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"Optimism and realism must both guide us as we restructure the business"
Xbox's new CEO Asha Sharma and head of Xbox Game Studios Matt Booty are reportedly preparing significant job reductions across the gaming division next month. This signals a fresh phase for Sharma, during which she aims to "restructure the business"—a thinly veiled reference to widespread layoffs.
"It is crucial to maintain both optimism and realism as we work to restructure the business," Sharma and Booty state in an open letter commemorating her initial 100 days in the role. "We anticipate ending this fiscal year with an accountability margin of roughly 3%, a decline year-over-year. Excluding Activision Blizzard King, our ongoing investments in content, platform, and hardware subsidies have exceeded $20 billion over the past five years, yet our annual revenue has dropped by nearly half a billion dollars during that span."
Former CEO Phil Spencer had targeted a 30% accountability margin, underscoring how far Xbox is falling short of its goals. That figure served as a rationale for the layoffs, game cancellations, and studio closures seen in recent years. Additionally, factoring in the Activision Blizzard King acquisition—a purchase Sharma openly questioned just last week—brings that investment total to nearly $80 billion.
"When I assumed the CEO role in February, the cost of console storage components was more than double what we paid last fall," Sharma continues. "These expenses have since doubled once more. And as we prepare for the 2027 holiday season, we foresee another major increase, pushing costs to over five times the prices we paid just two years earlier. Memory costs have followed a largely similar pattern."
I'll admit, reading that section inevitably brings to mind the I Think You Should Leave hotdog meme, given the steep rise in component costs fueled by tech companies investing billions in AI infrastructure. Microsoft is among the biggest spenders here, having announced plans in April to invest an additional $190 billion in its cloud and data center infrastructure.
These cost hikes hit Xbox's console business particularly hard, as the company "currently cannot produce enough consoles to meet player demand," influencing plans for the next-generation device, codenamed Helix. This matters to PC gamers too, since reports indicate Helix is essentially a living room PC.
The most telling part of the letter regarding anticipated changes addresses Xbox's acquisition history. "We expanded our studio network when we needed a content pipeline to support multiple strategies across subscription, streaming, and devices," Booty and Sharma write. "In doing so, we've found ourselves overextended as we executed shifting strategies amid a landscape of more readily available content."
"Overextended" and "restructure the business" are the most revealing phrases in this letter.
"We are the fortunate custodians of industry-defining franchises with enormous potential and player demand, yet we haven't adequately funded them to compete and succeed," Booty and Sharma continue. "Simultaneously, as demonstrated at this past weekend's Showcase, a dependable pipeline of first- and third-party exclusives and new intellectual property is essential to our success. We must reevaluate the balance between these and our investment priorities over the next five years."
Though vague, this implies a further focus on a handful of first-party series, such as Halo and Gears of War, while relying more heavily on third-party developers for variety.
Finally, Booty and Sharma note that the platform infrastructure "is not equipped for the challenges ahead" because "its systems are overly complex, involving hundreds of dependencies, which slows our ability to act quickly." Again, this reads as coded language for layoffs. To me, it suggests they're discussing eliminating teams they view as complicating the game development and publishing process. After enduring years of such approaches, it's hard not to hear "move fast" and silently add "and break things."
Although the term "layoffs" doesn't appear in the open letter, sources speaking to Bloomberg indicate that is precisely the plan. The cuts are reportedly expected shortly after Microsoft's fiscal year ends in late June.
It's clear Xbox has mishandled development and publishing over the past decade. Despite acquiring excellent studios during the spending spree of the last ten years, developers have struggled to release first-party games. Titles like Everwild and Perfect Dark were in development for six years before being shown to the public, only to be canceled before anyone could play them. I can easily believe Xbox is an unfocused company that has grown overly complicated and wasteful as it chased consoles, cloud streaming, multiplatform releases, handhelds, Game Pass, mega acquisitions, live service games, MMOs, and every other executive whim. While a new CEO might look around and say, 'This is too messy, let's start over,' the actual cost of that "restructuring" will inevitably fall on employees who had no part in those decisions.
It's especially frustrating to see this "look at what the other guys did" letter co-authored by Matt Booty, who has been a Microsoft executive and part of this sprawling strategy for years. He was the one who praised smaller prestige games the day after overseeing the closure of Hi-Fi Rush developer Tango Gameworks—one of the few Xbox games that fit that description.
Once again, Xbox is explaining that to become more successful, they must, in fact, fire a bunch of people who make the games they sell, publish the games they sell, and market the games they sell. I hope it works—not for the clueless executives, but so I don't find myself back here in 12 months writing about another restructuring perfectly timed to boost shareholders at the close of the next fiscal year.