Microsoft Restructures Xbox Division, Laying Off 3,200 Employees

SCOTT DETROW, HOST:

When it comes to Xbox, Microsoft is doing a hard reset. This week, the company began reducing its gaming division by 3,200 jobs. Microsoft calls it the most significant restructuring in Xbox history. From member station KUOW, Monica Nickelsburg has been speaking with workers who feel like the gaming industry has become an impossible gauntlet.

MONICA NICKELSBURG, BYLINE: Autumn Mitchell has been an avid gamer since she was 5.

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AUTUMN MITCHELL: I was gifted a Super Nintendo, and I played Donkey Kong Country, and I was absolutely obsessed.

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NICKELSBURG: Then, in 2021, she landed her dream job. Microsoft subsidiary ZeniMax would pay her to test video games.

MITCHELL: The people, the industry, the work itself is really dynamic and challenging and just really fulfilling stuff.

NICKELSBURG: But on Monday, that dream came to an end. Mitchell was one of thousands Microsoft laid off as part of a big reboot of its gaming division.

MITCHELL: I would say it's like having the wind knocked out of you and you never really get your breath back.

NICKELSBURG: Mitchell isn't optimistic she'll find another job in gaming. The industry has always had boom-and-bust cycles. Studios staff up to build a new game, but then there can be a long lag time until the next one. Often, there's not enough money to bridge the gap. But experts say this moment is different. Gaming companies are fighting social media, AI and so many other things for people's attention. Gil Luria is head of technology research at the investment bank brokerage D.A. Davidson.

GIL LURIA: The more our time gets divided up, the less time we have to spend on gaming, and therefore the less money we're inclined to spend on gaming.

NICKELSBURG: Microsoft says the number of game players and playing hours are down. Xbox has been spending billions on studio acquisitions, and some of those were flops. In a memo to employees, Microsoft said the business has become unhealthy, with profit margins three to 10 times lower than competitors. I asked Microsoft President Brad Smith about the prospect of layoffs in an interview last week, and he said, even though these decisions aren't easy...

BRAD SMITH: You do have to remain healthy in order to be successful, even to just stick around from decade to decade to decade.

NICKELSBURG: If the gaming industry was facing an uphill fight before, soaring hardware costs have turned it into an epic battle.

JOOST VAN DREUNEN: The current layoffs are an unfortunate mix of both internal inefficiencies and this apocalyptic degree of hardware prices going up because of the AI frenzy.

NICKELSBURG: Joost van Dreunen teaches the business of video games at New York University. He says a combination of tariffs, increased fuel prices and, most importantly, surging demand for chips is eating into Xbox's margins.

VAN DREUNEN: And that's, you know, a scenario in which the easiest answer is to just cut jobs, as unfortunate as that is for everybody involved.

NICKELSBURG: But some say turning things around will require listening to the people making these games, not firing them. Christopher Hays has been working on games like Doom and Rage for Id Software for 16 years. It was acquired by Xbox in 2021. He hasn't been laid off yet, though he worries he could be. He thinks the problem is comparing Xbox with higher-margin parts of Microsoft's business like software and AI.

CHRISTOPHER HAYS: Gaming makes a lot of money.

NICKELSBURG: But not AI money. Plus, he thinks Microsoft has invested in games and other projects that maybe they wouldn't have if they had listened more to their developers.

HAYS: Most of the time, when there's a lot of money lost, it's people in power chasing a trend and then ignoring developers who actually know the industry, are gamers themselves and know what people want.

NICKELSBURG: He'd like to see Xbox spun out of Microsoft. And some gaming experts say that may ultimately be where all this is headed. For NPR News, I'm Monica Nickelsburg in Seattle.

DETROW: And a note, Microsoft is a financial supporter of NPR.

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