One of the biggest names in gaming could use an infinite money glitch right now. With revenue falling and a string of acquisitions not paying off, Microsoft-owned Xbox will slash about one-fifth of its staff and divest from some development studios, CEO Asha Sharma said yesterday.

Sharma called it “the most significant restructure” in the company’s history. Xbox will…

• Lay off 1,600 people this week and another 1,250 over the next year.
• Sell or spin off four to five game studios that it acquired within the past decade, which will cut another 350+ people from Xbox’s staff (games that are already announced won’t be canceled, Sharma said).

“Our business today is not healthy,” Sharma wrote in a memo, acknowledging the company’s measly 3% profit margin. Its quarterly revenue recently declined 5% year-over-year.

The Game Pass gamble

One big reason for Xbox’s slowdown appears to be its struggling subscription service, Game Pass.

TL;DR: To build up an enticing Game Pass library, Xbox bought production giant Activision Blizzard for $69 billion in 2023 and ZeniMax Media, the parent company of Skyrim-maker Bethesda, for $8.1 billion in 2021.

Those splurges didn’t pan out. (Xbox is keeping both companies, but the fifth studio it wants to divest is part of ZeniMax.):

• Game Pass currently has 30 million subscribers, a far cry from the 77 million that Xbox projected it would reach this year.
• In a normal year, the company lost 64 cents for every dollar it invested, Sharma wrote.

But now…Sharma, who became CEO in February, said Xbox will return to growth in 2027. Since taking the helm, she has moved to reduce the number of games Microsoft publishes and reprioritize its most popular franchises, like Minecraft, Fallout, and Candy Crush. This streamlining comes as the AI boom sends memory chip prices soaring, pushing Xbox and its competitors to raise console prices.

Zoom out: Xbox’s layoffs are part of 6,400 planned job cuts across Microsoft, whose massive AI spend is spooking investors. It’s the worst-performing megacap tech stock so far this year.—ML

US eliminated from the World Cup. The USMNT is out of the tournament after a 4–1 loss to Belgium last night. The loss came after a whole lot of drama off the pitch. Before the match, FIFA rejected Belgium’s appeal of its decision to permit US striker Folarin Balogun to play. The appeal questioned FIFA’s reversal of a suspension after President Trump asked FIFA President Gianni Infantino to review the red card. European soccer’s governing body, UEFA, called FIFA’s decision “unprecedented, incomprehensible and unjustifiable.” Meanwhile, Spain beat Portugal, bringing an end to what Cristiano Ronaldo said will be his last World Cup.

Throngs of mourners gathered for Iran’s Ayatollah Ali Khamenei. The body of the country’s former supreme leader of 37 years, who was killed at the beginning of US and Israel attacks against Iran in February, was carried through Tehran yesterday. Hundreds of thousands of mourners assembled there as part of a the government’s carefully orchestrated multiday funeral that began last week. The body will also be taken to other Iranian and Iraqi cities. Peace talks between the US and Iran have been halted until after the funeral, but the ceremony carries political weight: Crowds of mourners chanted “Death to America.” Iran also fired on commercial ships in the Strait of Hormuz yesterday, testing the fragile ceasefire.

AI “actor” Tilly Norwood will star in a movie. Unlike many human performers whose auditions don’t even help them land better catering gigs, the controversial “actor” has booked her first feature film—and it was written for her. Particle 6, the AI studio that created Norwood, will be making the movie Misaligned through a “hybrid” process that will involve traditional entertainment industry workers and AI specialists. It will be set in “the Tillyverse,” a digital world where the “actor” will portray (and this is a stretch) an AI with no real body or lived experience in a “coming-of-age story infused with existential AI chaos.”—AR

For many people, investing in SpaceX is now a matter of doing nothing. Elon Musk’s space and AI company became part of the Nasdaq-100 index today, two weeks after it IPO-ed. This means funds tracking the index, like Invesco’s popular QQQ ETF, are forced to buy the stock, adding it to the portfolios of millions of passive retail investors.

While it usually takes months for a newly public company to join the index, Nasdaq recently created an accelerated process for megacap stocks like SpaceX. While SpaceX is the first to benefit, rivals Anthropic and OpenAI are also likely to use it after their forthcoming IPOs.

Obligatory buy

SpaceX’s inclusion in the index could make the stock even more volatile:

• Though SpaceX will make up less than 1% of the Nasdaq-100’s value, funds tracking the index will have to buy as much as $4.3 billion of its shares, JPMorgan estimates.
• Since less than 5% of SpaceX shares are currently available for public trading, ETFs piling into the stock could create scarcity, boosting its price in the short-term.

Meanwhile, some retail investors who think SpaceX is overvalued or oppose Musk’s politics are ditching major ETFs for custom funds that exclude the stock, Bloomberg reported.

SpaceX won’t be joining the S&P 500 soon…since the most popular stock index recently rejected the company’s request for expedited entry.—SK

Have y’all seen the second season of The Four Seasons? No? Just us? Despite positive reviews, a number of once-popular Netflix shows have seen staggering viewership drops for their second seasons, Bloomberg reported.

Avatar: The Last Airbender, for instance, debuted at 21.2 million views in its first four days on the platform in 2024, before falling to just 8.7 million views in the same amount of time for its sophomore season released last month—a 59% drop. It’s not alone:

• Beef’s second season debuted to just over 2 million views in its first four days in April, a 60% plummet from season one.
• One Piece, the company’s most-watched show of 2023, shed 30% of its audience for its second-season premiere this year.
• A Good Girl’s Guide to Murder reported a whopping 80% drop.

A slight sophomore slump is typical. But Netflix seems to be hemorrhaging viewers more than most. Culprits could be the long gaps between seasons, the binge model struggling to keep shows in the spotlight for long, or maybe people just don’t like Will Forte as much as we thought.

Big picture: Netflix no longer releases subscriber numbers, but the time users spent on the app last year rose less than 2% compared with the previous year, worrying investors. The company’s stock is down more than 16% this year.—MM

On Tuesdays, the Brew’s Matty Merritt brings you the news you need to make life a little easier during your 9-5, 5-9, or OOO.

Your AI “coworker” might be getting more latitude than you. A new study from Boston University professor Emma Wiles found that managers were less thorough in reviewing work from AI “employees”:

• Researchers gave error-filled memos to 1,261 managers, telling different groups that the documents were produced by AI tools, AI “employees,” or human employees.
• Participants who were already managing anthropomorphized agents at their jobs caught 18% fewer errors when they were proofing what they thought was the work of AI “employees.”

Not my problem. Wiles chalked it up to a lack of understanding around who is responsible for errors made by chatbots.—MM