Why is Microsoft laying off 650 employees from its video game division?

Microsoft’s video game division has decided to lay off 650 employees, mostly workers in corporate and support roles. This decision follows the 1,900 layoffs of Xbox and Activision Blizzard employees last January, as well as the closure of studios such as Tango Gameworks (recently acquired by Krafton) and Arkane Austin, among others. Journalist Stephen Totilo reported the news on his X (Twitter) account and on the media outlet and newsletter Game File.

Phil Spencer, the head of Xbox, announced the layoffs in an internal memo on Thursday, Sept. 12. These are drastic cuts that are related to the agreement with Activision Blizzard and do not involve the closure of any studio or the departure of high-level executives.

Microsoft’s cutting personnel gets a lot of attention because of the sheer number of people who are affected by the move. However, it is not the only player in the video game industry that is suffering. The sector has been struggling with less demand after experiencing a sharp increase during pandemic.

The latest round of layoffs is part of the company’s cost-cutting measures, especially after Xbox sales plunged in the most recent financial quarter.

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Microsoft offering exit packages to laid-off workers

Below is Phil Spencer’s full statement to employees:

“Over the past year, our focus has been on minimizing disruption while welcoming new teams and enabling them to do their best work. As part of aligning our team structure following the acquisition and managing our business, we have made the decision to eliminate approximately 650 positions across Microsoft Gaming – mostly in corporate and support roles – to organize our business for long-term success.

I know this is difficult news to hear. We are deeply grateful for the contributions of our colleagues who are learning that they are affected. In the U.S., we are offering exit packages that include severance pay, extended healthcare, and outplacement services to help them transition; outside the U.S., packages will vary by location.

With these changes, our corporate and support teams and resources are aligned for sustainable future growth, and can better support our studio teams and business units with programs and resources that can scale to meet their needs. Separately, as part of running the business, there are some impacts to other teams as they adapt to changing priorities and manage the lifecycle and performance of games. No games, devices, or experiences will be cancelled, nor will any studios be closed as part of these adjustments.

“Throughout our team’s history, we’ve been through some great times and some tough times. Today is one of those tough days. I know going through more changes like this is tough, but even in the toughest times, this team has been able to come together and show each other love and kindness as we work to continue to provide the best for our players. We appreciate your support through these changes and thank you for your compassion and respect for each other.”