Microsoft Xbox continues slashing staff: Why is the gaming business restructuring again?

Microsoft-owned Xbox is cutting another 268 jobs as the gaming business continues a broader restructuring aimed at simplifying its organisation, reducing management layers and improving the economics of its operations.

The latest cuts were announced by Xbox chief content officer Matt Booty in an internal memo titled “Continuing Our Reset”. The 268 job cuts come on top of the wider restructuring announced by Xbox in July, which had already resulted in thousands of job losses across Microsoft’s gaming business.

The latest round is not being presented as an isolated cost-cutting exercise, but as a part of a broader reset of how Xbox is organised and how Microsoft manages its growing portfolio of gaming studios.

Why is Xbox restructuring?

The central issue is that Xbox had become too large and complex, while its financial performance had not kept pace with that expansion. In its July restructuring memo, Microsoft acknowledged that the Xbox business was operating with margins significantly below comparable platform and publishing businesses. The company said Xbox had entered the current console generation with a smaller installed base and a higher cost structure. Microsoft had also invested heavily in content, platforms and hardware. Excluding Activision Blizzard King, the company said it had spent more than $20 billion over five years on those areas. At the same time, annual revenue had declined by nearly $500 million.

“Our business today is not healthy,” Xbox said in its July memo. The company attributed the pressure to several factors, including slower-than-expected growth in Game Pass and multiplatform gaming, a smaller console installed base and a cost structure that had become too high.

The problem was also organisational. Xbox had accumulated multiple studios, teams and management layers through years of expansion and acquisitions. Microsoft said some parts of the organisation had as many as 14 layers of management. The restructuring therefore seeks to make Xbox “flatter”, with the company targeting five or fewer management layers, and three where possible.

What is changing inside Xbox?

The latest restructuring is also about moving studios and functions under fewer organisational units. With the September reset, Activision will take over the next Halo game and expand its remit to include Rare and World’s Edge. Obsidian will move under Bethesda, while Microsoft Casual Games will move under King. Playground Games and Turn 10 are also being combined. The company is additionally considering the closure of Ninja Theory after attempts to sell the studio did not succeed.

The company says these changes are intended to bring together groups that already work closely with each other and reduce duplication across the organisation. “We’re focusing our publishing expertise” and operating fewer business units, Booty said in the recent memo.

The changes also reflect the difficult economics of developing games. Microsoft said in July that, in a typical year, it was losing 64 cents for every dollar invested in some of its studios. That has made maintaining a very large collection of first-party studios increasingly difficult to justify.

Hardware is another pressure point. Xbox has pointed to a sharp rise in the cost of components, particularly storage and memory, adding pressure to a hardware business that already operates with a smaller console installed base.

The September memo said the company is now roughly three-quarters of the way through the restructuring announced in July. The latest 268 cuts are consequently best understood as another stage in Microsoft’s attempt to make Xbox a smaller and more consolidated gaming organisation after years of expansion.