The notice reached staff at Halo Studios on Tuesday morning. Of the 268 roles Microsoft eliminated across its Xbox game studios, the majority were at the team responsible for Halo, the science-fiction shooter franchise that has defined the console for more than two decades.
The cuts were the second round in the division this year, and they carried a message beyond headcount. Halo, long the crown jewel of Xbox’s in-house studios, is being handed to Activision, the publisher behind Call of Duty, to develop the next game in the series.
About 300 people in Washington state were affected, of whom 268 worked for Xbox, according to the company. The reductions fall under a restructuring announced in July, when Xbox chief executive Asha Sharma said the division would shed roughly 3,200 roles by the end of the fiscal year in July 2027, about a fifth of the workforce, in what she called the biggest overhaul in Xbox history.
Sharma had already cut about 1,600 positions in July, and the latest round brings the restructuring to roughly three-quarters complete, according to Matt Booty, Xbox’s chief content officer. The moves continue a steady contraction of Microsoft’s gaming business as the company pours tens of billions of dollars into AI and cloud infrastructure.
The decision to hand Halo to Activision is the sharpest turn in the plan. Activision will build the next Halo title with a new, purpose-built team kept separate from Call of Duty, Booty said, while a small group at Halo Studios remains to support games already on the market. For practical purposes, Halo Studios is winding down.
The restructuring reaches further than one franchise. Activision is also absorbing World’s Edge, the studio behind Age of Empires, and Rare, the English developer of Sea of Thieves. Ninja Theory, maker of the Hellblade series, faces a likely shutdown after two separate attempts to sell the studio fell through.
Halo’s journey has been long and, lately, unsteady. The series was created by Bungie, which Microsoft acquired in 2000, and became the system-seller that made the original Xbox viable. Microsoft handed the franchise to an internal team, 343 Industries, in 2011, and renamed it Halo Studios in 2024. The most recent entry, Halo Infinite, launched to mixed reviews and a shrinking player base, and the series has struggled to hold its audience against free-to-play rivals.
The consolidation turns Activision Blizzard, which Microsoft bought three years ago for $68.7 billion, into the container for what remains of the company’s first-party studios. The acquisition was meant to give Xbox a pipeline of blockbuster games; it has instead become the vessel into which Microsoft is folding its older franchises.
Microsoft has not always been certain the Xbox business was worth keeping. Chief Executive Satya Nadella and Chief Financial Officer Amy Hood at one point considered spinning off or selling the division, according to people familiar with the discussions, before deciding to keep it and support Sharma’s restructuring instead.
The math behind that decision has been unflattering. Xbox has operated at margins far below its competitors, with a smaller installed base and a higher cost structure, and its games have struggled to produce the dependable revenue that Microsoft’s software businesses generate.
The layoffs and studio closures are an effort to fix that arithmetic by concentrating investment on the franchises most likely to pay off. By moving Halo to Activision, Microsoft is betting that a publisher with a proven record of shipping blockbuster games on schedule can revive a franchise that has slipped. The risk is that the series loses whatever identity its original developers still gave it.
The human cost of the restructuring is measured in hundreds of jobs across the Seattle region and beyond, part of a broader contraction in the games industry that has seen thousands of developers lose work over the past two years. Microsoft has also cut thousands of jobs across the wider company, including about 4,800 in July, as it redirects spending toward AI.
Activision, for its part, has been one of the few reliable bright spots in Microsoft’s gaming business. Call of Duty produces dependable revenue every year, and its developers have a long record of shipping games on schedule. Handing Halo to that team is an admission that the franchise needs what Activision does well.
The wider games industry has been contracting for two years, as pandemic-era growth reversed and publishers tightened spending. Microsoft’s cuts, while larger than most, follow the same logic that has driven layoffs across the sector.
What remains is a smaller, leaner Xbox built around a narrower set of bets, with Activision at its center. Whether that produces the profitability Microsoft wants, or simply a more efficient way to manage decline, is the question the coming year will answer.
