In a stunning development that’s sent shockwaves across the gaming industry, Microsoft has laid off nearly 9,000 employees—many of them from its Xbox division—as part of a sweeping corporate overhaul.
The company has also confirmed the cancellation of several key video game projects, including high-profile titles that were central to Xbox’s future lineup.
The restructuring affects teams across Xbox Game Studios, Activision Blizzard, King, and ZeniMax, raising questions about the direction Microsoft is taking after years of aggressive expansion in gaming.
Xbox Hit by Major Layoffs
The layoffs, which represent roughly 4% of Microsoft’s total workforce, have disproportionately impacted game development studios.
Teams responsible for fan-favorite franchises and anticipated new titles have been downsized or disbanded altogether.
Sources indicate that:
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The Initiative, an Xbox-owned studio working on the Perfect Dark reboot, is being shut down.
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Rare’s fantasy adventure game Everwild has been terminated after a prolonged development phase.
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ZeniMax Online Studios has lost funding for its secret MMO project, codenamed Blackbird.
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King, the mobile powerhouse behind Candy Crush, has lost around 200 employees.
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Turn 10 Studios, known for Forza Motorsport, has reportedly seen half of its team laid off.
These changes are part of a broader effort to “realign priorities” within Microsoft’s gaming business, according to an internal memo circulated to staff earlier this week.
Games Axed as Strategy Shifts
Among the most surprising moves is the cancellation of the Perfect Dark reboot—a title that was meant to help redefine Xbox’s first-party portfolio.
The closure of The Initiative signals a retreat from some of the experimental investments Microsoft made in recent years.
Rare’s Everwild, long teased but never clearly defined, is another casualty of the shake-up. In addition, ZeniMax’s ambitious online game, which had been quietly in development since 2018, has been canceled despite positive internal feedback, according to developers.
AI, Cloud Take Center Stage
Microsoft executives say the cuts are part of a strategy to invest more heavily in artificial intelligence, cloud gaming, and scalable platforms. Gaming CEO Phil Spencer emphasized the company’s need to “focus on core growth areas and proven successes.”
Internally, Microsoft plans to redirect resources toward major franchises like Halo, Call of Duty, and Elder Scrolls, as well as strengthen its Game Pass subscription model.
Industry Reaction: “Deeply Disappointing”
The news has triggered a wave of criticism from developers, fans, and industry analysts. Critics argue that Microsoft’s mass hiring spree during its acquisition phase—particularly the $68.7 billion buyout of Activision Blizzard—was unsustainable and led to overreach.
“This isn’t just numbers on a spreadsheet—this is years of creativity wiped away,” one senior developer said anonymously.
Fueling the backlash was a now-deleted internal suggestion from an Xbox executive urging affected employees to turn to AI-driven tools for job-seeking support and emotional resilience—an idea widely condemned as cold and inappropriate.
What Lies Ahead for Xbox?
While Microsoft says the cuts will ultimately make the gaming division leaner and more focused, the short-term impact is significant. Entire studios are being shuttered, development pipelines are disrupted, and morale within Xbox is reportedly low.
Still, the company is doubling down on select high-investment titles such as Avowed, Fable, and The Elder Scrolls VI.
Its long-term bet is that fewer, better-executed games—alongside AI-powered development and cross-platform services—will keep Xbox competitive in a fast-changing market.
As the dust settles, the industry is left grappling with what this reset means—not just for Microsoft, but for the future of AAA game development as a whole.
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