Xbox Plunges into New Crisis Amidst Cuts, Cancellations, and Studio Closures

Xbox Layoffs Hit Xbox Game Studios, Triggering Studio Closures and Canceled Projects

Microsoft’s unexpected round of layoffs, announced in early July, is hitting its video game division hard. The tech giant plans to let go of around 9,000 employees, making up about 4% of their global workforce. This move is part of a wider internal restructuring, focusing on maximizing resources and beefing up investments in key areas like AI. But the most noticeable changes are at Xbox Game Studios, where many of the layoffs are happening – leading to studio closures and abrupt game project cancellations.

Inside Microsoft’s gaming world, The Initiative – a studio set up to revamp Perfect Dark with help from Crystal Dynamics – is shutting down. This project was a major piece in Xbox’s future lineup, but production halted, ending a multi-year endeavor. The closure of The Initiative also points to problems within the division, like coordinating between internal and external studios. Meanwhile, Rare’s Everwild, a promising game with big ambitions, got scrapped after years of unstable development and trouble pinning down its concept.

Besides big-name layoffs, other unannounced projects were also axed. One of these was an MMO in production at ZeniMax Online Studios, known internally as “Blackbird.” Sources claim this title was just starting out but got scrapped due to budget cuts. Another hard hit fell on Romero Games, the studio founded by DOOM co-creator John Romero, which lost funding for its new first-person shooter. As a result, the studio’s future is uncertain, and the game, backed by Xbox, has been put on indefinite hold. Phil Spencer, CEO of Microsoft Gaming, publicly defended these moves, saying they’re essential to match the company structure with its strategic objectives. According to Spencer, the aim is to eliminate bureaucratic layers that slow down creativity and strengthen teams with more innovation and delivery power. Despite the scale of the cuts, the executive assured that Xbox remains dedicated to creating new titles and supporting its platform, including future hardware launches.

Things aren’t looking too great for Microsoft’s gaming division right now. Since 2024, they’ve already let go of more than 2,800 employees in the sector through three rounds of layoffs. Add that up with this latest round and it’s a whopping total. And here’s the kicker – all of that happened less than two years apart! It’s got folks wondering if the company’s current model can really last, especially considering they recently picked up giants like Activision Blizzard and Bethesda. That meant a big expansion for their games division.The Xbox crisis isn’t just about Xbox, though. Since 2022, over 35,000 gaming professionals worldwide have been shown the door. Major publishers and indie studios alike have felt the sting. And Microsoft hasn’t escaped unscathed – the layoffs there have sparked some serious backlash from creators. Insiders describe a chaotic, frustrating environment full of uncertainty, with rumors swirling that many projects were axed without warning. One anonymous producer even likened it to “a black hole swallowing everything and spitting out bones,” hinting at how the culture of acquisitions seems to be devouring its own creative ecosystem.

With these changes, Microsoft’s gaming division aims to simplify and streamline its operations. But some are questioning if it can keep up a strong creative lineup after team shutdowns and the shelving of several exciting projects. The main focus now is on delivering big releases on time and preparing for new hardware, including an update to the Xbox Series X/S. As Microsoft rethinks its gaming strategy, it’s unclear how the Xbox brand can win back the trust of creators, partners, and gamers. The coming months will show whether this internal shake-up leads to good results or kicks off a more cautious phase for one of gaming’s most iconic brands.

In Case You Missed It

As the gaming industry continues to navigate significant changes and challenges, another pressing issue has emerged with Nintendo’s latest console. In our recent post titled “Users Report Overheating and Noisy Fans on Nintendo Switch 2,” author Ahmed Hassan delves into the growing concerns among users about overheating issues affecting both new and older titles on the Switch 2. Published on July 4, 2025, this article highlights potential manufacturing defects or design limitations that could be causing these thermal management problems. Despite the challenges, the console remains a hot commodity with over 5 million units sold in June alone. For those interested in more gaming industry news, check out Carlos Mendoza’s latest piece titled “Journalist Claims Perfect Dark Gameplay Shown at Xbox Games Showcase Was Fake,” published on July 4, 2025. The article delves into the mysterious circumstances surrounding the announcement of a new “Perfect Dark” game and raises questions about the authenticity of the gameplay footage shown during the Xbox Games Showcase in 2024 Journalist Claims Perfect Dark Gameplay Shown at Xbox Games Showcase Was Fake. It’s definitely worth a read for any gaming enthusiast curious about the twists and turns in Microsoft’s gaming endeavors.