REDMOND — Microsoft announced 3,200 staff are set to lose their jobs at Xbox across the current financial year, with 1,600 of those layoffs having occurred on July 6, 2026. This reduction in workforce represents approximately one-fifth of Xbox's staff and up to 2.5% of Microsoft's total workforce.

Bethesda, a subsidiary under Microsoft Gaming, is also undergoing a strategic shift. Jill Braff, the boss of Bethesda, stated, "The layoffs and change in strategy reflect the realities of our industry and business – and our responsibility to ensure Bethesda is operating from a more stable foundation." Braff added, "To be successful in the future, we need to change course. We must strengthen our business, return to sustainable growth, and ensure we can continue investing in our franchises and our players."

Braff explained the strategic change, saying, "To best position Bethesda for future growth, we are shifting from a planning model primarily centered on what's next for each independent studio to one that focuses on our strongest franchises and determining the content roadmap that best serves our players and Bethesda as a whole." She continued, "From there, we'll align the right talent, technology, and resources across the organization to deliver on those priorities. By working more closely across the organization, sharing expertise and capabilities, and focusing our investments on the opportunities with the greatest potential, we believe we can better support our franchises and IP with meaningful long-term potential." Microsoft also plans to sell or close Arkane Lyon as part of this restructuring.

Microsoft's CEO, Satya Nadella, reported that "The revenue generated by Copilot consumption fees almost doubled from the previous quarter." Nadella also noted that "Customers increasingly extend Copilot with custom agents tailored to their workflows." Microsoft reported AI annual recurring revenue of more than $37 billion in its fiscal third quarter ended April 29, 2026, marking a 123% increase year-over-year. Overall, the company reported total revenue of $82.9 billion in the same quarter, an 18% year-over-year increase, with operating income reaching $38.4 billion, a 20% increase.

Asha Sharma, the CEO of Xbox, stated that "Microsoft's gaming business is not healthy." Braff expressed gratitude to those impacted by the layoffs, stating, "I know that doesn't make a day like today any easier. Today's news affects people who have worked alongside us, inspired us, challenged us, and helped build the studios, games, and culture that define Bethesda. Across our global organization, some employees are leaving the company, while certain countries review strategic options through processes required by local law. While each situation is different, what they share is uncertainty for people in our community. I want to express my sincere gratitude to everyone who has been impacted. Your talent, creativity, dedication, and contributions have helped shape Bethesda in meaningful ways, and our immediate focus is supporting you through this transition."

Why It Matters

The announced layoffs and strategic shifts at Microsoft's Xbox and Bethesda divisions represent a restructuring within the company's gaming segment. This reorientation comes despite Microsoft's overall strong financial performance, particularly in its AI sector, where annual recurring revenue has grown substantially. The decision to streamline operations and focus on key franchises at Bethesda indicates a shift towards a more consolidated approach to game development and resource allocation within the Microsoft Gaming ecosystem, impacting a portion of its workforce.