Chaos Unleashed: The Xbox Reset Disaster

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: Campaign 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.