Xbox’s ‘reset’: all the news about Microsoft’s layoffs and studio changes

The next Xbox, Project Helix, could theoretically have the largest library of any home console. Not only will it play PC games, but we now know, courtesy of a leaked memo obtained by The Verge’s Tom Warren, that it will run games from every generation of Xbox: the original 2001 Xbox, the 2005 Xbox 360, the 2013 Xbox One, and the 2020 Xbox Series, as well as any new Helix titles.

We already knew that Microsoft was bringing a limited sample of original Xbox games to PC, and we already knew it was prepping a way to digitize your Xbox One and Xbox Series discs. The leak fills in the missing puzzle pieces.

After a massive Xbox “reset” that laid off thousands of employees and spun off four studios, Xbox CEO Asha Sharma wants to get Xbox back to growth. In a memo obtained by The Verge, Sharma told staff by the end of fiscal year 2027 (which runs through next June), “we will return XBOX to player and revenue growth.” Xbox will also “improve profits back in line with industry averages,” Sharma said. “Every function and studio will own part of that outcome.”

Since taking over Xbox in February, Sharma has made sweeping changes to attempt to turn things around. Previously, she has cited challenges like a low accountability margin, increasing component costs for hardware, an “over extended” slate of studios, and platform infrastructure that’s “not built for the battle ahead.” In addition to the major structural changes, Xbox made Gears of War: E-Day and Clockwork Revolution Xbox console exclusives and is planning to do more. Sharma has also set an ambitious and nearly impossible goal to make Xbox “one of the few companies that entertains more than a billion people each day.”

Xbox is having yet another tough quarter, as revenue from content and services like its Game Pass subscription dipped 10 percent over the past few months. At the same time, Xbox hardware sales declined 13 percent, according to Microsoft’s fourth-quarter earnings report released on Wednesday.

The news comes just weeks after Xbox head Asha Sharma announced a “reset” plan for Xbox that included sweeping layoffs and the spinoff of four games studios, including South of Midnight developer Compulsion Games and Psychonauts creator Double Fine Productions.

Xbox is currently in a “reset” period that includes laying off around 3,200 employees over the next year, involving deep cuts at beloved studios like id Software and Obsidian Entertainment. Now, in an attempt to show that things are still running fine, the company has announced a slate of upcoming projects at Bethesda Game Studios — which itself was hit with layoffs — including official confirmation that Fallout 5 is in the works.

“We’re investing more deeply in the worlds players love, giving creators a bigger role in shaping their experiences, and bringing our teams closer together so we can get our games into your hands sooner, support them longer, and continue building them alongside you for decades to come,” Bethesda director Todd Howard said in a statement.

This week should have been a celebration for Doom developer id Software. The studio just launched Revelations, a meaty expansion for Doom: The Dark Ages that adds a powerful new weapon and more demonic levels to blast through. Even though I hadn’t picked up The Dark Ages for more than a year, it only took moments before I fell right back into the familiar loop from id’s modern Doom games. Each plays differently, but they all have a similar foundation built around fast-paced shooter action that makes them feel iconically Doom — and unlike pretty much anything else.

But instead the launch has been overshadowed. As part of Xbox’s mass layoffs and strategy “reset,” id was gutted. The specific figures vary, but reports all paint a grim picture. GamesBeat reports that “at least” 92 of the 185 full-time id employees, or about 50 percent of the studio, were laid off. Game Developer obtained a Texas WARN notice saying that 96 employees were cut from id’s Richardson, Texas, office, and 40 remote workers reporting to that location were laid off, too. Kotaku had reported that its sources believed the team working on id’s proprietary id Tech game engine has just one employee left. But Microsoft, in a statement added to Kotaku’s piece in an update, said that “There are dozens of people working on id Tech across multiple locations” and that “Reports that there’s only one person left in Texas are inaccurate.”

As part of Microsoft’s big Xbox “reset,” which includes layoffs affecting 3,200 staffers, jettisoning studios, and shifting investments to focus on “higher priority projects,” Obsidian Entertainment is changing its plans. The studio, behind games like Grounded and The Outer Worlds, is starting work on a new Fallout title and has canceled “multiple projects,” including a sequel to last year’s Avowed, according to Bloomberg.

Despite the success of the Fallout TV show, which is getting a third season, Xbox hasn’t released a new game in the series since 2018’s Fallout 76. Josh Sawyer, Obsidian’s studio design director, will head up the new Fallout game. Sawyer, who has also served as director on 2022’s Pentiment and on Fallout: New Vegas, had apparently been directing an RPG that was “similar structurally and thematically to Fallout but was not part of the franchise,” Bloomberg says.

This week, Microsoft took a huge ax to its Xbox business. The company announced that it would be laying off 1,600 workers now, 1,600 more over the next fiscal year, and that it would be shedding four studios. Xbox CEO Asha Sharma hasn’t been shy about why she’s making such dramatic cuts, saying in a memo that the business is “not healthy.” Speaking to Fortune, she said that “we simply spread ourselves too thin.”

Given the scale of the changes and Xbox’s currently vague strategy of focusing only on big games, it’s unclear just what the future of the platform is. As Microsoft invests much of its resources into everything AI, a struggling consumer business with a difficult future doesn’t necessarily seem like a good fit for the company. Which opens up the possibility that Microsoft could be preparing to eventually exit the gaming business altogether by selling off Xbox. This, in turn, raises an even bigger question: Who could possibly buy Xbox?

As part of the mass layoffs hitting Xbox, Doom developer id Software has laid off around 50 percent of its staff, according to Game Developer. One source claimed to the publication that the cuts equate to more than 90 redundancies. Another source said that id’s QA department was significantly impacted. The report was published the same day that id is releasing a major expansion for its latest Doom game.

A former id employee affected by the cuts, Michael Maynard, corroborated the figure in a LinkedIn post, saying that the layoffs affected “roughly” 50 percent of the company. “We created arguably THE BEST first person engine technology in the industry,” he said. “Yet today, Microsoft/XBOX decided half the team was deemed USELESS and needed to be let go; despite all the amazing work and effort from every designer, programmer, artist, audio specialist, level designer, fx, tech design, and on and on and on.”

It’s another bad week for the video game industry. Microsoft outlined a series of layoffs on Monday that Xbox CEO Asha Sharma described as “the most significant restructure in Xbox history.” But buried in Sharma’s memo was a curiously optimistic statement: “I want Xbox to be one of the few companies that entertains more than a billion people each day and gives everyone the opportunity to create and connect,” she wrote.

Xbox has been a shambling mess after Microsoft spent billions of dollars with little to show for it, and now it aims to reach a much bigger audience with a much smaller team, amid one of the most challenging times in the industry’s history. Sharma’s billion-person goal would sound outlandish at the best of times. Right now it sounds nearly impossible.

Microsoft is spinning off four of its Xbox game studios — Compulsion Games, Double Fine Productions, Ninja Theory, and Undead Labs — as part of the restructuring announced today. However, two that are going independent, Double Fine and Compulsion, will get to keep their franchises and games catalogs, according to Xbox CEO Asha Sharma.

“Compulsion Games and Double Fine Productions will return to management and transition to independent studios with their IP, catalog, and runway for their next games,” Sharma says in a memo.

Microsoft is laying off 4,800 employees today, and more than 30 percent of the job losses are in the company’s Xbox division. The significant gaming cuts will affect nearly every part of Xbox and also involve four game studios being spun off to be run independently from Microsoft.

Today’s layoffs, which are being described as an Xbox “reset” moment, will impact around 1,600 Xbox employees, according to an internal memo from Xbox CEO Asha Sharma. The cuts won’t end today, though, as Microsoft is planning to eliminate a total of around 20 percent of Xbox jobs by the end of the financial year in July 2027.

A year after cutting around 9,100 employees, Microsoft is making further layoffs today as it begins its new financial year. The software maker is laying off around 4,800 employees today, approximately 2.1 percent of its workforce. Most of the employees affected by today’s cuts are in Microsoft’s commercial sales business or the company’s Xbox division.

In an internal memo to employees, Amy Coleman, executive vice president and Microsoft’s chief people officer, blamed the job losses on a changing technology industry and the “need to adjust resources and roles and shift how we operate” to respond to how AI is impacting companies like Microsoft. “I also want to be direct that the roles eliminated today are not being replaced by AI,” says Coleman. “At the same time, what is true is that AI is changing how work gets done.”

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Microsoft closed out Summer Game Fest with a bang. The company’s annual June showcase was packed with crowd-pleasers: Halo, Gears of War, Fable, a translucent Xbox, and even some pleasant surprises like new Persona and Crazy Taxi games. It was the kind of event that harkened back to the boisterous days of E3, when the industry was in a healthier place and game reveals were cultural events.

IO Interactive, the studio behind the Hitman series and 007 First Light, announced that it is laying off staff after a relationship with an “external partner” on its next big franchise, Project Fantasy, “has come to an end.” IO has described Project Fantasy as an “online fantasy RPG”, and Kotaku and Bloomberg report that Microsoft, which is planning significant cuts as part of a broader “reset” of the Xbox business, was going to be the game’s publisher.

It’s unclear how many people will be affected by IO’s “staffing decisions.” The company says “we are fully committed to supporting those affected through this challenging transition.” IO also notes that it remains “100% committed to” Project Fantasy and promises that “this wonderful universe will see the light of day.”