Nadella calls Xbox's 5,750 job cuts 'streamlining'

Satya Nadella has described the rolling job cuts at Xbox as "streamlining", and says the division still has to work out how to make money. Speaking on the Sources Podcast in an episode reported on 28 September, Microsoft's chief executive said the reductions enacted under new Xbox boss Asha Sharma are "great to see", before handing the division a homework assignment with no deadline. "There's some amount of streamlining the team is doing, and Asha is doing, which is great to see," Nadella said. "And then we have to invent the right sustainable business model that allows us to deliver gaming to more and more people."

He was blunter about what he thinks already works. "I feel fantastic about the IP we have right now," Nadella said. "If I look at the studios, the IP portfolio we have, and our ability to then take that and produce great games going forward, I feel fantastic." He added that Sharma has told him Xbox will "get growth this next fiscal year", which for Microsoft runs to June 2028, and that the plan includes "producing some great games" along the way.

What the streamlining has actually cost

The reorganisation that produced the quote is unusually far-reaching. On 22 September Xbox moved Rare and ownership of Halo to Activision, shifted Obsidian under Bethesda, merged Playground and Turn 10 into a single Forza and Fable studio and handed Microsoft Casual Games to King, while cutting 268 roles across Halo Studios, other first-party teams and central functions. Undead Labs left the business with a new publisher and will still ship State of Decay 3 on Xbox Game Pass.

Ninja Theory, the Cambridge studio behind Hellblade, is proposed for closure after two separate agreements to sell it fell through. "We will now begin consultation with employees on a proposed closure while continuing to explore other paths forward," Xbox chief content officer Matt Booty wrote in the Xbox Wire post announcing the changes. "Consultation with Arkane remains underway and is expected to continue through the end of the year."

Five rounds in three years

Xbox has now made five rounds of mass layoffs since Microsoft closed its $68.7bn purchase of Activision Blizzard in October 2023, and Game Developer puts the total at more than 5,750 roles. The current programme, confirmed in July 2026, is due to remove 3,200 people from Xbox Game Studios by the end of the fiscal year, roughly half of them already gone, with another 1,600 cuts planned before the books close. Earlier waves took 2,550 jobs across January and September 2024 and closed Arkane Austin, Tango Gameworks and Alpha Dog Games, followed by undisclosed cuts in 2025 that hit ZeniMax Online Studios and King.

The part of the maths that does not add up yet

Sharma, who replaced Phil Spencer in February 2026, has set out an ambition of entertaining "more than a billion people each day". Xbox reported 500 million monthly users in 2025 and no longer publishes console sales, while the hardware that carries the brand has become more expensive to build as AI datacentre demand squeezes component supply, including at Microsoft itself. Fewer studios, a billion daily users and a return to growth inside two years is a set of promises that needs at least one of its numbers to bend.

Developers on the receiving end have been less philosophical. "Triple-A game development is so collaborative and so interconnected around specialists that laying off so many people is like having a wide piece of cloth and taking out half the threads," one Xbox worker told Game Developer earlier this year. "You can't just rip out a third or almost half of your implementers and expect to have the same level of content. Not even close."

Our opinion

"Streamlining" is doing an enormous amount of work in that sentence. Nobody is obliged to be maudlin about corporate restructuring, but a chief executive choosing the words "great to see" for the fifth round of cuts in three years is a communication failure of the sort that outlives the quarter it was said in. Confident about the IP is fine. Cheerful about the people is not, and the two are not the same sentence.

The harder question is the business model Nadella now has to invent, because the pieces do not sit comfortably together. Xbox sells subscriptions, hardware it no longer gets rich on, and games that increasingly land on rival platforms, while component costs are being pushed up by the AI datacentre build-out that is making Microsoft's own cloud business enormous. The most credible version of the future on offer is a publisher that treats the console as a halo product and monetises everywhere else. That is a defensible strategy. It just deserves to be said out loud rather than filed under a word that means people lost their jobs.