Microsoft will cut about 4,800 jobs from its Xbox gaming division as it restructures the struggling business. The software giant recently put a young Indian executive in charge of Xbox who has no experience with the video game industry.
CNBC reports that the company will lay off 1,600 people from its gaming business this week and 1,250 more during the rest of the fiscal year that began this month, Xbox Chief Executive Asha Sharma said in a memo to staff Monday. In addition, Microsoft is selling or spinning off four game development studios and exploring strategic options for a fifth. These moves will take at least 350 additional people off its payroll. Additional cuts will bring the total to just under 5,000 jobs slashed at the software giant. The cuts represent about 20 percent of the division’s total head count.
“Our business today is not healthy,” Sharma wrote in her memo. “We must reset XBOX.”
The videogame industry has been pummeled by layoffs for the past couple of years after many companies, including Microsoft, expanded aggressively in response to a surge of business during the pandemic. That boom halted when the world reopened.
Microsoft bought game production companies including Activision Blizzard to beef up the offerings on Game Pass, its Netflix-style subscription service. The company had projected Game Pass subscriptions would reach around 77 million this year, according to a document revealed during legal proceedings related to the Activision acquisition. It currently has about 30 million subscribers, a person familiar with the matter said. The subscription service has significantly underperformed expectations.
Sharma said in her memo that Game Pass “did not grow at the pace we expected.”
Xbox revenue fell five percent in the quarter ended in March from a year earlier. Its profit margin in the fiscal year that ended in June was three percent, a decline from the prior year. The financial performance underscores the challenges facing the gaming division.
Microsoft CEO Satya Nadella picked Sharma, a former chief operating officer of Instacart, to run Xbox in February despite her lack of experience in videogames. She has quickly begun making drastic changes to turn around the struggling business.
Sharma is cutting the number of games Microsoft publishes and is investing more in its most popular franchises, including Minecraft, Candy Crush and Fallout. She reduced the price of Game Pass, which lost subscribers following a hike last year, and stopped putting new Call of Duty games on the service so gamers would have to buy them separately. This strategy aims to generate more direct game sales revenue rather than relying solely on subscription income.
Microsoft has raised prices for its Xbox console because of the worldwide squeeze on memory chips caused by AI industry demand, which has also affected competitors Sony and Nintendo. The memory chip shortage has created supply chain challenges across the gaming hardware industry.
Xbox also operates a digital game store for Windows PCs. As the company makes fewer games of its own, Sharma is trying to make Microsoft a more attractive distributor for the growing universe of independent game developers. This pivot represents a shift in strategy from being primarily a game publisher to becoming more of a platform provider.
The restructuring comes at a critical time for Microsoft’s gaming ambitions. The company has invested billions of dollars in gaming acquisitions and infrastructure over recent years, betting that gaming would become a major growth driver. However, the actual performance has fallen short of these ambitious projections.
Read more at CNBC here.
Lucas Nolan is a reporter for Breitbart News covering issues of AI, free speech, and online censorship.