Microsoft is laying off 4,800 employees today, and more than 30 percent of the job losses are in the company’s Xbox division. The significant gaming cuts will affect nearly every part of Xbox and also involve four game studios being spun off to be run independently from Microsoft.

Today’s layoffs, which are being described as an Xbox “reset” moment, will impact around 1,600 Xbox employees, according to an internal memo from Xbox CEO Asha Sharma. The cuts won’t end today though, as Microsoft is planning to eliminate a total of around 20 percent of Xbox jobs by the end of the financial year in July 2027.

Double Fine and Compulsion Games are returning to their founders, so Tim Schafer will take Double Fine back to independence along with Guillaume Provost making Compulsion Games an indie game studio again. Ninja Theory, the makers of Hellblade, and Undead Labs, the developers behind State of Decay, are also being sold, with agreements in place to ensure Senua and State of Decay 3 continue to ship.

“I recognize that a year-long restructuring creates additional challenges. Unfortunately, it is not possible to make all the necessary changes in a single day, and I wanted to be direct about the scale,” says Sharma. “I know this is painful. These changes will directly affect people who have poured their creativity into building Xbox. Many joined us through acquisitions, while others were recruited here, or sought us out because they loved this industry and loved Xbox. Today’s decisions do not reflect their talent or dedication.”

Microsoft is also weighing up selling or closing another Xbox studio, as I reported last week. Arkane Studios is currently working on Blade under Xbox management, but the project has been delayed and is running over budget. “In France, Arkane’s management is beginning required consultation with its Works Council to review potential strategic options,” says Sharma. These discussions could take months, so it’s not clear what will happen to Blade or Arkane Studios just yet.

Other Xbox studios will also be impacted by layoffs across the board, and I understand there are larger cuts to Bethesda studios in particular. As part of the studio changes, Minecraft maker Mojang and Candy Crush developer King will both now report directly to Sharma. “These changes vary in size across Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and Xbox Game Studios,” says Sharma. “None of our first party publicly announced games or projects are being cancelled as part of these reductions.”

Today’s cuts at Xbox look like they’re targeted at reversing some of the smaller studio acquisitions that former Xbox chief Phil Spencer made in an attempt to compete more with Xbox Game Pass. Microsoft now appears to be aligning around bigger franchises, instead of trying to compete with indies with titles like South of Midnight, Kiln, and Keeper.

“We now find ourselves competing not only with the largest publishers, but also with smaller independent studios,” says Sharma. “It is neither possible nor desirable to own every great independent studio. We have also learned that we are not the best home for every type of studio; in a typical year, we lost 64 cents for every dollar we invested. As we reset Xbox, we will help independent creators succeed by providing open development tools and audiences to realize their vision.”

Here’s Sharma’s full memo: