Microsoft's new wave of layoffs hits gaming division hard

The video game industry is facing yet another drastic restructuring: Microsoft has confirmed it will cut around 4% of its global workforce , with over 9,000 employees set to leave the company in the coming months. A decision that affects all departments across the board, but is especially harsh on the gaming division, where the consequences are set to be devastating for projects and development studios.

The news, initially reported by the Seattle Times and later confirmed by Bloomberg , comes as the new fiscal year begins. According to the Redmond company, this reduction in staff would be part of a broader cost-containment and structural reorganization strategy, aimed at ensuring what Phil Spencer , CEO of Microsoft Gaming, calls “long-term sustainability” for each division. A justification that sounds paradoxical, considering the company’s record profits.

What's Happening in Microsoft Gaming

The most sensational news concerns the closure of The Initiative , confirmed by Matt Booty, head of Xbox Game Studios, through an internal communication to employees. Founded in 2018 with the ambition of creating high-profile AAA productions and presented as the flagship of Xbox's first-party strategy, the studio is closing its doors without ever having launched a single title on the market .

With it, Perfect Dark , a reboot of Rare's historic franchise, is shelved. The project, announced in 2020 and developed in partnership with Crystal Dynamics (which has since been acquired by Embracer Group), had been in the works for at least seven years, but according to internal sources, development may have begun as early as 2016. The game had gone through numerous changes in creative direction, losing key figures such as director Daniel Neuburger and design director Drew Murray, as well as about half of the core team between 2021 and 2022.

Among the canceled projects is Everwild , Rare's new work announced in 2019. According to internal documents and Linkedin profiles of former employees, the game had been in pre-production since 2016. Its cancellation comes amid a wave of layoffs at the British studio, with the departure of veterans such as Gregg Mayles, director of Sea of ​​Thieves and a key figure at Rare for over 35 years, and executive producer Louise O'Connor, whose first project was Conker's Bad Fur Day for Nintendo 64.

The cuts extend across much of the Xbox ecosystem. Forza Motorsport developer Turn 10 Studios is shedding about 50 percent of its staff , according to Bloomberg, casting serious doubt on the future of the series. Of particular note is the departure of Mike Caviezel, an audio expert who recently returned to Turn 10 after working on Gran Turismo Sport and Gran Turismo 7 .

Compulsion Games also faces significant reductions, as do the teams at Raven Software and Sledgehammer Games , both of which are working on the Call of Duty series. Candy Crush publisher King , acquired through the Activision Blizzard deal , is shedding around 200 employees, or 10% of its Barcelona studio. ZeniMax 's European operations are seeing substantial cuts, with the cancellation of an unannounced MMORPG (codenamed Blackbird ) in development at ZeniMax Online Studios, and further cuts are expected at its US offices.

In this bleak panorama, Booty highlighted that over 40 projects are currently in development in Xbox studios. A statement that sounds like a reassurance, but which contrasts with reality: the restructuring, presented as a response to the challenges of an increasingly difficult market, appears rather to be the sign of a systemic crisis that goes beyond individual commercial performances .

What doesn't add up

The numbers tell a story of staggering contradictions. In 2024 alone, following its $68.7 billion acquisition of Activision Blizzard, Microsoft had already eliminated some 2,550 positions and closed four studios, including Arkane Austin, responsible for Redfall , and Tango Gameworks , ironically just after the latter had received Game Awards nominations for Hi-Fi Rush . The 2025 cuts come on top of previous waves of layoffs: more than 6,000 jobs cut in May, at least 300 in June.

These numbers clash dramatically with the company's financial results: third-quarter fiscal 2025 revenue of $70.1 billion, up 13% year-over-year, and net profits of $25.8 billion, up 18%. The stock price reached an all-time high of $497.45 on June 26. Yet the company continues to present the reductions as part of a strategy to make the Xbox business economically sustainable, raising questions about the consistency and long-term vision for the brand.

The company’s rhetoric talks about “removing layers of management to increase agility and effectiveness,” but the reality tells a different story: studios decimated, projects canceled after years of development, veteran talent leaving the industry. Spencer, in his communication to employees, said that these changes are necessary to “position gaming for lasting success,” but the company’s actions seem to contradict this optimistic vision .

How the market is changing

Microsoft is not the only protagonist of this crisis. The entire video game industry is going through a phase of profound restructuring since 2024, it is estimated that 11% of developers have lost their jobs in the last year alone .

The current situation seems to be the result of an intrinsically contradictory strategy. On the one hand, Microsoft has invested heavily in expanding the production ecosystem , acquiring studios for record amounts and starting numerous projects in parallel; on the other, it has progressively shifted its focus to the subscription model through Game Pass, implicitly reducing the perceived value of individual games . A message that risks weakening the relationship between audience and product, especially now that subscriber growth appears stagnant and the numbers struggle to justify billion-dollar investments.

Added to this is the uncertainty about the future. How much will the spread of historical IPs on competing platforms like PlayStation, where the public has no pre-existing connection to those titles, really weigh? Bringing Xbox games to other consoles requires significant investments in marketing, to convince new users to dedicate time, money and attention to games that do not belong to their gaming imagination.

Not only for Microsoft, but for the entire industry, in this context of systemic uncertainty, even the idea of ​​next-gen consoles becomes hazy, in a context where young and very young users are increasingly less willing to invest large sums in dedicated hardware , instead favoring the mobile ecosystem and the free-to-play model that dominate the market with radically different forms of monetization.

The AAA Model Crisis: When Ambition Becomes Unsustainable

The layoffs at Microsoft Gaming are just the most visible manifestation of a deep crisis that affects the entire production model of AAA titles . A high-end title scheduled for release between 2024 and 2025 now costs $200 million or more, according to a report by the CMA (Competition and Markets Authority). A jump from 50–150 million just five years ago. The most extreme cases break all records, the next Call of Duty has already surpassed 300 million, while Grand Theft Auto 6 is estimated to be around 250 million.

The problem isn't just economic, it's structural. The gap between big AAA releases has grown exponentially, with industry-defining IPs like Grand Theft Auto requiring ever-longer development cycles. Companies are waiting upwards of five years to recoup their investment, making the model increasingly unsustainable. Meanwhile, teams are growing out of control: at Ubisoft, developing a single AAA title involves between 400 and 600 people spread across multiple countries.

Even from the independent world, criticism is increasingly strong, with many developers arguing that the AAA industry cannot sustain the pressure of producing cutting-edge graphics for long, especially after the massive waves of layoffs of the last two years. Rami Ismail , co-founder of Vlambeer, poses a crucial question: “How can we, as an industry, make shorter games, with worse graphics, made by people who are paid well for working less? If we can, there is hope in the short term. Otherwise, the slow asphyxiation of the video game industry is already underway .”

The paradox is clear: while costs increase and teams expand, AAA games lose their originality. The obsession with commercial certainty, made of reboots, prequels, sequels and remasters, has led to a creative flattening that, ironically, increases the risk of failure. The industry has responded by also focusing on games as a service, but even this strategy shows deep cracks. 95% of publishers have attempted to develop their own live service to guarantee recurring revenue through season passes, skins and loot boxes. But the proliferation of these titles continues to appeal to an already loyal audience, difficult to expand.

Not just Microsoft, the entire industry is at a crossroads . On one side, the race to increasingly massive and expensive productions, which require stratospheric sales just to break even; on the other, alternative models, from indies to AA games , which demonstrate how meaningful experiences can be created without Hollywood investments. The real question is not whether the AAA model will collapse, whether subscriptions like Game Pass are successful, whether live services are the future or whether there will be a new generation of consoles, but when and how the industry will be able to reorganize itself around more sustainable paradigms . In the meantime, the cost of this transition falls on those who work there: artists, programmers, designers. Sacrificial victims of a system that has confused infinite growth with lasting success.