Xbox CEO letter sent to employees regarding restructuring explains a lot

Xorious · July 7

This was made public by her, so by all means please direct all comments to her, but if you want that info for things like X or LinkedIn or whatever, you'll have to get info yourself, I don't want to target anyone or get this pulled for malicious intent

The ESO team got hit hard by this restructuring, they deserved better! To keep this information public and readily avaiable for everyone, please keep all comments civil. After all, this is for information purposes only.
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"We are beginning the most significant restructure in XBOX history. After careful consideration, I've made the difficult decision to reduce our team by approximately 3,200 throughout FY27. This will include approximately 1,600 role eliminations today, and in addition, four studios will leave XBOX to new management.

I recognize that a year-long restructuring creates additional challenges. Unfortunately, it is not possible to make all the necessary changes in a single day, and I wanted to be direct about the scale.I know this is painful. These changes will directly affect people who have poured their creativity into building XBOX. Many joined us through acquisitions, while others were recruited here, or sought us out because they loved this industry and loved XBOX. Today's decisions do not reflect their talent or dedication.Our business today is not healthy. We are operating at margins that are 3–10x lower than comparable platform and publishing businesses. We entered Gen 9 with a smaller install base and a higher cost structure. To grow, we bet on Game Pass, multi-platform, and a broader portfolio of content. While those businesses have created meaningful value, they did not grow at the pace we expected. As that happened, our core business weakened, and we added more teams, more investment, and more time, hoping for a better outcome. And now the industry is facing the most severe hardware crisis in its history. We must reset XBOX.First, we will reset our content portfolio.

Since 2018, we have aggressively expanded our studio portfolio while the number of games created each month across the industry now outpaces the last ten years combined. We now find ourselves competing not only with the largest publishers, but also with smaller independent studios. It is neither possible nor desirable to own every great independent studio. We have also learned that we are not the best home for every type of studio; in a typical year, we lost 64 cents for every dollar we invested. As we reset XBOX, we will help independent creators succeed by providing open development tools and audiences to realize their vision.Compulsion Games and Double Fine Productions will return to management and transition to independent studios with their IP, catalog, and runway for their next games. Ninja Theory and Undead Labs have entered terms to join new ownership with funding to complete and grow Senua and State of Decay 3. In France, Arkane’s management is beginning required consultation with its Works Council to review potential strategic options.We are also making reductions across other units, and in some cases, shifting investment to focus on higher priority projects.

These changes vary in size across Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and XBOX Game Studios. None of our first party publicly announced games or projects are being cancelled as part of these reductions.In addition, Mojang and King will now report directly to me. These two studios have increasingly become platforms and are our largest by monthly active players. They bring critical geographic, demographic, and differentiation to XBOX.Second, we will reset our platform.We know that great technology gets better when it gets simpler, not bigger. Today, in some parts of the company, work passes through as many as 14 layers of management. Our platform teams are 40% larger than they were at the start of this generation, even as our player base and playtime have declined.

That complexity has slowed decisions, blurred accountability, and made it harder to deliver for players. As we reset XBOX, we will simplify.We will reduce management layers to no more than 5, and where possible, 3. We will deliver success through a flatter organization that is built around makers (individual contributors focused on building), player-coaches (leaders who remain deeply involved in the work while developing their teams), and directly responsible individuals (DRIs) who own key decisions and outcomes. And we will streamline how we work across our tools, with a cleaner code base, shared services, and 50% reduced vendor spend.Third, we are resetting how we operate.As XBOX grew our headcount, we became more fragmented. Teams, studios, and functions often operate independently, and it became harder to work towards a shared goal, make the right tradeoffs, and get things done.For the first time, we are establishing a Chief Operating Officer with end-to-end P&L responsibility across content, hardware, platform, and services.

Helen Chiang has been promoted to this role and will report directly to me. Over nearly two decades at XBOX, Helen has helped build some of our most important businesses, from XBOX Live to leading Mojang and the Minecraft franchise. She will bring our businesses together under one operating model, making sure we make clear investment decisions, learn from our successes and failures, and hold ourselves accountable for results.Thank you, Dave McCarthy, who is retiring after 17 years with XBOX. Dave has played a defining role in building the platform that millions of players rely on every day and has been a trusted partner through many of the biggest moments in XBOX's history. We wish him all the best.These changes are about a bigger future for XBOX, not a smaller one. The next decade of gaming will be larger, more global, and more creative than anything we've seen before.

This year, we'll invest as much in XBOX as we ever have, but we'll invest with greater focus, greater discipline, and greater clarity, all in service of making XBOX where the world plays and creates.I want XBOX to be one of the few companies that entertains more than a billion people each day and gives everyone the opportunity to create and connect. I know we can achieve this goal. XBOX has many of the most beloved franchises in entertainment history, talented studios around the world, and we will return to growth in 2027.History is full of companies that mistake longevity for inevitability. We will not be one of them.Asha”
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[edited for name in thread title]

YffresTrill · July 7

My eyes glazed over after the first sentence, as they do with any AI-written PR text.

code65536 · July 7

And now the industry is facing the most severe hardware crisis in its history.

Gee, I wonder why.

LootAllTheStuff · July 7

If you'd kept reading, they would have opened wide at this bit:

Today, in some parts of the company, work passes through as many as 14 layers of management.

That is some insane management bloat right there, and explains a lot about MS decisions over the last while. I suspect that Zenimax was never that bad. At least, I hope not!

code65536 · July 7

LootAllTheStuff wrote: »

If you'd kept reading, they would have opened wide at this bit:

Today, in some parts of the company, work passes through as many as 14 layers of management.

That is some insane management bloat right there, and explains a lot about MS decisions over the last while. I suspect that Zenimax was never that bad. At least, I hope not!

First, if you look at the list of people they lost, many of them are not managers.

Second, the most important parts of that sentence are "some parts of" and "as many as". For all we know, there could have been just a single instance of this in all of Xbox. Or maybe this is actually common. We don't know, because this sentence was not meant to be informative--if it was, then she would be talking about numbers that actually matter, like average or median number of reporting layers, not the absolute worst case.

By using the worst case scenario and not providing meaningful figures such as the average, it seems that the intent here was not to inform, but to set a desirable narrative. I.e., it's propaganda.

tomofhyrule · July 7

Corpospeak worth the paper it’s printed on.

[snip] AI.

Eldovar · July 7

LootAllTheStuff wrote: »

If you'd kept reading, they would have opened wide at this bit:

Today, in some parts of the company, work passes through as many as 14 layers of management.

That is some insane management bloat right there, and explains a lot about MS decisions over the last while. I suspect that Zenimax was never that bad. At least, I hope not!

This is also the effect of buying lots of studios and publishers and the previous Xbox bosses ‘let them do their thing’ and let all the bought companies keep their own management structures they already and then layer all the Microsoft management on top of it.

ADarklore · July 7

Let's also keep in mind that studies have shown that younger generations are NOT playing AAA games, and are quite content with mobile and retro games. So without younger players buying games along with subscribing or buying things in the online stores, sadly this does foreshadow a poor future for MMOs and AAA games in general.

BardokRedSnow · July 7

The exact thing I posted already and was called a shill for

14 layers of leadership roles is indeed ridiculous but the thing people forget is Microsoft isn’t the only one with this modern day common issue, and it’s meant for exactly what they claimed was an issue, avoiding accountability and creating further bureaucracy to insulate individuals when there’s finger pointing. That’s by design.

What also should be noted is how crazy it is for a company to just come out and state what she has, and it’s very transparent, unusually transparent.

No one here knows the actual goings on at Zos, or how the business is run behind closed doors, who contributes the most or least. So people should keep all that in mind before talking about witch hunts and calling for boycotts and stating it’s just about greed and blah blah

CAB_Life · July 7

If many of you actually read what she’s saying it’s salient. 14 layers of management is an administrative nightmare. Now how sincere her sentiment and plans for realignment are remains to be seen. Whatever the case, Xbox grossly over expanded in an attempt to corner a market that was doomed to fail. At some point, and given the advent of AI and hardware prices the crunch was going to happen. Those of you who are older—like me—may recall the 1st time this industry contracted and it was UGLY.

Raziel_Lewach · July 7

CAB_Life wrote: »

If many of you actually read what she’s saying it’s salient. 14 layers of management is an administrative nightmare. Now how sincere her sentiment and plans for realignment are remains to be seen. Whatever the case, Xbox grossly over expanded in an attempt to corner a market that was doomed to fail. At some point, and given the advent of AI and hardware prices the crunch was going to happen. Those of you who are older—like me—may recall the 1st time this industry contracted and it was UGLY.

So there is 14 layers of management issue... and part of the solution is firing the creative minds that worked in a game for a decade? I don't see they removing layers of ZENIMAX management...

CAB_Life · July 7

Raziel_Lewach wrote: »

CAB_Life wrote: »

If many of you actually read what she’s saying it’s salient. 14 layers of management is an administrative nightmare. Now how sincere her sentiment and plans for realignment are remains to be seen. Whatever the case, Xbox grossly over expanded in an attempt to corner a market that was doomed to fail. At some point, and given the advent of AI and hardware prices the crunch was going to happen. Those of you who are older—like me—may recall the 1st time this industry contracted and it was UGLY.

So there is 14 layers of management issue... and part of the solution is firing the creative minds that worked in a game for a decade? I don't see they removing layers of ZENIMAX management...

Gina and Finn are literally senior management for their departments, they already canned Frior last round of cuts who was director level management. Kira was senior lead in her department, too. Again, I’m not making any kind of concessions or appeasement for Sharma, but she is doing what is laid out in the letter. They always fire/ package out people with tenure when cutting because they earn so much more than a new employee.

BardokRedSnow · July 7

Raziel_Lewach wrote: »

CAB_Life wrote: »

If many of you actually read what she’s saying it’s salient. 14 layers of management is an administrative nightmare. Now how sincere her sentiment and plans for realignment are remains to be seen. Whatever the case, Xbox grossly over expanded in an attempt to corner a market that was doomed to fail. At some point, and given the advent of AI and hardware prices the crunch was going to happen. Those of you who are older—like me—may recall the 1st time this industry contracted and it was UGLY.

So there is 14 layers of management issue... and part of the solution is firing the creative minds that worked in a game for a decade? I don't see they removing layers of ZENIMAX management...

Those creative minds are literally layers you’re talking about. Which again I’m not saying it’s deserved, I’m saying no one here knows the truth about who is responsible for what amount of contribution and until we see Zos’ roadmap or they give us official statements speculation on that front is pointless

Raziel_Lewach · July 7

CAB_Life wrote: »

Gina and Finn are literally senior management for their departments, they already canned Frior last round of cuts who was director level management. Kira was senior lead in her department, too. Again, I’m not making any kind of concessions or appeasement for Sharma, but she is doing what is laid out in the letter. They always fire/ package out people with tenure when cutting because they earn so much more than a new employee.

Layers mean "lead of lead". If there was a senior manager of the senior manager. And a senior of the senior of the senior. That's something I would understand to cut. But having *different* senior managers for *different* areas is normal and okay in my eyes.

merevie · July 7

She made her first gaming account in 2026. That she played at home, with her own family. It may be challenging for her to understand the gaming market. In her post, she states that talent had nothing to do with who got fired. She may pay more attention when those people are hired elsewhere and become direct competition? No idea how corporate minds work.

Faulgor · July 7

Raziel_Lewach wrote: »

CAB_Life wrote: »

Gina and Finn are literally senior management for their departments, they already canned Frior last round of cuts who was director level management. Kira was senior lead in her department, too. Again, I’m not making any kind of concessions or appeasement for Sharma, but she is doing what is laid out in the letter. They always fire/ package out people with tenure when cutting because they earn so much more than a new employee.

Layers mean "lead of lead". If there was a senior manager of the senior manager. And a senior of the senior of the senior. That's something I would understand to cut. But having *different* senior managers for *different* areas is normal and okay in my eyes.

Maybe this letter by Bethesda lead Jill Braff will help to make sense of this.

Specifically this part:

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. 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.

https://www.ign.com/articles/we-need-to-change-course-bethesda-boss-tells-staff-the-company-must-focus-on-our-strongest-franchises-as-xbox-layoffs-hit-hard

Maybe they are getting rid of senior/lead positions in individual studios because they intent to restructure the whole of Bethesda/ZeniMax in a way that leads in other studios will take up their responsibility across studios, thus trimming down the levels of management.
Of course that's going to be a horrendous mess, but it might make sense to someone on paper.

Eldovar · July 7

merevie wrote: »

She made her first gaming account in 2026. That she played at home, with her own family. It may be challenging for her to understand the gaming market. In her post, she states that talent had nothing to do with who got fired. She may pay more attention when those people are hired elsewhere and become direct competition? No idea how corporate minds work.

Well that's the cynical cycle that keeps happening.

- Talented people and management gets laid off

- Those people gather and make a smaller studio

- Some of those smaller studios make a surprise breakout hit game fuelled mainly by passion and talent

- Smaller studio gets bought by big company with promises to keep doing their thing, great partnership yada yada. Studio thinks it's a great idea because with a bigger budget they can accomplish a bigger and more ambitious project they are dreaming about.

- Studio has to make another hit game that is bigger than the previous one, but this time it has to fit the vision and unrealistic profit margins of the overlords. The pressure and stakes are way higher and new rules like profit, monetization and engagement metric come into play.

- Overlords made the same mistake 10 times in a row and has to correct their whole business and layoffs start = we are here now.

The irony is that all of their problems are of their own making: buying too much studios, buying all RAM for AI data centers making PC and console unaffordable for many, missing out on a lot of money from Playstation in favor of pushing their gamepass subscription, devaluating new expensive AAA games by putting them day 1 on gamepass so people can play 70 dollar games for 14 dollar (if you make a new account each time)

illutian · July 7

Probably would have done better to just layoff the CEOs....the most useless position in any corporation.

karthrag_inak · July 7

khajiit has to wonder why they purchased these studios to begin with.

rafaelcsmaia · July 7

illutian wrote: »

Probably would have done better to just layoff the CEOs....the most useless position in any corporation.

Funny enough, im pretty sure its WAY easier to replace a investor puppet like a CEO with AI than a creative mind like a developer, map artist or something. But we all know this never gonna happen.

CatalinaWineMixer2 · July 7

karthrag_inak wrote: »

khajiit has to wonder why they purchased these studios to begin with.

That's the big picture we will probably never know. Was it to stop their best competition? Was it solely to bolster their Xbox? Was it for the technical capabilities of the studio? Is it to push Elder Scrolls VI? Could be a lot of things.

No one is getting over on a CEO except maybe shareholders. In some ways we as customers are the shareholders.

I wish they would stop the layoffs for Eso. I would have rather seen them keep everyone here attached to this game than make a single player Elder Scrolls game. Imagine what it would be today if they had not pulled away all of the staff and resources.

The expression, "You don't know what you have until it's gone" could likely be a sad reality if this pattern of taking away staff and investment continues. Some people may not agree, but Eso is one of the most incredible things humanity has ever built. This is coming from a guy who still has his original Atari and Video Art. Nothing like this could have been imagined once upon a time. To see it vanish now would be a sad day for humanity. After all these years.

karthrag_inak · July 7

When khajiit first read of Asha Sharma, her prior work and gaming experience and exposure, this one's confidence was sorely shaken. However, upon reading her statement and other statements she has made in the past, this one is cautiously optimistic. nothing that she has said is wrong, and she demonstrates surprising insight about the industry when she says things like xbox/MS is perhaps not suited to run every type of game studio. It seems that efforts are being made to spin off the unwanted studios in a way that they at least have a chance to land on their feet. This did not have to happen - they could have just been closed. Khajiit finds some miniscule threads of hope in this.

And then there is the unspoken but ubiquitous undercurrent of AI. It is an undeniable, albeit tragic, and certainly controversial, fact of the software industry that AI is changing the landscape permanently - like assembly-line built cars did for horseshoe-crafting blacksmiths. Khajiit says this as a senior software engineer with 32 years experience and multiple CS degrees, currently working at a FAANG Ai research lab with the kinds of models and infrastructure that will, ultimately eventually replace this one's old profession, and perhaps even khajiit himself. This simultaneosly enrages khajiit and breaks his heart, but khajiit needs to feed ja-khajiit, yes?

Khajiit brings this up because, once upon a time layoffs diminished output and produtivity, and often signaled a product effectively entering hospice, for lack of a better term. This is now not necessarily the case.

In the 6 months that Khajiit has moved to full time Claude and Codex wrangling for all the code he outputs, he has increased his productivity and effectiveness at least 5-fold. Full systems that once required weeks and multiple devs, khajiit now accomplishes in a few days, albeit with much editing, fixing and repair work. This is complex infrastructural frameworks and benchmarks for RL training systems. It is not what Khajiit signed on for - since khajiit was a cub, this one lived for code poetry, composing elegant programmatic incantations to bring abstract concepts into computational reality, not wrestle with wordy, barely-useful idiot for it to produce something useful (and invariably ugly) that khajiit can barely recognize.

Perhaps this same terrible, unethical but inevitable AI-driven productivity push is the aim here. Perhaps we will see continued productivity, perhaps even an increase in certain content.

Yes, this is abhorrent to consider, but as disgusting and trajic as khajiit considers this eventuality, he firmly believes it is better than the alternative. With >25k hours in the game, and many friends from around the world that he interacts with on a daily basis, the loss of ESO would be a crushing tragedy. This one already endured such a thing with Star Wars Galaxies, playing from launch day until they turned it off 8 years later. Khajiit never wants to experience such a thing again.

And so khajiit is hopeful because he must be.

Regardless, khajiit will definitely miss seeing Gina's posts and 'potes, and her absence on streams will be sorely felt.

karthrag_inak · July 7

of course, khajiit could just be completely fooling himself on all fronts. It has been known to happen. Skooma-is-a-helluva-drug.gif

LalMirchi · July 7

My short take:

Cut management layers severely, keep the developers.

Freelancer_ESO · July 7

karthrag_inak wrote: »

khajiit has to wonder why they purchased these studios to begin with.

My impression was that Microsoft wanted to turn gaming into a subscription service similar to what Netflix has done with tv shows and movies.

To get people to use their subscription service they offered it very cheaply. In an attempt to get lots of content for their service they made deals with companies to get them to participate and they also bought up lots of gaming companies.

However, the content they obtained was insufficient in quantity and appeal to get people on their service in sufficient numbers to be financially viable.

Microsoft raised the price for their subscription service to attempt to be more financially viable and ended up bleeding users because the users didn't believe the value the service provided was worth the higher prices.

Needless to say, this left Microsoft with a bit of a mess. They have a bunch of video game studios that aren't really delivering the greatest results while costing a boatload of $ and they have an annoyed customer base.

So, they brought in a new CEO that is an outsider to gaming. The new CEO cut the cost of Game Pass a bit and cut out some of the AI stuff to attempt to placate the customer base. Then, they spun off/tried to sell companies/fired a boatload of staff to try to cut costs.

As long as the decline in customer spending is lower than the money saved by the sales/spin offs/cuts the move will potentially end up being a win for Microsoft.

With that said, Microsoft also has a longer term "AI" issue with gaming. If your products don't come across to users like they are "Art" users aren't going to have issues with just playing AI knockoffs instead of your actual product if the AI knockoffs are close to the quality of your product. People may also end up using AI to play your product which can make it harder for your content to have staying power and community. I wouldn't be terribly surprised if we aren't more than a few years out from having an "AI" bot that you can plop in a chair and have it do basic gaming for you where it will move your mouse and use your keyboard to play the game for you when you don't feel like it or you can't do something as easily as you'd like.

Frayton · July 7

This makes Xbox and ESO's future pretty clear.

Xorious · July 7

ESO will endure.

OutLaw_Nynx · July 7

karthrag_inak wrote: »

khajiit has to wonder why they purchased these studios to begin with.

So Sony doesn’t. Buy out the possible studios that Sony could buy and make money.

ceruulean · July 7

ADarklore wrote: »

Let's also keep in mind that studies have shown that younger generations are NOT playing AAA games, and are quite content with mobile and retro games. So without younger players buying games along with subscribing or buying things in the online stores, sadly this does foreshadow a poor future for MMOs and AAA games in general.

This is a good point. Younger players don't have money. If ESO keeps expanding and becomes a 200GB behemoth, you expect a high schooler with a budget laptop to download and play? They either play on consoles/steam decks, mobile games, or games with less demanding graphics like League of Legends.

Now with the economic recession, even adults don't have money to spend and have the same limitations of playing on cheaper devices with accessible gaming. The layoffs are tragic, but I can see why the content/dungeon teams were cut. ESO cannot keep ballooning and it already takes up 125 gb and it needs an extra 20gb to download updates. I bet the new U51 updates, trial, reworks, cosmetics, and voicelines will bump the game's minimum requirements to 130 GB.

Soarora · July 7

Xorious wrote: »

ESO will endure.

Even if ZOS is made to close its doors, ESO will endure. I’m sure the community will find a way to make it happen.

redlink1979 · July 7

karthrag_inak wrote: »

khajiit has to wonder why they purchased these studios to begin with.

https://www.gameindustrypatchnotes.com/p/why-xbox-is-unacquiring-prestige