Microsoft told its Xbox staff the truth in blunt terms: the business “is not healthy.” The fix? 3,200 job cuts, five studios out the door, two of them European.

Xbox chief executive Asha Sharma laid it out in an official memo on Monday. She called it the most significant restructure in the division's history. Xbox will cut roughly 3,200 roles, about 20 per cent of its workforce, over the coming year. Around 1,600 go immediately. Five studios will leave Xbox altogether.

The European casualties

Two of the studios sit in Europe. Microsoft will sell Ninja Theory, the Cambridge maker of the Hellblade series, along with Undead Labs. Both keep building their current games, Senua and State of Decay 3. In France, Arkane Studios in Lyon now enters a formal consultation with its Works Council.

That process will run slower than the rest, Bloomberg reports, because French labour law is stricter. Compulsion Games and Double Fine return to their founders as independent studios, keeping their staff, catalogues and game rights.

A brutal balance sheet

Sharma did not soften the numbers. Xbox runs at margins three to 10 times lower than rivals, she wrote. In a typical year, it lost 64 cents for every dollar it invested. The division that spent $69bn on Activision Blizzard now loses money on the studios it bought. Game Pass, the subscription bet behind that spree, stopped growing.

Cutting games to feed AI

The timing is no accident. Microsoft keeps pouring record sums into the AI data centres behind its cloud business. That spending forces austerity everywhere else. On the same day, chief people officer Amy Coleman confirmed about 4,800 further cuts across the wider business.

Most fell in sales. In a separate memo, she insisted AI has not taken the lost roles, while conceding that AI “changes how work gets done.”

Why it matters

Xbox has plenty of company. A wave of employers, including Starling Bank, has trimmed staff while steering money toward AI. Microsoft has now cut more than 15,000 jobs in a year. Sharma promises a leaner Xbox will return to growth in 2027.

For the developers behind games such as Hellblade, the reset lands today. “History is full of companies that mistake longevity for inevitability,” she wrote. “We will not be one of them.”