The rumoured cuts at Xbox have come to fruition, with plans to lay off 3,200 employees. In addition, five studios are also set to be let go, with Double Fine and South of Midnight developer Compulsion breaking off to go independent, while Ninja Theory (Senua) and Undead Labs (State of Decay 3) have been sold.

The fifth studio, Marvel’s Blade and Dishonored studio Arkane Lyon, is set to be divested from Xbox Game Studios, though details are still being kept under wraps.

Per Xbox Wire, Xbox CEO Asha Sharma confirmed the layoff and divestment plans at Xbox, but announced no plans for closures or game cancellations.

According to Sharma, Xbox is operating at “margins that are 3-10x lower than comparable platform and publishing businesses.” Sharma acknowledged Xbox’s previous pivots to Game Pass, multi-platform, and a “broader portfolio of content” have resulted in “meaningful value”, but it hasn’t been enough.

“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,” she said. “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.”

As a result, 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.” Meanwhile, Ninja Theory and Undead Labs “have entered terms to join new ownership with funding to complete and grow Senua and State of Decay 3.” As for Arkane Lyon, the studio’s management “is beginning required consultation with its Works Council to review potential strategic options.”

The 3,200 cuts will be made throughout Xbox’s financial year across departments, with some areas being more affected than others. This is expected to affect around 20% of the developer’s workforce.

In addition, Bethesda will also undergo “a significant overhaul”, and will pivot to focus on its core franchises: Fallout, The Elder Scrolls, DOOM, Quake, and Wolfenstein. None of our first party publicly announced games or projects are being cancelled as part of these reductions.

“These changes are about a bigger future for Xbox, not a smaller one,” says Sharma. “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.”