Microsoft eliminated 268 positions across its gaming division this week while reorganizing major studios and franchises in what Xbox chief Asha Sharma has called the "most significant restructure in Xbox history," according to a report published this week by The Verge. The cuts represent the latest wave in a two-year period of sustained job losses and organizational upheaval that began when the company started slashing thousands of positions in early 2024. The restructuring signals Microsoft's ongoing struggle to define Xbox's future amid declining hardware sales, shifting Game Pass strategy, and mounting questions about the brand's direction.
The layoffs hit Halo Studios hardest, with Microsoft cutting most of the team after years of leadership turnover and technical changes. Only a skeleton crew remains to maintain existing titles like Halo Infinite and the recently released Halo: Campaign Evolved, while the next planned Halo game—which was years from completion—has been canceled entirely. Other studios are being consolidated under Activision's control, including World's Edge (Age of Empires developers), Rare (Sea of Thieves creators), and even Obsidian, which is moving from Xbox Game Studios to Bethesda Game Studios to work on a new Fallout entry. Turn 10 Studios and Playground Games, both Forza developers, are merging into one studio a year after Microsoft gutted Turn 10's staff. The restructuring also includes cuts to Xbox's core business planning and management divisions.
The reorganization leaves Xbox Game Studios dramatically reduced from its peak of 15 dedicated first-party studios. What's left now consists of a reduced Halo Studios, the Microsoft Flight Simulator team, the Xbox publishing division, Playground Games (Forza Horizon), The Coalition (Gears of War), and inXile (currently developing Clockwork Revolution). Former Microsoft executive Shannon Loftis, who worked nearly 30 years at the company on franchises including Fable and Project Gotham Racing, wrote that "Xbox has become a business best described as 'squandered,'" saying the company has "squandered everything: talent, IP, time, money, gamers, community, goodwill, brand equity, stable services, profitable, knowledge." Video game industry analyst Mat Piscatella told The Verge that "these aren't cuts a serious business makes." Some affected employees waited hours to learn their fate this week, with the first communication coming through a public Xbox blog post before individual notifications went out throughout the morning.
The report explains that Sharma's strategy aims to ship bigger games faster and at lower cost by centralizing development under Activision, with many studios now focused on multi-platform releases rather than Xbox exclusives. This shift reflects deeper problems with both Game Pass and Xbox hardware, according to sources cited in the report. Xbox lost $300 million in Call of Duty sales after adding the game to Game Pass, forcing a quick reversal on including new franchise entries in the subscription service. The report notes persistent tension between Xbox leadership and studios over Game Pass inclusion, since putting titles on the service cannibalizes traditional sales without always boosting subscriber counts enough to compensate. Meanwhile, Xbox hardware revenue has declined for three consecutive years, and preorders for Grand Theft Auto VI are heavily skewed toward PlayStation 5, raising fresh concerns about the platform's viability. Microsoft has already removed day-one game access from its Game Pass Premium tier, and rumors suggest an upcoming Game Pass overhaul will introduce tiers with or without ads, similar to Netflix, with new options debuting without day-one game access plus add-on bundles for cloud gaming and a family plan.
Microsoft says it's roughly three-quarters through the Xbox restructuring, meaning more cuts are coming for employees already struggling with low morale after years of layoffs and studio closures. Some Xbox staff believe layoffs at The Coalition and inXile are inevitable once Gears of War: E-Day and Clockwork Revolution ship, with Coalition cuts already starting this week. The pattern of management layer reductions and studio consolidation has led some observers to speculate the changes could position Xbox for a potential spin-off or operation as a wholly owned subsidiary similar to how Microsoft already runs Activision and LinkedIn. The company's stated goal of reaching "more than a billion people each day" appears increasingly at odds with shrinking first-party studio capacity and weakening exclusive game pipelines. The remaining question isn't whether Xbox will continue changing, but whether anything recognizable as the original platform will survive the transformation. For an organization built on showcasing proprietary hardware through exclusive franchises, the dismantling of those very studios suggests Microsoft may be abandoning the console war it can no longer justify fighting.