Microsoft’s Xbox division is undergoing another round of significant cuts, with 268 job losses this week and a continued corporate reshuffle that marks another phase of its ongoing “reset.”
Since the first round of layoffs in early 2024, job reductions have become a recurring theme for Xbox staff, with thousands more cut this week. The closures of several game studios and the resulting morale problems are confirmed by current and former employees who spoke with the author.
Meanwhile, Xbox hardware sales are faltering, the Game Pass subscription service continues to undergo changes, and the brand’s direction remains unclear. This week’s announcements underscore Microsoft’s ongoing struggle to define Xbox’s strategic path.
The Halo franchise epitomizes the magnitude of Xbox’s internal restructuring. As former Xbox head Phil Spencer warned in 2011, losing sight of Halo threatens the entire platform. The past years have seen Microsoft drift from that vision.
After years of staffing cuts, leadership turnover, and technical re‑alignment, Microsoft has decided to keep only a skeleton Halo Studios team to support existing titles such as Halo Infinite and Halo: Combat Evolved, rather than moving the studio fully under Activision. The author’s source indicates that upcoming Halo projects were years away, prompting the abrupt shutdown.
Employees at Halo Studios were left in limbo for hours as they awaited layoff notifications, with the first official notice appearing on a public Xbox blog before internal emails were dispatched later that morning.
Some staff viewed the layoffs as a reprieve. “I’m a jumble of thoughts and emotions, but mostly relief,” former Halo Studios employee Ron B wrote on LinkedIn. “I was miserable for the last year and a half and it’ll be nice to feel something different.”
Many colleagues reacted with anger or bewilderment. “Promoted and laid off in the same week is pretty wild,” said Josh Daniels, former Halo Studios cinematic director. Shannon Loftis, a long‑time Microsoft veteran behind Fable and Project Gotham Racing, lambasted Xbox chief Asha Sharma. “Super funny that Asha Sharma said ‘clarity is kindness’ to the WSJ last week then did a half layoff today,” Loftis posted on Threads. “I guess Damocles’ Sword is a form of clarity, what do I know?”
Shannon Loftis, the former head of World’s Edge (creator of Age of Empires), who retired from Microsoft in 2022, noted that World’s Edge is being folded into Activision as part of Xbox’s continued restructuring, affecting staff. Rare, the Sea of Thieves developer, is also being transferred to Activision, while Forza’s Turn 10 Studios and Playground Games have been merged into a single studio a year after Microsoft significantly downsized Turn 10.
Obsidian Entertainment has been moved out of Xbox Game Studios and placed under Bethesda Game Studios to develop a new Fallout title.
In addition to studio reorganizations, Xbox is trimming its core business planning and management teams. Analyst Mat Piscatella remarked, “These aren’t cuts a serious business makes, in my opinion.” Loftis was more blunt, describing Xbox as “squandered” and accusing the division of squandering talent, IP, time, money, gamers, community, goodwill, brand equity, stable services, profitability, and knowledge.
Asha Sharma framed the overhaul as “the most significant restructure in Xbox history,” pledging deep cuts to reset the Xbox content portfolio, platform, and operations. The moves may signal a broader effort to spin Xbox off or make it a standalone subsidiary akin to Activision and LinkedIn. The restructuring includes flattening management, shedding smaller studios, and concentrating on major franchises with an ambitious target of surpassing “more than a billion people each day.”
Under the corporate rhetoric, the goal is to accelerate development and cut costs by consolidating studios and franchises. Microsoft’s decade‑long push to build a first‑party portfolio once comprised 15 studios, but today the Xbox Game Studios roster is slim: a rump Halo Studios, a small team for Microsoft Flight Simulator, and the publishing arm. The core remaining first‑party developers are Playground Games (Forza Horizon), The Coalition (Gears of War), and inXile (Clockwork Revolution). Mojang, the Minecraft developer, reports directly to Sharma, while the other studios have been moved under Activision to focus on multi‑platform releases.
Insiders anticipate further cuts at The Coalition and inXile once their current flagship titles—Gears of War: E‑Day and Clockwork Revolution—are delivered. Microsoft has already begun layoff rounds at The Coalition this week, both of which are dedicated to Xbox‑exclusive games.
Continued reduction of Xbox Game Studios would call into question the platform’s strategic direction, as many first‑party studios were originally built to showcase Xbox hardware. The Coalition, for instance, has long been a technical leader on Xbox consoles, leveraging Unreal Engine expertise that has benefitted other internal projects.
The studios have also been integral to Xbox Game Pass, a service Microsoft has repeatedly re‑engineered. Over the past few years, the company has added and removed Call of Duty, shifted pricing, and reversed cloud‑access decisions, indicating that Game Pass has not yet met profitability expectations.
There has long been friction between Xbox leadership and development studios over Game Pass placements, as licensing a game to the service can erode retail sales without delivering a clear subscriber boost. Microsoft’s experiment with Call of Duty on Game Pass reportedly cost the franchise $300 million in lost sales, leading the company to reverse its decision on adding new Call of Duty titles to the service.
With a reduced pipeline of first‑party titles for day‑one Game Pass access, Microsoft is likely to revisit the service’s model. Rumors point to a tiered structure—potentially including ad‑supported options akin to Netflix—debuting without day‑one game availability, alongside add‑on bundles for cloud gaming and a new family plan. Microsoft has already removed day‑one games from its Game Pass Premium tier, suggesting further adjustments are on the horizon.
Game Pass’s evolution may also mirror the struggles of Xbox hardware. GTA VI preorders are heavily favoring PS5, heightening concerns about the platform’s waning appeal. Xbox hardware revenue has fallen for three consecutive years, and supply constraints (RAMageddon) are driving up console prices, casting uncertainty over Project Helix, Microsoft’s next‑gen console.
Microsoft’s Xbox strategy remains difficult to decipher, but one certainty stands out: the restructuring is far from complete. The company reports it has finished roughly three‑quarters of its Xbox overhaul, leaving staff to brace for additional changes in the coming months.
