It feels like Xbox has been in a permanent state of turmoil for at least two years now, and this week is no different. Microsoft cut 268 jobs across its gaming division this week, shuffled major studios and franchises around, and continued its Xbox “reset.”
The Xbox reset gets ugly
Another round of cuts leaves big questions over the future of Game Pass and the Xbox platform.
The Scale of Layoffs
Layoffs have become a way of life for Xbox employees, after Microsoft started cutting thousands in early 2024 and hasn’t slowed down. The turmoil was particularly apparent when Microsoft started shutting down game studios, and the painful layoffs have had a lasting impact on morale, according to current and former Xbox employees.
At the same time, Xbox hardware is under pressure, Game Pass keeps being reshaped, and the future of Xbox as a brand feels more uncertain than ever before. This week was also a reminder that Microsoft is still very much in the middle of figuring out Xbox’s future.
Nothing demonstrates the scale of change going on inside the Xbox organization than Halo. Former Xbox chief Phil Spencer once noted the importance of the franchise, but it has been clear for years that Microsoft has lost its way with both Halo and the broader Xbox division.
Instead of moving the Halo Studios team under Activision directly, Microsoft is laying off most of the studio after years of leadership changes and technical shifts. A smaller team is being kept in place to handle existing games like Halo Infinite and Halo: Campaign Evolved, while future projects have reportedly been shelved.
Many employees learned of the restructuring through public channels before receiving direct notifications regarding their employment status.
Reactions among affected staff ranged from frustration over the timing of promotions and cuts to a sense of relief after prolonged workplace uncertainty.
Industry veterans and former directors expressed strong criticism over how the leadership handled the latest round of downsizing.
Studio Reassignments
Alongside the layoffs, structural changes are moving several veteran studios. World’s Edge, the team behind Age of Empires, is being integrated into Activision alongside Rare, the developers of Sea of Thieves. Meanwhile, Forza developers Turn 10 Studios and Playground Games are merging into a single operation.
Obsidian is also shifting out of Xbox Game Studios and under Bethesda Game Studios to work on a new entry in the Fallout franchise.
Industry analysts and former executives have pointed to these moves as evidence of a diminished first-party portfolio following years of significant investments.
The changes form part of a broader restructure aimed at streamlining operations, reducing management layers, and refocusing the content portfolio on major franchises.
With numerous dedicated first-party studios either downsized or reassigned, the internal landscape of Xbox Game Studios is drastically reduced, leaving only a few core development teams.
Concerns remain over the future of remaining studios like The Coalition and inXile, particularly as hardware sales face ongoing headwinds.
First-party hardware support has historically relied on these dedicated studios to push console capabilities and showcase technical expertise.
Game Pass and Hardware Pressures
These strategic shifts also highlight ongoing challenges with Xbox Game Pass. Microsoft has continuously tweaked pricing, cloud access, and catalog offerings as the financial return on day-one releases faces internal scrutiny.
Tension between leadership and development studios regarding subscription models has been evident, particularly after high-profile games launching on the service impacted traditional retail sales.
Rumors suggest further overhauls to Game Pass may introduce new tiers with advertisements and altered day-one access rules as Microsoft searches for a sustainable model.
Hardware sales have declined for multiple consecutive years, and rising component costs add further complexity to the development of future console generations.
With restructuring efforts only partially complete, employees across the division continue to face an uncertain operational landscape.
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