the Minecraft franchise. She will bring our businesses together under one operating model, making sure we make clear investment decisions, learn from our successes and failures, and hold ourselves accountable for results.
Thank you, Dave McCarthy, who is retiring after 17 years with XBOX. Dave has played a defining role in building the platform that millions of players rely on every day and has been a trusted partner through many of the biggest moments in XBOX’s history. We wish him all the best.
These changes are about a bigger future for XBOX, not a smaller one. The next decade of gaming will be larger, more global, and more creative than anything we’ve seen before. This year, we’ll invest as much in XBOX as we ever have, but we’ll invest with greater focus, greater discipline, and greater clarity, all in service of making XBOX where the world plays and creates.
I want XBOX to be one of the few companies that entertains more than a billion people each day and gives everyone the opportunity to create and connect. I know we can achieve this goal. XBOX has many of the most beloved franchises in entertainment history, talented studios around the world, and we will return to growth in 2027.
History is full of companies that mistake longevity for inevitability. We will not be one of them.
Asha
Authored by
Paul McNally
Paul McNally has been around consoles and computers since his parents bought him a Mattel Intellivision in 1980. He has been a prominent games journalist since the 1990s, spending over a decade as editor of popular print-based video games and computer magazines, including a market-leading PlayStation title. Paul has written high-end gaming content for GamePro, Official Australian PlayStation Magazine, PlayStation Pro, Amiga Action, Mega Action, ST Action, GQ, Loaded, and the The Mirror. He has also hosted panels at retro-gaming conventions and can regularly be found guesting on gaming podcasts and Twitch shows. Believing that the reader deserves actually to enjoy what they are reading is a big part of Paul’s ethos when it comes to gaming journalism, elevating the sites he works on above the norm.
Ah, remember the halcyon days where a tweet was limited to 140 characters? Now we live in a time where CEOs are posting 1,000 word emails on Musk's X platform…
