The Xbox reset gets ugly

It feels like Xbox has been in a permanent state of turmoil for at least two years now, and this week is no different. Microsoft cut 268 jobs across its gaming division this week, shuffled major studios and franchises around, and continued its Xbox “reset.” Layoffs have become a way of life for Xbox employees, after Microsoft started cutting thousands in early 2024 and hasn’t slowed down. The turmoil was particularly apparent when Microsoft started shutting down game studios, and the painful layoffs have had a lasting impact on morale, according to current and former Xbox employees I’ve been speaking to this week. At the same time, Xbox hardware is under pressure, Game Pass keeps being reshaped, and the future of Xbox as a brand feels more uncertain than ever before. This week was also a reminder that Microsoft is still very much in the middle of figuring out Xbox’s future. Nothing demonstrates the scale of change going on inside the Xbox organization than Halo. “If we lose our way with Halo, we lose our way with Xbox,” said former Xbox chief Phil Spencer in 2011. It’s been clear for years that Microsoft has lost its way with Halo, and the company has definitely lost its way with Xbox. Instead of moving the Halo Studios team under Activision directly, Microsoft is laying off most of the studio after years of layoffs, leadership changes, and technical shifts. A shell of the team is being kept in place to handle existing games like Halo Infinite and the recently shipped Halo: Combat Evolved. One source tells me that the next Halo game under Halo Studios was years away from shipping, so Microsoft pulled the plug instead. I understand that some Halo Studios employees had to wait hours to find out if they had been impacted by the layoffs earlier this week. The first communication came in a public Xbox blog, before notifications were sent to employees throughout the morning. For some, the layoffs were a relief. “I’m a jumble of thoughts and emotions, but mostly relief,” wrote former Halo Studios employee Ron B on LinkedIn. “I was miserable for the last year and a half and it’ll be nice to feel something different.” For many others, the announcement was met with anger or confusion. “Promoted and laid off in the same week is pretty wild,” said Josh Daniels, former cinematic director at Halo Studios. Shannon Loftis, who spent nearly 30 years at Microsoft working on franchises like Fable and Project Gotham Racing, didn’t hold back on criticism of Xbox chief Asha Sharma. “Super funny that Asha Sharma said ‘clarity is kindness’ to the WSJ last week then did a half layoff today,” said Loftis in a post on Threads. “I guess Damocles’ Sword is a form of clarity, what do I know?” Loftis was the former head of World’s Edge before she retired from Microsoft in 2022, the studio behind Age of Empires. The fan-focused studio is now being moved into Activision, with some layoffs impacting the team as part of this ongoing Xbox “reset.” Rare, the developers of Sea of Thieves, are also part of this latest shake-up, moving under Activision control. Forza developers Turn 10 Studios and Playground Games are also merging into a single studio, a year after Microsoft gutted Turn 10. Even Obsidian is being moved out from Xbox Game Studios and under Bethesda Game Studios, where it will work on a new entry in the Fallout franchise. Beyond the studio changes, there are also cuts to the core business planning and management areas of Xbox. “These aren’t cuts a serious business makes, in my opinion,” says video game industry analyst Mat Piscatella. Loftis was even more critical, saying “Xbox has become a business best described as ‘squandered.’ They’re [sic] squandered everything: talent, IP, time, money, gamers, community, goodwill, brand equity, stable services, profitable, knowledge.” The changes are part of Sharma’s “most significant restructure in Xbox history.” She previously told employees that she will make significant cuts to reset the Xbox content portfolio, platform, and operations. Some of the cuts feel like they could be part of a broader restructure designed to make Xbox easier to spin off, or to operate as a wholly owned subsidiary in the same way Microsoft already does with Activision and LinkedIn. Management layers are being reduced, smaller studios are being offloaded, and the focus appears to be on larger franchises and a nearly impossible goal of reaching “more than a billion people each day.” Beneath all the buzzwords in corporate memos, it’s clear that by moving these studios and franchises around, Sharma wants to get bigger games out quicker and at less cost. Microsoft has spent more than a decade acquiring and investing in studios under its Xbox Game Studios umbrella. At one point it had 15 dedicated first-party studios, but that part of the overall Xbox studios organization looks barren now. There’s a shell of Halo Studios for now, a team for Microsoft Flight Simulator, and the Xbox publishing arm, but beyond that all that’s really left is Forza Horizon developers Playground Games, Gears of War developers The Coalition, and inXile who are currently working on Clockwork Revolution. Sharma already has Minecraft developer Mojang reporting to her directly, and the rest have been shifted to Activision to presumably focus on multi-platform games. Some employees I’ve been speaking to think it’s inevitable that The Coalition and inXile will be impacted by layoffs once Gears of War: E-Day and Clockwork Revolution have shipped. In fact, Microsoft already started some Coalition layoffs this week. Both studios also happen to be the ones shipping Xbox-exclusive games. If Microsoft does continue gutting Xbox Game Studios then this also speaks volumes about the platform strategy. Many of Microsoft’s core first-party Xbox studios were established to showcase Xbox hardware. The Coalition has pushed the limits of what’s possible on Xbox consoles over the years, with real expertise on Unreal Engine that has benefited other projects at Xbox. These studios have also contributed heavily to Xbox Game Pass. Microsoft has been tweaking its subscription service nonstop over the past couple of years, adding and removing Call of Duty from the service, flip-flopping on pricing, and making U-turns on cloud access. It’s clear that Game Pass isn’t quite working for Microsoft, despite previous promises that the service was profitable. I’ve heard from multiple sources over the years that there has always been a tension between Xbox leadership and studios over putting games on Xbox Game Pass. Putting a title on Game Pass cannibalizes traditional buy-to-play game sales, and the return isn’t always quantified in a boost in subscription numbers. Xbox lost $300 million in Call of Duty sales because of its addition to Game Pass, prompting Microsoft to quickly reverse course on bringing new entries in the franchise to the service. With fewer first-party studios making day-one games for Game Pass, it seems inevitable that Microsoft will tweak the Game Pass formula again. Rumors suggest that Microsoft is working on an overhaul to Game Pass that will create tiers with or without ads, much like Netflix and other streaming services. These new tiers will reportedly debut without access to day-one games, as well as add-on bundles for cloud gaming and a new family plan option. Microsoft has already pulled day-one games for its Game Pass Premium subscription, so I wouldn’t be surprised to see more changes ahead. Significant changes to Game Pass could also reflect the reality of the Xbox hardware situation. Sources at Xbox tell me that Grand Theft Auto VI preorders are heavily skewed toward PS5, ringing yet more alarm bells about the platform. Xbox hardware revenue has now declined for three straight years, and RAMageddon is pushing the prices of Xbox Series X consoles higher and higher. It’s getting increasingly harder to predict what this all means for Project Helix, Microsoft’s next-generation Xbox console. As you can probably tell, piecing together Microsoft’s Xbox strategy is challenging. One thing is clear, though: The cuts aren’t over yet. Microsoft says it’s roughly three-quarters of the way through its Xbox restructuring, leaving employees with the prospect of more upheaval hanging over them for the foreseeable future. I’m always keen to hear from readers, so please drop a comment here, or you can reach me at notepad@theverge.com if you want to discuss anything else. If you’ve heard about any of Microsoft’s secret projects, you can reach me via email at notepad@theverge.com or speak to me confidentially on the Signal messaging app, where I’m tomwarren.01. I’m also tomwarren on Telegram, if you’d prefer to chat there. Thanks for subscribing to Notepad.