Xbox Cuts 3,200 Jobs, but Blizzard Thrives on Top

Three thousand two hundred jobs. That's the number Microsoft announced last month when it confirmed sweeping layoffs across its gaming division, with 1,600 roles cut immediately and another 1,600 to follow before next summer. Studios have been gutted, teams slashed, and developers left scrambling. Against that backdrop, Blizzard Entertainment's president sent an internal email last week celebrating the studio's status as Xbox's crown jewel.

The contrast is jarring, and I don't think it's lost on anyone inside those offices.

According to leaked internal emails reported by Windows Central, Blizzard President Johanna Faries told staff that the studio finished fiscal year 2026 on top of the entire Xbox studios division. The key passage from her email:

In FY26, Blizzard ended the year as the top-performing studio in Xbox's studios division, and this past year has marked our third-highest fiscal year for top-line revenue in Blizzard's history. FY25 and FY26 were our first back-to-back years of growth since FY17.

That last line is the one that jumps out. Nearly a decade without consecutive growth years, and now Blizzard has strung two together. That puts it above Activision (Call of Duty), King (Candy Crush), and Bethesda (Fallout, The Elder Scrolls) in Microsoft's internal rankings. Two games drove the turnaround: Diablo 4: Lord of Hatred, the action-RPG's second expansion which launched in April, and Overwatch, which Faries said delivered "its strongest quarter since 2022."

Overwatch's Quiet Rebuild

Overwatch's resurgence is the more surprising half of this story. The hero shooter spent years bleeding goodwill after the botched Overwatch 2 transition, aggressive monetisation, and the cancellation of its PvE mode. But Blizzard has been methodically rebuilding it. The "2" was dropped from the title earlier this year, 10 new heroes were announced for 2026, loot boxes returned in 2025 alongside a new perk system, and collaborations with Hello Kitty, Persona, and K-pop group Le Sserafim have clearly moved the needle on engagement. Going from a franchise people were writing obituaries for to Xbox's co-MVP in the space of 18 months is a genuine turnaround, and the team deserves credit for grinding through the bad press rather than abandoning ship.

Diablo 4's trajectory is less surprising but still impressive. Lord of Hatred added the Paladin and Warlock classes, a new region, and more story content to a game that launched strong in 2023 but needed its expansions to prove long-term legs. It appears to have done exactly that.

What's conspicuously absent from Faries' email is any mention of World of Warcraft, despite the Midnight expansion releasing earlier this year. It may simply be that WoW performed well without being the standout, or Blizzard is saving its WoW spotlight for BlizzCon, scheduled for September 12-13. Windows Central also reported that Blizzard is working on mobile spinoffs and transmedia projects across its franchises, with a third-person StarCraft shooter rumoured for reveal at the event.

But here's what I keep coming back to: Faries' celebratory email landed in inboxes at the same time colleagues across Xbox's other studios were cleaning out their desks. Microsoft is in the middle of what CEO Asha Sharma has called a "reset" of the Xbox brand. Studios have been shrunk or shuttered. An id Software developer publicly said Xbox executives "don't understand art." The company also faces an ongoing BDS boycott over Microsoft's ties to Israel's military. Blizzard's success is real, but it exists inside a division that is clearly in crisis.

I'm glad Blizzard is thriving. Diablo and Overwatch earning their keep means those teams are safer than most. But 3,200 people are still out of work, and a victory lap from one studio doesn't fix the structural problems that led Xbox here. If Microsoft's gaming strategy boils down to "keep the studios that print money, cut everything else," Blizzard's numbers aren't a success story for Xbox. They're the exception that proves how badly the rest of it is going.