Xbox Shatters Its Own Structure: Second Round of Layoffs Cuts 268 Jobs and Redraws the First-Party Map

On September 22, Microsoft’s Xbox division delivered a second, even more decisive blow to its own workforce, cutting an additional 268 jobs as part of a restructuring plan that began on July 6 with the goal of trimming 20% of its organization over 12 months. In a message shared directly to Team Xbox employees, chief content officer Matt Booty outlined the latest phase of the overhaul, revealing that Ninja Theory faces closure after failing to find a buyer, while negotiations to offload Arkane remain ongoing. The shakeup comes as Xbox Game Studios shrinks toward the brink of non-existence, with Activision and Bethesda increasingly positioned to shoulder the weight of the company’s publishing ambitions. Booty noted that Xbox is only three-quarters of the way through its restructuring, signaling that the label will look like an entirely different entity by next year.

The cumulative effect of both rounds is a fundamental reorganization of Microsoft’s gaming portfolio. Where Xbox once operated as a sprawling house of dozens of first-party studios, the company is now consolidating its identity around a handful of flagship IPs and the publishers that own them. Halo Studios absorbed a large share of the 268 cuts, while Bethesda takes on Obsidian, and Activision inherits Rare and World’s Edge. The strategy is clear: focus on proven franchises, lean into mobile and live-service strengths, and let the remaining first-party teams concentrate on marquee titles.

Activision and Bethesda Take the Helm

One theme has been unmistakable throughout the restructuring: Activision is becoming ever more central to Xbox’s future. Avoiding layoffs for a second straight cycle, the publisher has now inherited World’s Edge and Rare under its banner, and it is set to become the new home for Halo. The studio is already working on the series’ next game, as Halo Studios has been reduced to a small support team, according to Game File.

Blizzard Entertainment is in similar shape, largely spared from the axe as Xbox appears more intent on trimming Xbox Game Studios than its other major publishers. The studio recently emerged from an announcement-filled Blizzcon, with new World of Warcraft, Diablo, and StarCraft games on the horizon alongside several multimedia IP deals. Blizzard is now positioned to become a workhorse for Xbox over the next four years, when StarCraft is currently scheduled to launch.

We’re continuing to restructure our publishing efforts and make hard decisions about where our resources should be concentrated. This is about focusing on the franchises and teams that will define Xbox’s future.

Image: 343 Industries/Xbox Game Studios

Matt Booty, Chief Content Officer, Xbox

King, Mojang, and the Casual Push

A quieter but significant shift emerged from the summer layoffs: Candy Crush developer King began reporting directly to newly installed Xbox CEO Asha Sharma. That change is now paying dividends, as Microsoft Casual Games — the label that manages titles like Solitaire and Mahjong — will fall under King’s remit. With King leading the charge, Microsoft is expected to double down on its casual mobile offerings.

Minecraft developer Mojang Studios followed a similar path this summer, also reporting directly to Sharma. The studio appears to be in a relatively safe position among the few remaining developers under Xbox’s banner, though it is unclear whether it was subject to any cuts. Mojang’s next title, Minecraft Dungeons 2, is set to launch on September 29.

Halo Studios: The Biggest Story of the Round

Perhaps the most consequential news from September’s layoffs came from Halo Studios. A good portion of the 268 cuts came from this team, with the remainder affecting other first-party studios and Xbox Game Studios management. This arrives just months after the launch of Halo: Campaign Evolved, which included a tease of a Halo 2 remake. While the studio still exists, it appears to function as a support studio for Activision as it develops its own Halo game. It remains unclear how many people remain and what the surviving team will focus on.

Consolidation at the Forge: The Coalition, Playground, and Turn 10

The Coalition is one of the few studios remaining under the Xbox Game Studios banner, at least for now. With Gears of War: E-Day weeks away from shipping, Xbox has avoided drastic changes at the studio right at the finish line. But with more cuts looming, The Coalition’s future may rest on E-Day’s success — and the shooter series could eventually move to Activision’s control. For now, the studio continues as normal.

In another consolidation, Xbox is bringing Playground Games and Turn 10 Studios together. The move feels overdue given that both work on separate Forza franchises, and Turn 10 was significantly impacted by layoffs in 2025. It signals that Forza remains a major priority for Microsoft, which is not surprising given that Forza Horizon 6 has been one of Xbox’s few true success stories in recent years.

Looking Ahead

As the dust settles, the remaining studios face an uncertain horizon. Rare’s future remains a mystery as it moves under Activision, with speculation swirling around dormant IPs like Banjo-Kazooie — though all of that is conjecture at this stage. inXile Entertainment occupies a precarious position similar to The Coalition’s, working on Clockwork Revolution, which is being positioned as one of Xbox’s major 2027 games alongside Fable. As a new IP, it is a risky bet for an Xbox that is actively trimming away risk.

With Booty confirming that the restructuring is only three-quarters complete, the changes are far from over. When StarCraft launches, when Minecraft Dungeons 2 hits shelves, and when Halo’s next chapter begins, the shape of Xbox’s future will become clearer. But one thing is certain: the company that entered 2026 is being replaced, studio by studio, by the leaner, more focused organization that is emerging from this restructuring.