Matt Booty, the executive in charge of Xbox’s games and studios, opened a memo to staff on Tuesday with a subject line that summed up the moment: continuing the reset.
The note delivered another round of cuts to a business that Microsoft spent years building through acquisitions. The company is eliminating about 500 positions, according to people familiar with the matter, with the heaviest losses in the Xbox unit, where 268 roles are being cut across Halo Studios, other first-party studios and the management layer. A smaller number of jobs in cloud and artificial-intelligence divisions are also affected.
The layoffs are the latest step in a plan Microsoft announced in July to reduce the gaming business’s headcount by about 20 percent, or roughly 3,200 positions, by the end of the fiscal year. In a memo at the time, Xbox chief executive Asha Sharma told employees the business was not healthy and was operating at margins three to ten times lower than comparable businesses. “We must reset Xbox,” she wrote.
Tuesday’s note made clear how far along that reset has come. Booty wrote that the measures completed since July, including the divestiture of studios, had finished about three-quarters of the restructuring the company had previously announced.
The changes go beyond headcount. Microsoft is moving some of its best-known franchises under the companies it acquired in recent years. Activision, the publisher Microsoft bought for $69 billion in 2023, will take over development of the next Halo title and oversee the Rare studio and the World’s Edge team behind Age of Empires. Bethesda will absorb Obsidian, the studio known for Fallout and Grounded. Candy Crush maker King will fold in Microsoft Casual Games, and the makers of Forza and Fable will be grouped into a single studio.
Microsoft has also been shedding studios outright. It has divested Double Fine, Compulsion and Undead Labs, and Booty wrote that two agreements to spin out Ninja Theory fell through, opening the door to a proposed closure. Consultation over the future of Arkane is expected to continue through the end of the year.
The consolidation reflects a sharp turn from the strategy Microsoft pursued for most of a decade. The company spent tens of billions of dollars buying studios to feed its Game Pass subscription service, betting that a library of exclusive games would draw players to Xbox. The Activision purchase alone, completed in October 2023 after a long fight with regulators in Britain and the United States, brought Call of Duty, Candy Crush and World of Warcraft under one roof. The cost of running that many teams, and the difficulty of shipping hits on a steady schedule, have since forced a retreat toward fewer, bigger franchises.
The numbers behind that retreat have been visible for some time. Microsoft cut 10,000 jobs across the company in early 2023, many in gaming, and the unit has shed staff repeatedly since. Xbox has also loosened its old insistence on exclusivity, releasing games on rival platforms as growth in the subscription business slowed.
The strategy shift reverses the bet Microsoft rode through the last console generation. For years the company argued that reach mattered more than margin, and that putting games in front of the largest possible audience through subscriptions would eventually pay off. The July memo conceded what the numbers had been saying: the audience had arrived, but the profit had not.
For employees caught in the cuts, the terms were set in July. Under the severance plan, most laid-off workers in the United States can receive up to 39 weeks of base pay, plus at least 60 days of notice, with additional time calculated on seniority and tenure, according to documents.
Halo sits at the center of the reorganization. The series, created by Bungie and launched in 2001 alongside the original Xbox, turned the console into a serious rival to Sony’s PlayStation. It has since struggled to recapture that momentum, with sequels that were costly to make and released on an inconsistent schedule. Handing the next Halo to Activision, the company behind Call of Duty, is a bet that the franchise can be rebuilt around the most reliable shooter in the business.
Microsoft has said the cuts are about margins, not retreat. The company is preparing to launch a next-generation console and argues that a smaller, more focused studio group will be healthier than the sprawling one it assembled. Analysts said the test will be whether the franchises that survive, Halo and Fallout among them, can ship faster and sell better than they did under the old structure.
For now, the reset continues. Booty told employees the work is three-quarters done, a formulation that carries its own warning: the people who remain are likely to face more change before the fiscal year is out.
