The closer we get to mass layoffs at Xbox, which could reportedly be part of up to 5,500 layoffs across Microsoft more broadly, the more it sounds like everything is on the table when it comes to cuts. Studios that some fans might have believed couldn’t possibly be closed, or spun off, are now reportedly in active negotiations to fight for their future.
So far, that growing list has included Compulsion Games, Ninja Theory, and Double Fine, with the futures of Undead Labs and even Arkane Studios possibly being up in the air as well. Microsoft reportedly wants to accelerate the release of new blockbusters like Fallout, while leaving behind the experimentation with other genres and new IPs that flourished during the earlier years of Game Pass. The pivot is intuitive on paper, but doesn’t, by itself, solve Xbox’s larger problem of struggling to ship new hit games.
Even Obsidian’s recent games, despite being excellent, have struggled to meet internal sales goals. “They’re not disasters,” studio boss Feargus Urquhart told Bloomberg earlier this year. “I’m not going to say this was a kick in the teeth. It was more like: ‘That sucks. What are we learning?’” Both Avowed and The Outer Worlds 2 took six years to make, and Feargus said one of the lessons coming out of their development was how Obsidian can find ways to make games more quickly and cheaply. But the TL;DR was essentially: don’t expect The Outer Worlds 3.
This is a conundrum for Xbox more broadly. Even its homegrown teams like Halo Studios and Playground Games have struggled to ship new games in reasonable time frames. Once a game does arrive, unless it’s got “Forza Horizon” in the title, the Metacritic scores don’t break into GOTY territory and the sales never quite materialize. So one obvious thing to do is to cut the projects that aren’t making money and invest more in the ones that do.
This is how Xbox has been messaging the upcoming mass layoffs, not as a retreat from making games, but a doubling-down on making the ones its fans appear to want. “We’re not reducing our overall investment in games,” a Microsoft spokesperson told Bloomberg this week. “We expect to invest about the same in content as we did last year. What’s changing is where we’re investing and the kinds of projects we’re backing.”
And this is the part I’m having a hard time squaring with the rest of Xbox’s stated goals and challenges. CEO Asha Sharma wrote in her “Xbox reset” earlier this month that investing $20 billion over five years only to net declining revenues “”cannot continue.” But at the same time she wrote that the company needs to invest more in better games. “A reliable pipeline of first- and third-party exclusives and new IP are critical to our success,” she continued. “We need to reassess the balance between these and our investment priorities for the next 5 years.”
Is Xbox resetting the clock and taking another expensive shot at creating a portfolio of games so stellar it forces players to show up? Or is it trying to increase profit margins by cutting loose the negative columns on the balance sheet? One of those things will require another round of investment that won’t pay off for years. The other is a tactical shift with no clear endgame. I’m apparently not completely alone in my skepticism and confusion.
“If they think they can take that budget, stick it on Halo, and suddenly turn it into a 95 Metacritic smash hit, they’re delusional,” one “development expert” who was reportedly asked to advise Xbox told The Game Business. The site’s author, Christopher Dring, reports unease following Sharma’s first 100 days, with some inside Xbox reportedly wondering how much of Xbox Game Studios is essentially just paying for an unusually down year in Call of Duty following the poor reception of Black Ops 7. He notes that, in the context of its recently acquired Activision juggernaut, the costs or contributions of a studio like Obsidian are almost marginal.
It’s still far from clear to what degree these layoffs will be just another short-term tactical shift to improve quarterly numbers, or whether there’s a more strategic vision driving the carnage we’re about to witness. After years of mass layoffs with no evident change in the platform’s declining fortunes, it’s hard to bet on the latter. Throwing another 1,000 bodies at Halo, Fallout, and The Elder Scrolls will not magically fix Xbox’s problems, but it will upend a ton of people’s lives and families in the process.
Correction 7/2/2026, 12:38 p.m. ET: Last year’s Call of Duty was Black Ops 7, not Black Ops 6.
