Microsoft eliminated 268 positions across its gaming division in September 2026, a restructuring that Xbox chief Asha Sharma described as the most significant in the brand’s history. The cuts reached deep into Halo Studios, reshuffled several long-standing teams and left employees learning the scale of the changes from a public Xbox blog post before many had received individual notifications.
Halo Studios Reduced to a Skeleton Crew
Halo Studios absorbed the heaviest damage. Most of its staff were laid off, and only a small team remains. According to sources, the studio’s next game was still years away from release. Workers waited hours for layoff notices to arrive after the first communication came through the public blog, a sequence that left some feeling relief, others anger and many confused about what came next.
The symbolism was hard to miss. Phil Spencer, the former Xbox chief, had once said that losing the way with Halo meant losing the way with Xbox. Now the franchise that defined the platform for two decades sits with a fraction of its former development capacity.
Studios Moved, Merged or Pushed Under Activision
The restructuring redrew the map of Xbox Game Studios, which once operated 15 dedicated first-party teams. World’s Edge, the studio behind the Age of Empires franchise, moved into Activision with some layoffs. Rare, the British developer behind Sea of Thieves, also shifted under Activision’s control. Turn 10 Studios and Playground Games are merging, combining the Forza Motorsport and Forza Horizon teams under one roof.
Obsidian, the studio behind Fallout: New Vegas and Avowed, moved under Bethesda Game Studios and will work on a new Fallout entry. Mojang, the Minecraft developer, now reports directly to Sharma. Most other studios were shifted to Activision to focus on multi-platform games.
That leaves a smaller set of Xbox-exclusive first-party operations, including Playground Games, The Coalition and inXile. The Coalition, which makes the Gears of War series, already began laying off some staff this week. Employees at both The Coalition and inXile believe further cuts may follow once their current projects, Gears of War: E-Day and Clockwork Revolution, ship.
Sharma's Reset: Fewer Layers, Bigger Franchises
Sharma framed the changes as a necessary reset of Xbox’s content portfolio, platform and operations. Management layers are being reduced, and smaller studios are being offloaded. The goal, according to the company, is to concentrate resources on larger franchises and reach more than a billion people daily.
The cuts also hit core business planning and management areas, not just development teams. Microsoft is about three-quarters of the way through the restructuring, and layoffs are expected to continue.
Shannon Loftis, a former Microsoft executive, criticized Sharma’s public comments about clarity. Loftis said Xbox had squandered talent, intellectual property, time, money, gamers, community, goodwill, brand equity, stable services, profitability and institutional knowledge.
Game Pass Under Pressure
Game Pass has been repeatedly adjusted over the past two years, and the subscription service remains a central question in the restructuring. Call of Duty was added to Game Pass, then removed. Microsoft reversed course on putting new Call of Duty entries into the service, a decision that followed $300 million in lost Call of Duty sales attributed to Game Pass.
Rumors suggest a broader Game Pass overhaul is coming, potentially introducing advertising-supported and ad-free tiers. New tiers may lack day-one games, and Microsoft has already pulled day-one titles from Game Pass Premium. Possible add-on bundles for cloud gaming and a family plan are also under discussion.
Sources describe tension between Xbox leadership and its studios over Game Pass. The service’s return on investment is not always quantified in subscription boosts, and putting games on Game Pass cannibalizes traditional sales. With fewer first-party studios producing day-one Game Pass games, more changes are likely.
Hardware Decline and the Shadow of Project Helix
Xbox hardware revenue has declined for three straight years. RAMageddon, a memory pricing surge, is pushing Xbox Series X prices higher. GTA VI preorders are heavily skewed toward PS5, according to sources, a signal that the next major multiplatform release may not favor Microsoft’s console.
Project Helix, Microsoft’s next-generation Xbox console, remains in development, but its future is difficult to predict given the broader uncertainty. The hardware business is under pressure at the same time the company is trying to reset its software and subscription strategy.
Employee Fallout and Analyst Criticism
The human toll has been severe. Josh Daniels, a former cinematic director at Halo Studios, noted he received a promotion and a layoff in the same week. Ron B, a former Halo Studios employee, expressed relief at being laid off, a reaction that speaks to the anxiety that has gripped the division.
Mat Piscatella, a video game industry analyst, said these are not cuts a serious business makes. Current and former employees say morale has been damaged by two years of turmoil that began with Microsoft cutting thousands of jobs in early 2024.
Sharma previously told employees she would make significant cuts. Some observers believe the restructuring may be designed to make Xbox easier to spin off or operate as a subsidiary. Microsoft already runs Activision and LinkedIn as wholly owned subsidiaries, a structure that could be replicated for Xbox.
What Comes Next
Microsoft is still figuring out Xbox’s future. The brand has been in turmoil for at least two years, and the September 2026 layoffs represent the most aggressive attempt yet to stabilize it. With the restructuring roughly three-quarters complete, further cuts are expected.
The company is betting that a leaner Xbox focused on a handful of large franchises, a reshaped Game Pass and a next-generation console can reverse the decline. Whether that bet pays off will depend on how the remaining studios perform and whether players follow the company’s new direction.
