Xbox’s ‘reset’: all the news about Microsoft’s layoffs and studio changes

Xbox has become a shell of its former self — and things are only getting worse. As part of its planned cuts impacting around 3,200 workers, the company announced today more changes that will further dilute the brand. Studios are being consolidated, others are on the brink of being closed altogether, and Xbox’s most iconic franchise, Halo, is being moved to a new developer. The future of Xbox looks more uncertain than ever.

Today’s news includes “eliminating 268 roles across Halo Studios, other first-party studios, and the [Xbox Game Studios] management and central functions layer.” But there is also plenty of reorganization happening, particularly when it comes to Xbox subsidiary Activision Blizzard. Development of Halo is moving over to Activision, helmed by “a new, purpose-built team” that is separate from the Call of Duty teams. Halo Studios will continue to exist, for now, primarily as a support studio. Meanwhile, Sea of Thieves developer Rare and Age of Empires studio World’s Edge are both moving under the Activision umbrella.

Microsoft is uniting its two Forza developers into a single studio today, as part of a massive restructuring of Xbox. Playground Games, which develops Forza Horizon, and Turn 10 Studios, creators of Forza Motorsport, are merging together to focus on Forza Horizon and Fable.

“Playground and Turn 10 will come together as one studio focused on the Forza and Fable franchises,” explains Xbox chief content officer Matt Booty in a memo. “These two studios have been technological, creative, and franchise partners for over a decade, and today’s changes will formally move their work into one team.”

Microsoft is laying off around 260 Xbox employees today, as part of an ongoing “reset” of its gaming business. 1,600 Xbox employees were impacted by layoffs in July, with Xbox CEO Asha Sharma describing the cuts as “the most significant restructure in Xbox history.” Today’s layoffs are part of the 3,200 roles that were previously confirmed to be impacted over the course of Microsoft’s 2027 financial year (which ends in June 2027).

“We are eliminating 268 roles across Halo Studios, other first-party studios, and the XGS management and central functions layer,” says Xbox chief content officer Matt Booty in a memo. “The actions completed since July, inclusive of the studio divestitures, bring us roughly three-quarters of the way through previously announced restructuring. I am deeply grateful for what our colleagues have built, and I know how difficult today will be for those leaving and the teams around them.”

Microsoft is announcing a massive restructuring of its Xbox studios today, months after laying off 1,600 Xbox employees and selling off studios. The latest changes will see Activision take on the Halo and Sea of Thieves franchises, as well as Age of Empires. Microsoft is also laying off around 268 Xbox employees as part of this restructuring, and likely closing Ninja Theory.

Halo Studios will be significantly impacted by today’s changes and layoffs. The studio will continue to support existing titles like Halo Infinite and Halo: Campaign Evolved, but the next flagship installment in the Halo franchise will come from Activision instead.

According to Xbox CEO Asha Sharma, Project Helix, which she announced in March as a codename for Microsoft’s “next generation console” — phrasing that seemingly implied a singular device — will actually be a “family” of devices.”

“We’ve been hard at work on a great next generation and a great family of devices for Helix, and we’ll share more soon,” Sharma told BBC News. She shared the answer after being asked if Helix will be a discless console. She didn’t answer that, but this week Microsoft announced a program for digitizing your physical games.

The next Xbox, Project Helix, could theoretically have the largest library of any home console. Not only will it play PC games, but we now know, courtesy of a leaked memo obtained by The Verge’s Tom Warren, that it will run games from every generation of Xbox: the original 2001 Xbox, the 2005 Xbox 360, the 2013 Xbox One, and the 2020 Xbox Series, as well as any new Helix titles.

We already knew that Microsoft was bringing a limited sample of original Xbox games to PC, and we already knew it was prepping a way to digitize your Xbox One and Xbox Series discs. The leak fills in the missing puzzle pieces.

After a massive Xbox “reset” that laid off thousands of employees and spun off four studios, Xbox CEO Asha Sharma wants to get Xbox back to growth. In a memo obtained by The Verge, Sharma told staff by the end of fiscal year 2027 (which runs through next June), “we will return XBOX to player and revenue growth.” Xbox will also “improve profits back in line with industry averages,” Sharma said. “Every function and studio will own part of that outcome.”

Since taking over Xbox in February, Sharma has made sweeping changes to attempt to turn things around. Previously, she has cited challenges like a low accountability margin, increasing component costs for hardware, an “over extended” slate of studios, and platform infrastructure that’s “not built for the battle ahead.” In addition to the major structural changes, Xbox made Gears of War: E-Day and Clockwork Revolution Xbox console exclusives and is planning to do more. Sharma has also set an ambitious and nearly impossible goal to make Xbox “one of the few companies that entertains more than a billion people each day.”

Xbox is having yet another tough quarter, as revenue from content and services like its Game Pass subscription dipped 10 percent over the past few months. At the same time, Xbox hardware sales declined 13 percent, according to Microsoft’s fourth-quarter earnings report released on Wednesday.

The news comes just weeks after Xbox head Asha Sharma announced a “reset” plan for Xbox that included sweeping layoffs and the spinoff of four games studios, including South of Midnight developer Compulsion Games and Psychonauts creator Double Fine Productions.

Xbox is currently in a “reset” period that includes laying off around 3,200 employees over the next year, involving deep cuts at beloved studios like id Software and Obsidian Entertainment. Now, in an attempt to show that things are still running fine, the company has announced a slate of upcoming projects at Bethesda Game Studios — which itself was hit with layoffs — including official confirmation that Fallout 5 is in the works.

“We’re investing more deeply in the worlds players love, giving creators a bigger role in shaping their experiences, and bringing our teams closer together so we can get our games into your hands sooner, support them longer, and continue building them alongside you for decades to come,” Bethesda director Todd Howard said in a statement.

This week should have been a celebration for Doom developer id Software. The studio just launched Revelations, a meaty expansion for Doom: The Dark Ages that adds a powerful new weapon and more demonic levels to blast through. Even though I hadn’t picked up The Dark Ages for more than a year, it only took moments before I fell right back into the familiar loop from id’s modern Doom games. Each plays differently, but they all have a similar foundation built around fast-paced shooter action that makes them feel iconically Doom — and unlike pretty much anything else.

But instead the launch has been overshadowed. As part of Xbox’s mass layoffs and strategy “reset,” id was gutted. The specific figures vary, but reports all paint a grim picture. GamesBeat reports that “at least” 92 of the 185 full-time id employees, or about 50 percent of the studio, were laid off. Game Developer obtained a Texas WARN notice saying that 96 employees were cut from id’s Richardson, Texas, office, and 40 remote workers reporting to that location were laid off, too. Kotaku had reported that its sources believed the team working on id’s proprietary id Tech game engine has just one employee left. But Microsoft, in a statement added to Kotaku’s piece in an update, said that “There are dozens of people working on id Tech across multiple locations” and that “Reports that there’s only one person left in Texas are inaccurate.”

As part of Microsoft’s big Xbox “reset,” which includes layoffs affecting 3,200 staffers, jettisoning studios, and shifting investments to focus on “higher priority projects,” Obsidian Entertainment is changing its plans. The studio, behind games like Grounded and The Outer Worlds, is starting work on a new Fallout title and has canceled “multiple projects,” including a sequel to last year’s Avowed, according to Bloomberg.

Despite the success of the Fallout TV show, which is getting a third season, Xbox hasn’t released a new game in the series since 2018’s Fallout 76. Josh Sawyer, Obsidian’s studio design director, will head up the new Fallout game. Sawyer, who has also served as director on 2022’s Pentiment and on Fallout: New Vegas, had apparently been directing an RPG that was “similar structurally and thematically to Fallout but was not part of the franchise,” Bloomberg says.

This week, Microsoft took a huge ax to its Xbox business. The company announced that it would be laying off 1,600 workers now, 1,600 more over the next fiscal year, and that it would be shedding four studios. Xbox CEO Asha Sharma hasn’t been shy about why she’s making such dramatic cuts, saying in a memo that the business is “not healthy.” Speaking to Fortune, she said that “we simply spread ourselves too thin.”

Given the scale of the changes and Xbox’s currently vague strategy of focusing only on big games, it’s unclear just what the future of the platform is. As Microsoft invests much of its resources into everything AI, a struggling consumer business with a difficult future doesn’t necessarily seem like a good fit for the company. Which opens up the possibility that Microsoft could be preparing to eventually exit the gaming business altogether by selling off Xbox. This, in turn, raises an even bigger question: Who could possibly buy Xbox?

As part of the mass layoffs hitting Xbox, Doom developer id Software has laid off around 50 percent of its staff, according to Game Developer. One source claimed to the publication that the cuts equate to more than 90 redundancies. Another source said that id’s QA department was significantly impacted. The report was published the same day that id is releasing a major expansion for its latest Doom game.

A former id employee affected by the cuts, Michael Maynard, corroborated the figure in a LinkedIn post, saying that the layoffs affected “roughly” 50 percent of the company. “We created arguably THE BEST first person engine technology in the industry,” he said. “Yet today, Microsoft/XBOX decided half the team was deemed USELESS and needed to be let go; despite all the amazing work and effort from every designer, programmer, artist, audio specialist, level designer, fx, tech design, and on and on and on.”