Xbox Game Studios Is Nearly Gone as Microsoft's Reset Reaches Three-Quarters Done

Microsoft announced 268 more layoffs this week as part of its ongoing Xbox "reset," with Xbox chief content officer Matt Booty confirming the company is now roughly three-quarters through its planned restructuring. That means more cuts are still coming before the process wraps up.

The math is stark: Microsoft announced 1,600 layoffs in July, with another 1,600 planned before the end of fiscal year 2027 (June 30, 2027). Add the 268 from this week and roughly 1,332 positions are still on the chopping block. This latest wave hit Halo Studios hard — Booty confirmed the next Halo game will be developed by Activision, not Halo Studios, which has been reduced to a support role. Rare and Age of Empires developer World's Edge have also been moved under Activision, Obsidian Entertainment is now under Bethesda, Turn 10 has been absorbed by Playground Games, and Undead Labs has been sold back to its own management — joining Double Fine and Compulsion Games, which were sold off earlier this year. Ninja Theory still has no buyer and faces closure. Microsoft Casual Games was handed to King, the Candy Crush studio. What remains of Xbox Game Studios as an independent first-party label is now just The Coalition, inXile Entertainment, Playground Games, and the publishing group.

Xbox CEO Asha Sharma, who replaced Phil Spencer earlier this year, has been blunt about why this is happening: Game Pass didn't deliver the growth Microsoft needed, the move away from exclusives eroded the core Xbox business, and the AI-driven component shortage hit the hardware side hard. The sprawling first-party empire Phil Spencer built — 14 studios under Xbox Game Studios alone, before Bethesda and Activision Blizzard were added — is now almost entirely broken up, absorbed into other divisions, or shut down. Microsoft, for context, posted $90 billion in revenue and nearly $36 billion in net profit in its latest quarter, making the scale of these cuts a particularly bitter pill for the industry.

Reporter Jason Schreier has indicated that Blizzard layoffs are also imminent, arriving shortly after BlizzCon. The restructuring isn't over, and with a quarter of the planned changes still to come, more studios and teams should expect disruption before fiscal year 2027 ends.