Microsoft’s Xbox Reset Deepens: More Layoffs, Halo Reborn Under Activision, And Studio Mergers Announced

Microsoft has once again reshaped its Xbox business, announcing a fresh wave of layoffs, the transfer of the Halo franchise to Activision, and a series of studio mergers and closures just days before its fiscal first quarter closes on September 30. Xbox Game Studios boss Matt Booty led the announcements, framing the moves as part of a broader “reset” designed to make the platform business more successful going forward. The changes span developer consolidations across the UK, France, and the US, and signal that the company is roughly three-quarters of the way through its planned restructuring.

The scale of the shakeup reflects a strategy of consolidation rather than expansion. Where Microsoft once fielded a sprawling roster of first-party studios, today’s lineup is being deliberately trimmed and merged into fewer, larger teams. Booty acknowledged the human cost of the process, noting that the restructuring would be difficult for departing employees and the colleagues left behind. The company has now cut roughly 1,900 Xbox developers since July, and Booty indicated that additional changes remain on the horizon.

Halo Reborn Under Activision

The most consequential shift concerns one of gaming’s most iconic franchises. Activision is expanding its remit to now cover Rare and World’s Edge, and it will take over development of the next Halo game. Crucially, that sequel will be built by a “new, purpose-built team,” deliberately separate from Activision’s ongoing plans for its annual Call of Duty titles.

Meanwhile, only a “small team” at Halo Studios will remain, with its role narrowed to “supporting the Halo community and games in-market,” Booty explained. The decision marks a significant departure from the era when Halo was developed in-house by 343 Industries, and it underscores Microsoft’s willingness to restructure even its most beloved brands in service of its wider gaming ambitions.

I am deeply grateful for what our colleagues have built, and I know how difficult today will be for those leaving and the teams around them.

Matt Booty, Xbox Game Studios

The reaction from the community is expected to be mixed. Fans of Halo have long debated the future of 343 Industries, and the announcement of a fresh internal team could be seen as a positive signal for the franchise’s creative direction. However, the broader message of consolidation may raise concerns about the loss of specialized expertise across the studio ecosystem.

Studios Merge, Expand, And Face Closure

Beyond Halo, Microsoft announced several structural changes to its developer portfolio. Bethesda is expanding its footprint to now cover Obsidian, whose in-development projects—including Grounded and a new Fallout game in production alongside Bethesda Game Studios—will continue. King, the studio behind the Candy Crush juggernaut, will now cover Microsoft Casual Games, uniting two of the company’s “global leaders in casual game design and live operations.”

Perhaps the most notable merger involves Microsoft’s racing developers. Playground and Turn 10, the creators of the Forza series, are combining into a single studio focused on the Forza and Fable franchises. “These two studios have been creative and franchise partners for over a decade, and today’s changes will formally move their work into one team,” Booty said.

Undead Labs, the developer of State of Decay 3, also received news: the studio has found a “new publisher,” and the game will launch into Xbox Game Pass on day one whenever it is released. The identity of the publisher remains undisclosed.

Uncertainty Lingers For UK And French Teams

Not every announcement was a merger. Booty confirmed that “two separate agreements” to sell UK-based developer Ninja Theory had “fallen through,” prompting Microsoft to enter the UK-specific consultation period regarding the studio’s proposed closure. He added that the company has not given up on keeping Ninja Theory alive, continuing to “explore other paths forward.”

Similarly, Arkane Lyon, the French developer behind the Dishonored series, remains under consultation pursuant to French labor laws. This process is expected to “continue through the end of the year,” with no clarity on its ultimate outcome.

Looking Ahead

Microsoft has scheduled an internal town hall event at Xbox for October 6, during which the company will “reflect on our progress.” Booty emphasized that the company possesses one of the “strongest game lineups” in Xbox history, though he declined to divulge any specifics ahead of the meeting.

As the restructuring continues, the industry will be watching closely to see which studios survive, which franchises find new homes, and whether Microsoft’s consolidation strategy ultimately strengthens its competitive position in an increasingly crowded gaming landscape.