Job cuts across first-party studios

Microsoft confirmed on Tuesday that its Xbox gaming division is eliminating 268 positions across Halo Studios, first-party development teams, and central management functions. The layoffs form part of a multi-stage restructuring initiated in July, when the company cut 1,600 employees from an anticipated total of 3,200 reductions planned across the fiscal year (with BBC reporting 3,600 total planned losses). Xbox chief content officer Matt Booty sent a staff memo indicating that recent divestitures and job eliminations bring the division roughly three-quarters of the way through its scheduled restructuring program.

“The actions completed since July, inclusive of the studio divestitures, bring us roughly three-quarters of the way through previously announced restructuring.”

Halo franchise shifted to Activision

As part of the reorganization, Microsoft is transferring development of future entries in the Halo series to Activision, which the company acquired in 2023 for $69 billion. Activision President Rob Kostich announced that a dedicated team separate from the Call of Duty groups will lead future development. Halo Studios, formerly known as 343 Industries and developer of the recent Halo: Campaign Evolved, will retain a small team focused on supporting live games and the player community. Activision will also assume oversight of Rare, creator of Sea of Thieves, and World's Edge, which oversees Age of Empires.

“For Halo, our goal is clear: make the greatest Halo game ever, worthy of its universe and legacy, while staying true to what made players love it in the first place.”

Studio consolidations and internal mergers

Xbox is consolidating several other internal studios into larger business units to decrease operational independence across teams. Obsidian Entertainment, developer of Fallout: New Vegas and The Outer Worlds, will now report to Bethesda Game Studios while collaborating on a new Fallout project and continuing work on Grounded. Racing and adventure developers Playground Games (Fable, Forza Horizon) and Turn 10 Studios (Forza Motorsport) are merging into a single combined studio. Meanwhile, Candy Crush developer King will take control of Microsoft Casual Games, which manages legacy titles including Solitaire and Minesweeper.

Divestitures, closures, and strategic pressures

Xbox has divested multiple development teams while facing potential closures elsewhere. Double Fine Productions and Compulsion Games were spun out as independent studios with funding and IP rights, while Undead Labs was returned to management with State of Decay 3 set for Game Pass under a new publisher. However, two buyout agreements for Cambridge-based Ninja Theory collapsed, leading Xbox to open employee consultations regarding a proposed closure. In France, consultation processes for Lyon-based Arkane Studios will run through the end of 2026. Xbox CEO Asha Sharma previously identified rising hardware and computing costs, along with slower subscriber growth on Game Pass, as central factors behind the reset. A staff town hall is scheduled for October 6 to review the restructuring and preview upcoming releases.