Microsoft announced 4,800 global layoffs on July 6, including a phased 3,200-role reduction across its Xbox division. San Francisco-based Double Fine Productions — acquired by Microsoft in 2019 — is spinning out as a fully independent studio, retaining its IP and game catalog.

Microsoft on July 6 announced it was eliminating 4,800 positions globally — roughly 2.1% of its workforce — with Xbox bearing the deepest cuts: approximately 3,200 roles across the gaming division, phased through the end of fiscal year 2027. About 1,600 Xbox positions were cut immediately.

The restructuring also produces a notable outcome for San Francisco: Double Fine Productions, the game studio Tim Schafer founded in 2000 and sold to Microsoft in 2019, will return to independent ownership. Double Fine keeps its intellectual property, its full game catalog — including the Psychonauts franchise — and what Xbox CEO Asha Sharma described as "runway for their next games."

"We're thankful to everyone at Xbox for seven great years together, and for working with us to reach an outcome which preserves our history and culture, and returns ownership of our games to us," Schafer and Double Fine's team said in a statement reported by The Verge.

Sharma framed the cuts as "the most significant restructure in Xbox history," citing the need for change that "cannot be made in a single day" — a nod to the phased timeline stretching into FY2027. Xbox content and services revenue fell 5% year-over-year in Q3 FY2026, per Microsoft's own financials, providing the backdrop for the overhaul.

Two other studios — Ninja Theory and Undead Labs — are also exiting Xbox but moving to new ownership rather than independence, per The Verge's reporting. Microsoft says no first-party announced games are being canceled.

What isn't settled: Microsoft filed a WARN Act notice covering 605 positions in Washington state, but no comparable California or Bay Area notice has surfaced as of this writing. The specific headcount impact on Double Fine's SF studio — whether the spin-out involves any staff reductions — has not been disclosed. The terms of the independence arrangement, including any transitional funding from Microsoft, remain undisclosed.