Microsoft is weighing a full spinoff of its Xbox gaming unit, the most radical option in a restructuring that could reshape one of the largest bets in gaming history. The Information reported Friday, citing three people with direct knowledge of the discussions, that Microsoft has considered spinning out Xbox as an independent company, restructuring it as a wholly owned subsidiary similar to LinkedIn and GitHub, or forming a joint venture with outside partners. Any of those moves could make the gaming business easier to sell down the line, the report said.
No decision is imminent, and all options remain on the table. Microsoft did not respond to requests for comment. The news caps a brutal week for Xbox.
Bloomberg reported Wednesday that the division is planning major layoffs in July, along with significant cuts to marketing and other budgets. That would mark the first major restructuring under Xbox CEO Asha Sharma, who took the role in February.
Sharma sent a company-wide email reviewed by Bloomberg acknowledging the scale of the crisis. Xbox's profit margin has shrunk to roughly 3%, she wrote. The division spent $20 billion on studio investments over the past five years, excluding its $69 billion Activision Blizzard acquisition, while annual revenue declined by nearly half a billion dollars.
"The accountability margin has shrunk to 3%," Sharma said in the email, using Microsoft's internal term for profit margin. She described the company's studio system as "over extended," saying Xbox had "not adequately funded" its studios to compete.
Windows Central reported that a string of high-profile titles missed Microsoft's expectations, including Avowed, Hellblade 2, South of Midnight, Forza Motorsport, and The Outer Worlds 2. Minecraft Legends, Ninja Gaiden 4, and Battletoads also fell short.
Sharma has secured approval from Microsoft CEO Satya Nadella and finance chief Amy Hood to boost spending on top-tier franchises like Halo, Fallout, and The Elder Scrolls for the fiscal year starting in July, according to The Information. The budget has not been finalized. The spinoff consideration signals how seriously Microsoft is examining structural options for a division that has struggled to justify its $68.7 billion Activision Blizzard purchase.
The Information's report noted that restructuring Xbox as a wholly owned subsidiary could follow the model Microsoft already uses for LinkedIn and GitHub, giving the gaming unit more operational independence without an immediate sale. A joint venture with outside partners would be another option, potentially bringing in outside capital while keeping Microsoft involved.
