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Microsoft Corp.'s Xbox division is planning major layoffs next month, according to people familiar with the company's strategy.
The layoffs, the exact scale of which is not yet clear, are expected shortly after the close of Microsoft's fiscal year on June 30, said the people, who asked not to be identified because they're not authorized to speak to the press. Xbox is also planning to significantly slash budgets for marketing and some other areas of the business, the people said.
A spokesperson for Xbox declined to comment.
This will be the first sweeping change under Asha Sharma, who became chief executive officer of Xbox in February. Sharma has spoken publicly about the organization's challenges, saying recently at the Bloomberg Tech conference that she planned on "resetting the business" which was "not in a healthy spot."
In an email to employees on Wednesday seen by Bloomberg, Sharma wrote that the business had plummeted to a 3% "accountability margin," the metric Microsoft uses to reflect profit margin.
"Excluding Activision Blizzard King, over the past five years, we have spent over $20 billion on ongoing investments in our content, platform and hardware subsidy, but our annual revenue has declined nearly half a billion during that time," she wrote. "Going forward, this cannot continue."
Sharma added that Xbox would need to rebuild its platform infrastructure and rethink its portfolio in the weeks and months to come.
"We expanded our studio system when we needed a pipeline of content to meet multiple strategies across subscription, streaming and devices," she wrote. "In the process, we have found ourselves over extended 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 Showcase, a reliable pipeline of first- and third-party exclusives and new IP are critical to our success. We need to reassess the balance between these and our investment priorities for the next 5 years."
Xbox, a titan of the video-game industry, has struggled to grow over the past few years. Sales at its hardware business have plummeted, it has failed to consistently deliver hit games and the popularity of its subscription service, Game Pass, has plateaued. Under pressure from its parent company to boost margins, Xbox has spent the past two years shuttering studios, canceling games and raising prices.
In recent years, Xbox has released most of its software on rival consoles from Sony Group Corp.'s PlayStation and Nintendo Co., which helped games such as Indiana Jones and Forza Horizon reach far bigger audiences. But the move away from exclusivity may have damaged the appeal of Xbox hardware along the way.
Sharma is looking to reverse course. On Sunday, during a video presentation that showcased the company's slate of upcoming games, she announced that Gears of War: E-Day and Clockwork Revolution will not come to PlayStation or Switch. In subsequent interviews, she and her executive team said they would handle future titles on a case-by-case basis.
A PlayStation 5 version of the new Gears of War game was in development and had been planned for release until Sharma changed tack, according to the people familiar with Xbox strategy. Retailers had been preparing to open pre-orders for the PlayStation 5 version, and many Xbox employees were surprised by the announcement.
Sharma and her team also pulled a Halo trailer that was due to appear at a PlayStation event last week, potentially damaging the relationship between the two companies, according to people familiar with the change of plans.
A return to exclusivity may excite diehard Xbox fans and improve prospects for the brand, but it also potentially means sacrificing a significant amount of revenue. The PlayStation 5 has sold more than 90 million units while analysts estimate that the Xbox has sold roughly one-third of that.
Sharma said at Bloomberg Tech that she is not under the same fiscal pressures from Microsoft as her predecessor, Phil Spencer.
"My mandate is not a 30% accountability margin," she said. "It's not enterprise software margins. It's to be the number one gaming and entertainment company."
UP: XBOX Wire message (Next 100 Days: XBOX Reset)
This message was just sent to Team XBOX employees globally.
Team,
Over the first 100 days together, we have started to revive XBOX.
Our platform teams have already shipped more updates in the last 100 days than during the prior year combined. We now have more active partners on XBOX than ever before. Our Game Pass team set to work fixing our offering and after 8+ months of decline, our service has started to grow again. And through Player Voice, we have a 24/7 channel to hear directly from players, creators, and developers.
With the XBOX Games Showcase and the return of FanFest, we brought together hundreds of millions of fans globally. We reintroduced exclusives with Gears of War: E-Day in 2026 and Clockwork Revolution in 2027. Players can continue to expect signature exclusives from us every year. In parallel, Playground Games reminded us that established franchises can achieve incredible new highs.
These results are early, but they demonstrate what is possible when we move faster, stay close to our community, and align behind a shared vision. We have made mistakes, and will continue to make them, but what matters is that we listen, learn, and adjust the course where needed. Remember, our fans are rooting for us.
Now we start the next 100 days. It is important to have both optimism and realism as we work to reset the business.
Here are the realities that we need to navigate:
#1: Over 1 billion players choose to play XBOX and our games each year, for a total of 72 billion hours across Console, PC, Mobile, and Streaming (excluding much of China and a few other properties). Our franchises are also among the largest and most beloved globally and are now breaking records in TV and film. Going forward, our competition is attention. There are more great games, TV series, franchises, creators, content formats, apps, etc., than ever before.
#2: We will end this fiscal year at about a 3% accountability margin, down year-over-year. Excluding Activision Blizzard King, over the past five years, we have spent over $20 billion on ongoing investments in our content, platform, and hardware subsidy, but our annual revenue has declined nearly half a billion during that time. Going forward, this cannot continue.
#3: We are in a hardware component crisis. When I joined as CEO in February, the price we paid for console storage components was over 2x as high as we paid last fall. These costs have since doubled again. And as we plan for the 2027 holiday season, we expect another significant increase, taking us over 5x the prices we paid only two years earlier. Memory costs have followed a broadly similar trajectory. While the entire industry is facing a components crisis, we believe we have been impacted more greatly than many of our peers due to the choices we made over the last half decade. We are currently unable to make as many consoles as players want to buy, and we need a new business model and partnerships for hardware as we remain committed to Helix.
#4: We expanded our studio system when we needed a pipeline of content to meet multiple strategies across subscription, streaming, and devices. In the process, we have found ourselves over extended 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 Showcase, a reliable pipeline of first- and third-party exclusives and new IP are critical to our success. We need to reassess the balance between these and our investment priorities for the next 5 years.
#5: Our current platform infrastructure is not built for the battle ahead. Our systems are overly complex, spanning hundreds of dependencies, which hinders our ability to move fast. We've become too reliant on vendors to operate our systems and must become more self-reliant as an engineering culture to build for the future. We must increase the value we ship to players while decreasing the time it takes to do so. Going forward, we'll evolve and rebuild our stack and look at capabilities across all of XBOX and potential M&A to help us win in hardware, PC, mobile, and streaming.
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 different results. Like the 'everyday wins' mentality from the first 100 days, we will sprint to make progress against hardware, content, experience, and services together.
XBOX is one of the few places where people come not just to play, but to connect with others to create memories. With console at the center of how our showcase experiences are defined, Windows as one of the largest gaming platforms in the world, and incredible games under our roof as one of the largest publishers in the world, we have the foundation in place.
Let's reset for a stronger XBOX and build the #1 gaming and entertainment company.
Asha and Matt
Next 100 Days: XBOX Reset - XBOX Wire
news.xbox.com
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