Microsoft cuts 3,200 Xbox jobs as Game Pass stalls at 30 million subscribers
Microsoft is cutting roughly 3,200 jobs from its Xbox division — about one in five employees — as the gaming unit’s bet on Game Pass fails to deliver at the scale the company anticipated. Xbox CEO Asha Sharma announced the layoffs in an internal memo this week, with 1,600 employees being let go immediately and another 1,600 through the rest of the new fiscal year.
The cuts go beyond headcount. Microsoft is selling or spinning off four game development studios and finding another home for a fifth. More than 350 employees will transfer out of the division as part of those deals. “Our current business is not healthy,” Sharma wrote in the memo. “We have to restructure Xbox.”
The scale of the restructuring points to a fundamental problem: Game Pass, the subscription service at the center of Xbox’s strategy for years, is not growing the way Microsoft projected. During the legal battle over the Activision Blizzard acquisition, internal documents showed that Microsoft expected Game Pass to reach roughly 77 million subscribers this year. The actual number, according to a person familiar with the matter cited by the Wall Street Journal, is closer to 30 million. Sharma acknowledged in the memo that Game Pass “hasn’t been growing at the pace we anticipated.”
The shortfall is squeezing a unit that was already running thin margins. For the fiscal year ending in June, Xbox posted a profit margin of just 3%, down from the prior year. Revenue in the quarter ending March was down 5% year over year.
Sharma, a former Instacart COO with no gaming industry background, was appointed by Microsoft CEO Satya Nadella in February to run Xbox. Since taking over, she has sharply reduced the number of games Microsoft publishes and redirected funding toward proven franchises like Minecraft, Candy Crush, and Fallout. She also reversed course on Game Pass pricing — raising prices last year triggered a wave of cancellations, so she cut them again, but the trade-off was that new Call of Duty titles no longer launch on the service day one, forcing players to buy them separately.
IT-NEWS has learned that a secondary factor putting pressure on Xbox hardware pricing is the global storage chip shortage, driven by surging AI demand. Microsoft, Sony, and Nintendo have all raised console prices as a result.
Sharma appears to be betting on a different kind of growth: making Xbox a more attractive publishing and distribution platform for independent developers, even as Microsoft pulls back on publishing its own titles. With fewer first-party games in the pipeline, the question is whether that bet can make up the difference.