Xbox to retreat from wokeness, fire thousands — and still might not survive

Xbox is in dire straits. Following a financial spiral with hardware sales down 33% and gaming revenue down 7%, the management team suffered a huge shake-up, with CEO Phil Spencer announcing his sudden retirement and protégé Sarah Bond leaving the company without an explanation. Now the new CEO, Asha Sharma, is left to trim the fat. For her first order of business, Xbox is preparing to offload several first-party studios, all of which lost money on DEI-infused games, policies, and partnerships.

It’s layoff season at Xbox

Shortly after Sharma took the reins, she candidly admitted in a memo that Xbox needs to “reset the business” following a string of surprises and failures. Some of these were well within Xbox’s control; it reportedly spent more than $80 billion to acquire major publishers like Activision Blizzard and ZeniMax Media (parent company of Bethesda). Other challenges were unexpected, such as the AI-driven RAM shortage. Together, all of these led to a razor-thin 3% profit margin — far from a healthy business for a Microsoft brand.

Despite Xbox’s best efforts to spare its business and reputation, it still has a tough road ahead.

It was clear from the start that mass layoffs would be part of the formula to patch the sinking ship. As to when the exodus will begin, that’s been a big question percolating on the internet for several weeks. According to prolific video game journalist Jason Schreier, the layoffs could take place any time after the fiscal year, which is June 30 for Microsoft. And who will go? Five studios are reportedly on the chopping block, many with strong ties to DEI games that failed to generate a large audience or sustainable revenue.

Survival is not compulsory

Before we get into the weeds, reports on the fates of these studios have changed a lot in recent weeks, but most agree that they will either be spun off into their own companies, sold off for a bit of financial recuperation, or shut down entirely to make room on the books. Looking at its recent game portfolios, it’s no wonder Xbox wants to offload these as quickly as possible.

One of the first studios on the chopping block is Compulsion. Compulsion released “South of Midnight” in spring 2025. The game follows a female lead character named Hazel through black “Deep South” folktales depicting dark magic. Aside from unverified claims that Hazel was race-swapped due to DEI before the game was released, a comment made by one of the studio’s community managers particularly angered players. According to the gaming subreddit, the unnamed person said white gamers were a mistake following questions from players over the race-swap rumor.

If that wasn’t bad enough, Compulsion also accepted consultation from the leftist woke gaming group Sweet Baby Inc., whose negative influence on video game culture is now widely known. Sweet Baby Inc. earned its ire honestly while torpedoing gaming brands into oblivion. Its employees have repeatedly shared their disgust for white male players — a demographic that makes up more than half of the gaming community in the United States — with comments such as:

• “Pay me to shoot down your white male lead game ideas”;
• “I usually get grossed out when straight white rich people kiss”;
• “Had a nightmare that I was a white male gamer”; and
• “Sometimes it is hard to work with white people” — when asked why Sweet Baby Inc. doesn’t hire white people.

“South of Midnight” was doomed from there, suffering from low player counts and dismal sales that made Compulsion an easy target for elimination. As for Sweet Baby Inc., it’s used to failed projects, with a growing list of woke games that all flopped in recent years, including “Suicide Squad: Kill the Justice League,” “Unknown 9: Awakening,” “Contraband,” and “Gotham Knights.” It was also involved in “God of War Ragnarok” and “Marvel’s Spider-Man 2,” but these franchises proved to be too big to sink, despite the presence of LGBTQ+ characters, Pride flags, and other progressive ideologies.

RELATED: 'You are killing ownership': PlayStation goes digital-only as disc-loving gamers rage

RICHARD A. BROOKS/AFP/Getty Images

Latest reports indicate that Compulsion will transition back to an independent studio owned and operated by a team outside of Xbox.

More casualties of the woke regime

Although Compulsion may be the wokest casualty on the list, the remaining studios on Xbox’s shortlist come with their own woke-ified baggage:

• Double Fine Productions: Founder Tim Schafer used DEI as a guiding principle at his company, stating that inclusivity was “an ongoing education for everybody” as he tried to be more sensitive to modern issues, seemingly in a quest not to offend players by deploying the usual “grab bag of stereotypes.” Like Compulsion, Double Fine will go independent under Schafer’s leadership.
• Ninja Theory Ltd.: With ties to Sweet Baby Inc., both teams contrived to build a series of glorified walking simulators devoid of any meaningful action as their female lead, Senua, explored haunting psychotic episodes in “Hellblade.” The series had potential, but the original and sequel just weren’t engaging enough to captivate players. Xbox currently plans to sell Ninja Theory to the highest bidder with its newly unveiled title, “Senua,” as a carrot to lure in potential buyers.
• Arkane Studios: Most notably dropping the ball hard on its latest title from 2023, “Redfall” tried to school players on the evils of capitalism and rich elite vampire bloodsuckers while grandstanding progressive values. Throw in a laundry list of bugs and technical issues that disrupted the gameplay loop, and “Redfall” swiftly fell to its doom. As part of the ZeniMax acquisition, Arkane’s inevitable fate is still unknown at this time.
• Undead Labs: Known for its zombie-infested “State of Decay” franchise, “female, nonbinary, and other marginalized” staffers accused the studio of “rampant misogyny” and a toxic work culture. The studio course-corrected by hiring new diversity-driven employees. Despite the progressive diversity, equity, and inclusion mandate, Undead Labs only shipped two games since 2013, leading to its downfall. Meanwhile, its third installment of “State of Decay” may be canceled amid Xbox’s shifting strategy. Undead Labs will also be sold off with its upcoming “State of Decay 3” positioned as the key selling point.

Xbox is smart to cut ties with its woke deadweight of the past. Double Fine is the only developer that might be worth saving (the creativity and storytelling in the “Psychonauts” series is top-notch). The rest serve as proof of what happens when corporations go woke — they go broke almost every time, and the damage control at the other end isn’t worth the trouble.

Despite Xbox’s best efforts to spare its business and reputation, it still has a tough road ahead on the journey to stability. So far, Xbox has cut 3,200 jobs to stop the financial bleeding. The gaming giant is also entertaining several ideas to keep itself afloat, including running ads on its platform, letting players build their own custom Game Pass subscription packages, and spinning Xbox off into its own subsidiary. Little is set in stone, though, so anything could happen.