Microsoft is carrying out the largest restructuring of its gaming division in years, reducing Xbox Game Studios to a fraction of its former size while shifting core franchises to Activision and Bethesda, according to internal company communications reported by Matt Booty and fan-made mapping highlighted by outlets like Pure Xbox. The reorganization, which began with a 20% workforce reduction over twelve months starting July 6 and a subsequent phase bringing 268 more layoffs on September 22, leaves Xbox structured as a radically different organization.
Xbox Game Studios Downsized to Three Core Teams
Xbox Game Studios is now leaner than at any point in recent memory, with legacy franchises and supporting departments reassigned across Microsoft’s broader corporate umbrella. According to reporting and community tracking by Klobrille cited by Pure Xbox, the traditional Xbox Game Studios brand now retains only three primary internal teams actively building new games: The Coalition, inXile Entertainment, and Playground Games, alongside the publishing division. By comparison, Microsoft operated fourteen separate studios under the single banner back in 2021.
https://x.com/klobrille/status/2102438976661450991
The remaining core developers each carry major upcoming titles. The Coalition is currently focused on Gears of War: E-Day, Playground Games is developing Fable, and inXile Entertainment is working on Clockwork Revolution, which is slated as one of Xbox’s major 2027 releases. Meanwhile, other historical pillars of the group have been sold off or reassigned entirely.
Activision and Bethesda Absorb Major Franchises
Activision has emerged as a primary beneficiary of the restructuring, avoiding major cuts and taking over operational responsibility for several major properties including Halo, Rare, and World’s Edge, according to company disclosures. Activision has already initiated preparations for a brand-new, full-scale installment of Halo, while the previously standalone Halo Studios has been significantly downsized to serve primarily as a legacy support team.
Bethesda has likewise expanded its scope, taking control of Obsidian Entertainment—which is currently developing the next Fallout title—while Bethesda Game Studios continues work on The Elder Scrolls 6. These shifts follow earlier layoffs across id Software and ZeniMax Online Studios, alongside an ongoing effort by Microsoft to find a buyer for Arkane through the end of 2026.
Pro Tip: Industry observers tracking the Microsoft reorganization note that fan-made visual mapping, such as the widely shared infographics by Klobrille on X, offer the clearest view of how stacked Activision and Bethesda have become relative to the shrinking core of Xbox Game Studios.
Studio Disposals, Mergers, and Ongoing Uncertainty
Other studios have faced sales, closures, or structural consolidations. Double Fine, Compulsion Games, and Undead Labs were sold off, and The Initiative was closed down. Playground Games and Turn 10 Studios have been merged to jointly handle the Forza and Fable series, following heavy layoffs at Turn 10. Mojang Studios began reporting directly to Xbox head Asha Sharma over the summer ahead of the September 29 launch of Minecraft Dungeons 2.
The future remains unclear for several other developers. Matt Booty confirmed that two potential sales transactions for Ninja Theory fell through, leaving Microsoft consulting with the team on remaining options, which includes the possibility of a complete studio closure. InXile Entertainment retains its place under Xbox Game Studios for now, but future phases of the reorganization leave its long-term outlook undetermined.
Did you know? Microsoft’s leadership has stated that the massive corporate restructuring is currently only about 75% complete, meaning additional shifts, studio realignments, and personnel changes are expected to be announced in the coming months.
Frequently Asked Questions
What is happening to Xbox Game Studios?
Xbox Game Studios is being significantly downsized, with many of its historic teams and franchises—such as Halo, Rare, and World’s Edge—transferred to Activision or Bethesda, leaving only a handful of developers like The Coalition, Playground Games, and inXile under the traditional brand.
Who is taking over the Halo franchise?
Activision has taken operational responsibility for Halo and has begun preparations for a new, full-scale entry in the series, while Halo Studios has been reduced to a legacy support role.
Are more layoffs expected at Microsoft Gaming?
According to statements from Matt Booty, the ongoing corporate restructuring is currently about three-quarters finished, indicating that additional organizational changes may occur.
What happened to Ninja Theory?
Microsoft attempted to sell Ninja Theory, but two prospective transactions fell through. Leadership is currently consulting with the studio regarding potential outcomes, including a possible closure.
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