Xbox axes 3,200 staff as it abandons Game Pass expansion

Microsoft’s Xbox division is laying off 3,200 workers, roughly 20% of its workforce, with half of the cuts taking effect immediately and the rest staggered over the next year. The reductions follow a memo from new Xbox chief executive Asha Sharma, who warned staff she intended to "reset the business."

The job losses mark a decisive retreat from the subscription strategy championed by former chief executive Phil Spencer. Xbox had bet heavily on Game Pass, a Netflix-style service, but Sharma admitted the attempt to release a broad range of games left the company "over-extended" and failed to attract the desired customer base.

For investors and competitors, the move confirms that the pandemic-era gaming boom has given way to a harsh economic reality. The industry has cut nearly 58,000 roles globally since 2022. Companies over-hired and expanded aggressively in 2020, spending billions on acquisitions like ZeniMax/Bethesda and the $69bn purchase of Activision Blizzard in 2023.

While gaming remains profitable, the economics of production have deteriorated. Developers face soaring costs, cost-of-living pressures on consumers, and rising hardware prices partly driven by massive investments in artificial intelligence.

The pivot to focus exclusively on blockbuster franchises is already disrupting operations. At id Software in Texas, the studio was cut in half just a day after releasing a major expansion for Doom: The Dark Ages. Former producer Andrew Willis noted that most of those laid off were technical staff who had mastered the studio's proprietary ID Tech engine.

At ZeniMax Online Studios, senior encounter designer Morgan Goin estimates some disciplines have been reduced to a quarter of their previous size. This severely limits the ability to produce regular content updates for The Elder Scrolls Online, a game dependent on a constant stream of new material to retain players.

With 1,600 cuts still to be announced, morale among remaining staff is fragile. "Those who remain know that one day they will be on the chopping block," said Simon Prefontaine, a game designer at Bethesda Game Studios' Montreal office. Workers represented by the Communication Workers of America union plan to hold rallies at six Microsoft locations to negotiate severance and argue for some to be reinstated.