Microsoft’s Xbox division is heading into a new round of disruption, with reports that Head of Xbox Game Studios Craig Duncan is stepping down while the company prepares major layoffs and budget cuts. The shift follows an internal memo from Xbox CEO Asha Sharma and Chief Content Officer (CCO) Matt Booty that frames the coming changes as a broader reset across hardware, content, and operations.
Leadership turnover adds pressure inside Xbox Game Studios
According to a Bloomberg report, Duncan, who took charge of Xbox Game Studios in October 2024, is leaving this week, and Louise O Connor, the division chief of staff, is also departing. Until a replacement is named, the studios under Duncan will report directly to Matt Booty.
The timing matters because the leadership change lands just as Xbox is trying to stabilize its business and communicate a long-term plan to employees and partners.
The departures also come against a backdrop of repeated cuts across Microsoft’s gaming division. Bloomberg noted that Microsoft reduced about 1,900 gaming jobs in early 2024 and then cut 9,000 jobs across the company in July 2025, with many of those cuts affecting Xbox.
That earlier round also led to game cancellations and the closure of a studio, which makes the latest shake-up look less like an isolated move and more like a continuation of a wider restructuring trend.
The reset is being driven by weaker margins and rising costs
The clearest explanation for the changes appears in the memo published on Xbox Wire. Sharma and Booty said Xbox is on track to end the fiscal year with an accountability margin of about 3%, and they added that Microsoft has spent more than 20 billion dollars over five years on content, platform work, and hardware subsidies, while annual revenue declined by nearly half a billion dollars. Their message was direct: the current path is not sustainable.
They also pointed to the hardware side of the business as a major pressure point. The memo says console storage component prices have climbed sharply, that memory costs have followed a similar pattern, and that Xbox cannot currently make as many consoles as customers want. It also says the company needs a new business model and new partnerships for hardware, while it reviews investment priorities for the next five years and looks at capabilities across Xbox and possible mergers and acquisitions.
At the same time, the memo tries to show that the turnaround has already started in some areas.
Sharma and Booty said the platform teams shipped more updates in the last 100 days than in the prior year combined, Game Pass has begun growing again after more than eight months of decline, and Xbox now has more active partners than ever. They also highlighted upcoming exclusives, such as Gears of War E Day in 2026 and Clockwork Revolution in 2027, as evidence that the strategy remains centered on first-party content.
