Microsoft is laying off approximately 650 employees from its videogame business, the tech giant’s latest move to cut costs after its $75 billion acquisition of Activision Blizzard last year.
The layoffs affect mostly workers in corporate and support roles and are being done to “organize our business for long term success,” said Phil Spencer, chief executive of Microsoft Gaming, in a company email Thursday reviewed by The Wall Street Journal. No studios will be closed, nor will any games, devices or experiences be canceled, he said.
Microsoft’s game-division layoffs are part of a significant downsizing in the global games industry. While demand for interactive entertainment shot up during the pandemic—following decades of mostly steady growth—consumer spending declined in 2022 and has rebounded only modestly since then.
The move also comes as Microsoft has been investing heavily in artificial intelligence, including more than $13 billion in funding for ChatGPT-maker OpenAI. The tech giant said it spent $19 billion on capital expenditures and equipment in the three months that ended in June. The figure is the same amount the company spent in 2019 for the entire year.
The gaming-division cuts Thursday follow the Xbox maker’s decision to let go of roughly 1,900 workers from the unit at the start of the year and the closure of three of its studios in May.
In January 2023, Microsoft laid off 10,000 employees across all of its businesses, including Xbox personnel. The company then gained around 10,000 employees with the October acquisition of Activision, the biggest deal in its history.
So far this year, game companies overall have let go more than 11,500 employees, according to an online tally of termination announcements and news reports compiled by Farhan Noor, a technical artist in California. That figure compares with 10,500 in all of 2023 and 8,500 in 2022.
Microsoft doesn’t break out game-related revenue, but analysts and researchers say its Xbox machines have long trailed sales of Sony Group’s PlayStations and Nintendo’s Switch and other consoles. Game software and accessories sales typically correlate with demand for game hardware.
To catch up with its rivals, Microsoft has been working to increase the number of subscribers to its Game Pass service, which gives users access to several hundred games, which can be streamed to consoles, PCs, smartphones and tablets. The company last disclosed in February that the number of subscribers had reached 34 million. In July Microsoft raised the price of Game Pass.
A major test of Microsoft’s strategy with Game Pass will come in late October, when Microsoft has said it will release Activision’s next Call of Duty game on the service the same day it goes on sale a la carte. The move is risky because consumers could end up paying Microsoft less for the new installment of the shooter series—one of the most successful entertainment properties ever—than it would have made with the traditional approach of only selling it outright.
Write to Sarah E. Needleman at Sarah.Needleman@wsj.com