In early July, Microsoft announced a new wave of large-scale layoffs that directly affect its video game division. The company revealed that it will lay off around 9,000 workers , which represents approximately 4% of its workforce worldwide. This decision is part of a broader internal restructuring process, with the aim of optimizing resources and increasing investments in strategic areas, such as artificial intelligence . The most visible effects, however, are in Xbox Game Studios, where a significant portion of the 9,000 layoffs had an impact: studios were closed and game projects were abruptly canceled.
Closures and cancellations
Among the studios that have been shut down is The Initiative , which was created to lead the ambitious reboot of Perfect Dark in collaboration with Crystal Dynamics. The game was one of the most important projects in Xbox’s future portfolio, but its production was halted, putting an end to a multi-year effort. The closure of The Initiative not only represents the end of the project, but also highlights the division’s structural problems, especially when it comes to coordination between internal and external studios.
Rare also lost one of its most promising games : Everwild started out as an ambitious promise from Rare, but ended up being canceled after years of unstable development and difficulties in defining its concept.
Impact on studios and teams
In addition to these high-profile cases, several unannounced projects have also been canceled. One of them was an MMO in development at ZeniMax Online Studios, codenamed “Blackbird”. Insiders say that this title was in the early stages of development, but was abandoned due to budget cuts. Another major impact falls on Romero Games , the studio founded by John Romero, co-creator of DOOM, which has lost funding for its new first-person shooter. Consequently, the future of the studio is now in question and the game, which was backed by Xbox, has been suspended indefinitely.
Phil Spencer, CEO of Microsoft Gaming, has publicly justified the decisions , stating that these measures are necessary to harmonize the company’s structure with its strategic objectives. According to Spencer, the focus is on eliminating hierarchical layers that impede creative agility and strengthening teams with the greatest potential for innovation and delivery. Despite the magnitude of the cuts, the executive assured that Xbox remains committed to producing new titles and supporting its platform, including future hardware launches.
A worrying pattern
However, the reality on the ground reveals a division under enormous pressure. Since 2024, Microsoft has already carried out three previous waves of layoffs affecting the video game sector, totaling more than 2,800 jobs eliminated before this latest round. The accumulation of layoffs in less than two years raises serious questions about the sustainability of the model adopted by the company, especially after the acquisition of industry giants such as Activision Blizzard and Bethesda, which meant a substantial increase in the organizational size of the gaming division.
The Xbox crisis cannot be seen in isolation. Since 2022, it is estimated that more than 35,000 professionals have been laid off from the global video game industry, affecting both major publishers and independent studios. In the case of Microsoft, the fallout has provoked a strong negative reaction in the creative community. Testimonies from employees describe an environment of uncertainty, frustration and demotivation, worsened by lack of transparency internal communications and the perception that many projects were sacrificed without prior notice. One producer who requested anonymity even described the situation as “a black hole that sucks everything in and spits out the bones” , alluding to how the culture of large-scale acquisitions seems to be consuming the creative ecosystem itself.
The Future of Xbox
With these changes, Microsoft is trying to reposition its video game division into a simpler and more functional model. Still, the impacts of this restructuring raise doubts about Xbox’s ability to maintain a robust creative lineup, especially after the closure of teams and the collapse of several promising projects. The focus now is on keeping major releases on track and preparing for the next generation of hardware, including the already confirmed successor to the Xbox Series X/S.
As Microsoft attempts to reposition itself in the industry with a more streamlined strategy, it remains to be seen how the Xbox brand will be able to regain the trust of its developers, partner studios and the gaming community. The coming months will be key to seeing to what extent this internal overhaul will bear fruit, or whether it will mark the beginning of a more controlled and defensive phase for one of the most iconic brands in the video game industry.
