Xbox expected to cut budgets and jobs after a successful Xbox Direct – a timeline

It’s been a grim 24 hours for anyone following the business side of Xbox, or gaming in general, with a leadership memo from Asha Sharma, fresh layoff reports and a wave of wider industry context all landing at once. Here’s a breakdown of everything that’s emerged regarding the health of Xbox at the present moment. 

Xbox appears to be chasing quick, short term community wins

With Phil Spencer announcing his retirement, a young, new face, who spear haded Microsoft AI department takes over the struggling console platform. In weeks, she hit massive dubs, reducing the price hike (to a degree) on Xbox Game Pass, re-marketed the XBOX branding campaigns, and even clawed back some exclusivity to its games.

The community largely resounded with glee at the news, with fans feeling heard after many troubling years as Xbox fans., Memes were made, and heralded as a savior. Even Summer Games Fest news was awarded with praise, with the exclusivity of Gears E-Day and Clockwork Revolution locked in. Game Pass revealed it lost million subscribers prior to the price hike and exclusivity ending, and so, these bits of news assure fans of hope for the future.

Sharma Stocks are high.

An example of Sharma engaging with fans

The Sharma and Booty memo

Xbox CEO Asha Sharma and Xbox Game Studios head Matt Booty published a staff memo on Xbox Wire titled “Next 100 Days: Xbox Reset“, marking 100 days since Sharma took over the division. The memo comes after an overall decent win for Xbox at its Xbox Direct event held the previous Sunday, bringing back Xbox console exclusivity for the likes of Gears E-Day and Clockwork Revolution (though GameInformer did confirm its coming to the PC / Windows too). The memo opens by acknowledging some early wins, including platform updates and a return to growth for Game Pass after months of decline, before pivoting into what the pair describe as a series of “harsh realities” facing the business.

However, the memo also paints a bad picture, largely thanks to the AI supercycle eating RAM and memory, as it did with GPUs, as we previously reported.

The headline figure from what you’ve likely heard of already is a roughly 3% “accountability margin”. That means Xbox, by and large outside of Activision Blizzard, is operating at a 3% profit margin. That’s the figure you get after all expenses and deductions are calculated. That’s described as down year-over-year. The memo also states that, excluding the Activision Blizzard King acquisition, Xbox has spent more than $20 billion on content, platform and hardware subsidy investments over the past five years, while annual revenue has declined by nearly $500 million over the same period. Sharma concluded that statement with the following message: “This cannot continue”.

Even then, layoffs are going to hurt, but, some seem to like the ideas of a reset, with Asmongold commenting its a win, trimming the obvious fat that’s made Xbox, this slow, limbering platform. It’s amazing what these ‘we’re listening’ and short term wins can do, even with fans knowing more developers are going to lose their jobs, on decisions historically made that were out of their control.

Microsoft Earnings Reports tell us how dire it looks for the actual business behind Xbox

To put that figure in context, it’s worth looking at how Xbox has performed in Microsoft’s recent earnings reports. In Q3 FY2026 (covering January to March 2026), Microsoft’s gaming revenue came in at $5.34 billion, down 7% year-over-year from $5.72 billion the previous year. Within that, Xbox content and services revenue fell 5%, while Xbox hardware revenue dropped a steep 33%, the second consecutive quarter of 30%+ hardware declines following a 32% drop in Q2 FY2026.

For the full fiscal year 2025, Microsoft Gaming generated around $21.5 billion, with content and services making up roughly 65% of that following the Activision Blizzard acquisition. If Xbox is heading toward a 3% accountability margin on revenue in that ballpark for FY2026, that would put Xbox’s profit for the year somewhere in the region of a few hundred million dollars.

For comparison, Xbox reportedly had a 12% accountability margin for the first nine months of FY22, before the Activision deal closed. A drop from 12% to roughly 3% over a few years illustrates just how much the cost base has grown relative to revenue.

Schreier’s Bloomberg reports really hone it all in

Alongside the memo, Bloomberg’s Jason Schreier reported that Xbox is cutting marketing budgets, has some serious issues planning around its consoles, and is even progressing forward with Project Helix.

There’s also rumors that layoffs could be on the horizon too. Schreier reports that the layoffs could arrive after Microsoft’s next earnings report, currently scheduled for the end of July, around the 28th/29th depending on timezone.

Given Sharma’s notes on “this cannot continue”, the obvious idea that springs to mind is layoffs. Where those studios will be impacted remains to be seen. However, those with smaller scopes, where value is harder to find, are the likely targets, given how Xbox’s big strategy is to get value back into its IPs, consoles and mainstay publishers and dev studios. Again, this is more speculation on our end, but the pieces are fitting.

The wider industry macro-economics

There’s wider economic issues afoot in gaming, as has been all year. But it all hit at the same time on June 10th.

Ubisoft has just confirmed its sixth restructuring wave of 2026, closing its Winnipeg and Belgrade studios and restructuring Barcelona, putting up to 380 jobs at risk. This follows a reported €1.5 billion loss for the fiscal year ending May 2026 and sits within a broader €500 million cost-reduction plan running through 2028. Including this latest round, Ubisoft may have cut as many as 680 jobs in 2026 alone.

Sony’s Bungie situation tells a similar story from a different angle. Sony recorded a combined $766 million in impairment losses against Bungie’s assets across FY2025, split between a roughly $204 million write-down tied to Destiny 2’s underperformance and a further $565 million following Marathon’s underwhelming launch. That’s before Bungie announced it is ending live-service of Destiny 2, with many gamers returning for the game’s unofficial funeral in its latest and final patch.

That leaves Bungie’s book value to Sony estimated at below $3 billion, against the $3.6 billion Sony paid for the studio in 2022.

It comes at a time where the Covid spending boom gobbled up studios, with the money finally drying up, like a lake in a never-ending summer. Ironically, the Acti-Blizz acquisition saved Xbox, considering CoD, a limping CoD mind you, still remains the carry of team green right now. Throw in hardware issues, interest-free loans going the way of the dinosaurs, and the gaming industry recession further contracts. That’s even with Jez Corden of Windows Central reporting that a bad year in cod can’t even off set the wider Xbox economics.

It’s sounding rough for Xbox fans, especially as her first 100 days of her Green House campaign reflect a resurgent hope that the console may be good, in what may now be once again another few years of sadness for Xbox hopefuls. It will take years for the return to exclusivity, Game Pass-related recovery, and a sandbagging Series S to really show how good Xbox can be. Hopefully, the 2027 releases, with E-Day kicking things off later this year, can bring some bright moments to what could be a long, dark winter on the horizon.

We reached out to official Xbox representatives, in which we are still waiting on a response on further clarity of this timeline.

Authored by Craig Robinson

Craig Robinson is an experienced gaming and esports writer with nearly a decade of coverage experience since 2015. With a background in software engineering, he combines his journalistic expertise with a strong understanding of technical SEO and web development fundamentals. He’s passionate about covering MMO games, competitive esports, and crafting guides that help players get the most out of their favorite titles. He's been writing about gaming and esports for over 10 years, which started as for fun project during university. He has since developed his skill set, contributing to newsrooms coverage of key games and event, and blending evergreen content strategy and a solid grasp of content marketing fundamentals. His work has appeared in Esports News UK, Gamer Guides, theEscpaist, and VideoGamer, and he now contributes to Gamehub's review team. When he’s not writing, Craig can usually be found running, at the gym, or tinkering with coding projects to keep his GitHub active.

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