Microsoft lays off around 500 people in multiple divisions 

Microsoft’s Xbox reset is entering another significant phase, with the company cutting hundreds of jobs while redrawing the organisational map of its gaming business. 

Microsoft is eliminating 268 roles across Halo Studios, other first-party studios, and the Xbox Game Studios management and central functions layer, according to a memo from Xbox chief content officer Matt Booty. The broader round of cuts is expected to affect around 500 employees across Microsoft, with a smaller number of roles outside gaming, including areas such as cloud and AI. 

The latest reductions follow Microsoft’s July announcement that it would eliminate about 4,800 positions, equivalent to roughly 2.1% of its global workforce. About 3,200 of those positions were earmarked for Xbox, including 1,600 immediate cuts. Xbox said the wider restructuring would continue through fiscal 2027. 

Booty said the actions completed since July, including studio divestitures, have taken Xbox roughly three-quarters of the way through its previously announced restructuring. 

The changes go well beyond headcount. Microsoft is consolidating several studios in an effort to operate fewer business units and concentrate expertise around major franchises. Activision will expand its remit to include Rare and World’s Edge, while also taking responsibility for the next Halo title through a new team separate from its Call of Duty operation. A smaller team at Halo Studios will continue supporting existing games and the franchise community. 

The decision is particularly notable because Halo has historically been one of the defining franchises of Xbox. The series began with Bungie before Microsoft created 343 Industries to continue its development. The studio was later renamed Halo Studios. 

Other studios are also being reorganised. Bethesda will take responsibility for Obsidian, while King will absorb Microsoft’s casual gaming operation. Playground and Turn 10, meanwhile, will become a single studio focused on Forza and Fable. 

Microsoft is also continuing to unwind parts of the studio portfolio it accumulated during years of expansion. Compulsion Games and Double Fine have returned to independent management with their intellectual property and back catalogues, while Undead Labs has followed a similar path. Its upcoming State of Decay 3 is still planned for release on Game Pass on day one under a new publisher. 

The future is considerably less certain for Ninja Theory. Two separate agreements to transfer the studio have fallen through, and Microsoft says it will begin consultation with employees over a proposed closure while continuing to explore alternatives. Discussions concerning Arkane are also continuing. 

The restructuring reflects a fundamental change in Microsoft’s approach to Xbox after years of aggressive investment, including the acquisition of Activision Blizzard. In July, Xbox CEO Asha Sharma said the business was operating at margins significantly below comparable platform and publishing businesses and described the overhaul as the most significant restructure in Xbox history. 

Microsoft is now betting on a smaller, more concentrated organisation built around established franchises and broader game distribution. For employees, however, the reset continues to come with a human cost. Booty acknowledged the difficulty of the latest cuts and asked teams to focus on supporting affected colleagues. 

The next major checkpoint comes on October 6, when Xbox plans an all-team town hall to discuss the restructuring and its upcoming game pipeline.