Despite promises of a reset, the unveiling of a fancy new logo, and a charm offensive for its new leadership, the news at Xbox has been getting increasingly worse throughout 2026. Between massive price increases for Xbox hardware–and possibly another one soon–the fluctuating price of Xbox Game Pass, and the cancellation of funding on several collaborative projects, it has been a tough time to be a fan of Xbox. Can the news get any worse? Yes, if you’re an employee of the company–or a fan of its studios, really.
In recent weeks, Microsoft has been talking about how the Xbox division needs to start pulling its financial weight, and it has long been rumored that Xbox layoffs will start on July 6. Following a buying spree in the late 2010s and early 2020s, Xbox amassed a sizable portfolio of studios and employees, but it looks like many of them will be in the crosshairs as the gaming division aims to slim down. Several studios are reportedly up for sale, but if a buyer isn’t found, it could be the end of the road for them.
On what could be the bleakest Monday in Xbox history, we’ll be keeping an eye on all changes hitting the various studios today.
Xbox is losing 20% of its employees
Microsoft has officially announced that 3,200 people at Xbox will be let go throughout the current financial year. Of that number, 1,600 layoffs will start today and the rest of the affected staff will be phased out during a “restructuring” process at Xbox.
“Our business today is not healthy. We are operating at margins that are 3-10x lower than comparable platform and publishing businesses,” Xbox boss Asha Sharma wrote. “We entered Gen 9 with a smaller install base and a higher cost structure. To grow, we bet on Game Pass, multi-platform, and a broader portfolio of content. While those businesses have created meaningful value, they did not grow at the pace we expected. As that happened, our core business weakened, and we added more teams, more investment, and more time, hoping for a better outcome. And now the industry is facing the most severe hardware crisis in its history. We must reset Xbox.”
Compulsion Games
South of Midnight developer Compulsion Games will be leaving Xbox Game Studios and will once again become an independent studio. Compulsion Games will keep its IP and catalog of games when it exits.
“Today, we’re sharing that Compulsion Games will return to independent management following our time as part of Xbox,” the studio wrote in an update.
“As part of this transition, we will retain the rights to Contrast, We Happy Few, and our award-winning South of Midnight. We’re grateful for the years we spent with Xbox, for the support they provided our team, and for the opportunity to bring these games to players around the world. As an independent studio, we’re excited to continue building the distinctive games that define Compulsion while taking the next steps in our journey.”
Double Fine Productions
Double Fine Productions is also exiting Xbox and will transition back into an independent game studio. The studio will retain its IP, catalog, and runway for its next game.
“Once again, Double Fine Productions will be an independent studio,” studio head Tim Schafer wrote. “We’re thankful to everyone at Xbox for seven great years together, and for working with us to reach an outcome which preserves our history and culture, and returns ownership of our games to us. To everyone who has reached out to us these past few weeks: Thank you so much for all your kind words, we’ve been deeply touched by all your messages. We will share more news soon on what comes next.”
Ninja Theory
Discussions for a new owner of Ninja Theory are underway, and the studio will continue to work on the Senua franchise.
Undead Labs
State of Decay 3 developer Undead Labs is also in talks to find a new owner and continue working on its open-world zombie apocalypse series.
Arkane
Microsoft says that Arkane’s management has started consultation with its Works Council in France to review potential strategic options. Labor laws could see this potential sale of the studio delayed for some time. The future of the studio’s next game, Marvel’s Blade, remains unclear.
Bethesda/ZeniMax
Bethesda and Zenimax will face layoffs across the companies, and investment will shift to higher-priority games. According to Bloomberg, Bethesda will be overhauled and will focus on its biggest IP–Doom, Fallout, Quake, Wolfenstein, and The Elder Scrolls.
Blizzard
Blizzard will also be hit with layoffs, and like Bethesda, Microsoft is tasking the veteran developer to shift toward producing higher-priority games.
King
King will report directly to Asha Sharma, and it will also be hit with layoffs.
Mojang
Like King, Minecraft studio Mojang will also have to deal with layoffs and will report directly to Sharma.
“These two studios have increasingly become platforms and are our largest by monthly active players,” Sharma said. “They bring critical geographic, demographic, and differentiation to Xbox.”
