Microsoft is cutting another 500 jobs, with most of the reductions coming from Xbox, as the company pushes deeper into a restructuring of its gaming business following years of expansion and acquisitions.
The latest cuts, announced Tuesday, include 268 roles across Halo Studios, other first-party studios and Xbox Game Studios’ management and central functions, according to a memo from Xbox executive Matt Booty. A smaller number of positions are also being eliminated in other Microsoft businesses, including Cloud + AI.
The reductions come just two months after Microsoft announced plans to cut about 4,800 jobs, or 2.1% of its global workforce, in July. Within gaming, Microsoft is working through a broader plan to reduce Xbox’s workforce by roughly 20% by the end of its fiscal year while consolidating studios, reshaping management and deciding which businesses and properties it should continue to own.
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Booty said the latest actions, combined with studio divestitures completed since July, mean Xbox is about three-quarters of the way through the restructuring previously announced.
The scale of the changes shows that Microsoft’s gaming reset is not simply a conventional cost-cutting exercise. The company is reorganizing how its studios operate, shifting responsibilities among major publishing groups and reducing the number of separate business units.
“First, we are eliminating 268 roles across Halo Studios, other first-party studios, and the XGS management and central functions layer,” Booty wrote in the memo. “The actions completed since July, inclusive of the studio divestitures, bring us roughly three-quarters of the way through previously announced restructuring.”
Xbox Consolidates Its Studios
The restructuring will give several of Microsoft’s largest gaming organizations broader responsibilities.
Activision will expand its remit to include World’s Edge and Rare. It will also take responsibility for developing the next Halo game through a new purpose-built team separate from the teams working on Call of Duty.
Halo Studios will retain a smaller team responsible for supporting the existing Halo community and games already on the market.
Bethesda will expand its responsibilities to include Obsidian, which will continue work on existing projects including Grounded and a new Fallout project being developed in collaboration with Bethesda Game Studios.
King, Microsoft’s mobile gaming business, will take responsibility for Microsoft Casual Games, combining two organizations focused on casual games and live operations.
Playground and Turn 10 will also be combined into a single studio focused on the Forza and Fable franchises.
The changes effectively reduce organizational complexity across Xbox’s first-party portfolio. Rather than maintaining a large number of separately managed studios, Microsoft is grouping teams around franchises and publishing capabilities. That could make the gaming division easier to manage, but it also represents a significant reversal from Microsoft’s acquisition-driven expansion of the past several years.
Microsoft spent tens of billions of dollars building its gaming portfolio, including the acquisitions of Bethesda parent ZeniMax Media and Activision Blizzard. Those deals gave Xbox an enormous collection of franchises and studios, but they also created a much larger and more complicated organization.
The current restructuring suggests Microsoft is now placing greater emphasis on extracting value from those assets rather than continuing to expand the portfolio at the same pace.
Divestitures Reshape Microsoft’s Gaming Footprint
The restructuring also includes the sale or separation of several studios.
In August, Compulsion Games and Double Fine returned to management with their intellectual property, back catalogs, and funding. Undead Labs has now completed a similar transition and will release State of Decay 3 day one on Game Pass through a new publisher.
Other studio changes are less certain.
Two separate agreements involving Ninja Theory fell through, according to Booty. Microsoft will begin consultations with employees over a proposed closure while continuing to explore alternatives.
Consultations involving Arkane are also continuing and are expected to run through the end of the year.
The decisions highlight the difficult economics of maintaining large game-development organizations. Major titles can require years of development and hundreds of employees, while unsuccessful projects can leave publishers carrying substantial costs without a predictable return. At the same time, Microsoft’s Game Pass strategy creates a different challenge. The company has increasingly emphasized subscription access to its games, which can broaden audiences but changes how Microsoft monetizes individual releases.
The restructuring appears designed in part to concentrate resources around franchises with established audiences while reducing duplication between studios and management structures.
AI Spending And Broader Microsoft Cuts
The Xbox reductions are occurring alongside broader workforce adjustments at Microsoft as the company continues shifting resources toward artificial intelligence and cloud infrastructure.
Although only a small portion of the latest cuts outside gaming affect Cloud + AI, the broader pattern illustrates the competing priorities facing Microsoft. The company is spending heavily on AI infrastructure, data centers, and model development while simultaneously looking for efficiencies across more mature businesses.
That does not mean the Xbox cuts are simply funding AI investment. The gaming division has its own operational pressures, and Microsoft’s memo focuses primarily on studio consolidation and restructuring. But the contrast is significant: Microsoft is simultaneously increasing investment in emerging AI capabilities while reducing headcount and organizational complexity elsewhere.
The company’s July layoffs affected thousands of employees across its global operations, and the latest Xbox cuts demonstrate that the restructuring is continuing beyond that initial round.
For Xbox, the immediate objective is to complete the reset while maintaining what Booty described as a strong upcoming game pipeline. He said the company would use an October 6 town hall to bring the broader Xbox organization together to review the restructuring and look ahead to its upcoming releases.
The outcome of the reset will ultimately be measured less by the number of positions eliminated than by whether Microsoft can produce major games more efficiently and turn its enormous portfolio of franchises into stronger returns.
The company now has fewer organizational layers, fewer independently managed studios and a clearer concentration of responsibilities across its major gaming groups. The trade-off is that the restructuring comes with further job losses and the closure or separation of studios that were previously part of Microsoft’s expanded first-party strategy.