The last several months have been a roller coaster for Xbox, culminating in a sweeping wave of layoffs on July 6. Xbox CEO Asha Sharma announced that Microsoft will divest from five game studios and cut a total of 3,200 jobs by July 2027.
Microsoft's gaming division saw a major leadership turnover back in February, with CEO Phil Spencer abruptly leaving the company along with his heir apparent Sarah Bond. Incoming CEO Asha Sharma and chief content officer Matt Booty moved quickly to reestablish trust in the flagging brand. They ditched the unpopular and confusing "This is an Xbox" advertising campaign. They cut prices on Xbox Game Pass after a 50% price hike sparked an exodus from the service. They reaffirmed that new high-end hardware was in the works, in the form of Project Helix. They boldly declared that their organization would no longer be called "Microsoft Gaming" (nerdish, uncool) and instead adopt an all-caps XBOX (shouty, uncool in a different way). Xbox hosted a barnstorming summer showcase on June 7, and gave away hundreds of translucent green Series X consoles to fans who attended live.
It seemed like everything was going great! And then the wheels promptly fell off the wagon. Just three days after the showcase, on June 10, Bloomberg reported that Sharma had planned a massive slate of layoffs that would begin in July. Sharma and Booty essentially confirmed these reports in a post on Xbox Wire that outlined plans for an "Xbox reset" over the coming 100 days, citing lousy revenue, increasing hardware costs, and excessive expansion during the pandemic years.
It may take weeks or even months until we get an exact picture of all the changes taking place at Xbox, but here's what we know at present. The stories below are presented in reverse chronological order, so the newest developments will appear at the top.
3,200 layoffs at Xbox by July 2027
In a memo to the organization that was later posted publicly on Xbox Wire, Sharma detailed how many jobs would be eliminated. Though Microsoft eliminated 1,600 Xbox jobs on July 6, unfortunately, there's still more to come in the months ahead.
After careful consideration, I’ve made the difficult decision to reduce our team by approximately 3,200 throughout FY27. This will include approximately 1,600 role eliminations today, and in addition, four studios will leave XBOX to new management. I recognize that a year-long restructuring creates additional challenges. Unfortunately, it is not possible to make all the necessary changes in a single day, and I wanted to be direct about the scale.
Five studios will leave Xbox
Image: Double Fine Productions / Xbox Game Studios
Arkane Lyon (status currently unclear due to French labor law)
No first-party games cancelled... for now
In her July 6 memo to staff, Sharma said, "None of our first party publicly announced games or projects are being cancelled as part of these reductions." Rumors had swirled in recent weeks regarding the fate of Ninja Theory's Senua and Undead Labs' State of Decay 3, which had been prominently featured in the Xbox Showcase event on June 7.
The fate of Arkane's troubled Marvel project, Blade, remains unclear at present. According to Game File, the studio "is also slated for an exit. Given local laws, though, Microsoft has been unable to explore its future—ranging from sale, to management buyout to shutdown—until today." We won't know for sure whether Blade will see the light of day until the studio's fate is finalized, which may take months.
A digital-only future
On July 1, Sony announced it would no longer make physical game discs for games released after January 2028. That same day, reporting from The Verge claimed Xbox is working on a way to digitize physical game discs. Essentially, you'd insert a disc and then be granted an additional digital copy. These copies can be sold and borrowed, similar to Nintendo's game-key cards.
Bond developer caught in the crossfire
On June 30, IO Interactive cryptically announced on X that a "relationship with an external partner on our own IP, Project Fantasy, has come to an end." It was soon confirmed that Xbox was the external partner pulling out of the deal. IO will continue developing Project Fantasy, but said it will have to make "staffing decisions" in response to the funding change, which doesn't sound great.
Blade gets screwed over again
Image: Arkane Studios/Microsoft
Marvel's beloved vampire badass just can't catch a break lately. On June 30, The Verge reported that Microsoft is considering shutting down Arkane Studios, best known for the Dishonored series, Deathloop, and Prey (2017). That would also mean the end of Arkane’s upcoming game based on the comic book icon. Marvel’s Blade was originally supposed to debut later this year, but its internal ship date has allegedly slipped to late 2027.
State of Decay maker Undead Labs under threat
On July 29, GamesBeat reported that Undead Labs, alongside the three previously named studios — Compulsion Games, Double Fine, and Ninja Theory — was at risk of closure. Undead Labs is currently working on State of Decay 3, which was featured in Xbox's June 7 showcase and slated to release sometime in 2027.
Third-party developers claim their Xbox deals are on hold
On June 29, a variety of reports claimed that Xbox was planning further adjustments to Game Pass. According to Fernando Rizo, a consultant who advises self-publishing indie studios, Xbox has suspended discussions with third-party studios to sign deals to put their games on Game Pass. Rizo recently said on The Business of Video Games podcast that he'd spoken to a number of developers negotiating with Xbox who "got the rug pulled out from under them." Rizo's impression is that the deals were "on pause" rather than canceled, as Xbox seeks to reassess its Game Pass operation.
No more freebies, Call of Duty fans
Image: Infinity Ward/Activision
On June 29, Call of Duty fan site CharlieIntel reported that Activision and Xbox were currently running ads for the upcoming sequel Modern Warfare 4 that prominently featured text proclaiming the game is "not on Xbox Game Pass this year." (Naturally, it was written in all-caps.) Sharma had removed new entries in the military shooter series from Game Pass as part of the April price changes, but I suppose Xbox wants to be as clear about this change as possible so you won't yell at them on the internet.
Yet another console price hike
For the third time in just 14 months, Xbox announced it was raising the prices of its game consoles on June 25. Effective Aug. 1, the price of consoles with 512 GB of storage will increase by $100, while 1 TB models will go up by $150. Xbox will phase out the 2 TB Xbox Series X model in August as well.
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Photo: Henry Hargreaves for Polygon
Image: Double Fine Productions / Xbox Game Studios
Image: Arkane Studios/Microsoft
Image: Infinity Ward/Activision
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