On July 2, 2025, Microsoft began massive layoffs that affected the company’s employees around the world. In total, more than nine thousand people lost their jobs. The gaming division suffered significant losses – cuts affected many studios, and one of them, the American The Initiative, was closed. In addition, Microsoft canceled several projects, including the ambitious shooter Perfect Dark and a multiplayer game from the creators of The Elder Scrolls Online. “Meduza” tells what other changes occurred in Microsoft and why the corporation continues to lay off employees.
The cuts affected more than a dozen studios. One of the dismissed worked in the company for 35 years
Xbox officials do not name the exact number of employees of the gaming division of Microsoft, which fell under the reduction. Bloomberg journalist Jason Schreyer claims that “hundreds” of people lost their jobs. The publication Wired with reference to statements of Microsoft representatives specifies that, although the gaming direction and suffered, most of the cuts came to other divisions.
Nevertheless, layoffs affected many internal Microsoft studios. For example, the entire team involved in the development and support of the mobile game Warcraft Rumble was cut. Employees of Activision Blizzard on condition of anonymity told the publication Aftermath that about 100 people were fired. ZeniMax Online Studios, which developed the multiplayer role-playing game The Elder Scrolls Online, and Undead Labs, which makes the action game State of Decay 3, have also been cut.
Insider Gaming editors report that layoffs have taken place at Sledgehammer Games and Raven Software. The publication Dexerto adds High Moon Studios to that list. All three studios helped develop various parts of Call of Duty. Moreover, right now Raven Software is working with Treyarch on the recently announced Call of Duty: Black Ops 7. Here are some more famous studios that laid off employees:
- Turn 10 Studios – the makers of the Forza Motorsport racing series have lost more than 70 employees. Schreyer’s sources say that’s about half of the U.S. studio. At the same time, the British Playground Games, which is responsible for the separate Forza Horizon series and the new Fable, has not yet been affected by the cuts.
- The Initiative is a studio that has been closed. It was founded in 2018 to create big-budget AAAA blockbusters. The Initiative was led by Darrell Gallagher, a former Crystal Dynamics executive. Microsoft also actively recruited big-name developers from other companies to the studio. For example, the lead writer and designer of the western Red Dead Redemption, Christian Cantamessa, worked there. In seven years, the studio never managed to release a single game. In total, it employed about 50 people.
- King, a Swedish studio that develops mobile games, lost about 10% of its employees. According to Jason Schreyer’s sources, that’s about 200 people. King is primarily known for its popular puzzle game Candy Crush Saga, which reached the three billion install mark in ten years.
- Rare – according to VGC’s sources, the layoffs affect the British studio, formerly known for the Battletoads and Donkey Kong game series. The exact number of laid off employees is not called, but it is known that the company left the game designer Gregg Miles, who worked there for 35 years. Recently, Rare has been actively supporting the multiplayer pirate adventure game Sea of Thieves.
Following the news of the layoffs, insider TheGhostOfHope reported that Microsoft Gaming head Phil Spencer may also leave the company in the near future. According to him, Spencer’s resignation will happen after Microsoft releases the next-generation Xbox console. He will be replaced by Sarah Bond, who currently holds the position of Xbox president.
Xbox officials have already denied this information. “Phil is not going to resign anytime soon,” said Carey Perez, vice president of gaming communications. Overall, however, her comment doesn’t contradict the insider’s claims, given that the next Xbox won’t launch until 2027 at the earliest.
Jason Schreyer notes that Microsoft has not only made cuts, but also canceled several projects that were in development. Their exact number is unknown, but among them was definitely an unannounced multiplayer RPG from the creators of The Elder Scrolls Online.
Variety reporters managed to get an internal letter from Xbox Game Studios head Matt Booty to employees, which stated the cancellation of the shooter Perfect Dark and adventure action game Everwild. The latter was created by Rare Studios for ten years. However, the team constantly had difficulties with the development, and the project has changed the concept several times. Not so long ago, in October last year, Phil Spencer wrote in social networks that he managed to play the current version of Everwild.
Perfect Dark was developed by the now closed studio The Initiative. It was supposed to be a reboot of the series, the first part of which is still among the top ten games in history. The new shooter was announced in 2020, but it soon became clear that The Initiative needed outside help. Studio head Darrell Gallagher brought several partners to the development, including Crystal Dynamics, which he once headed. The first gameplay of Perfect Dark was shown just a year ago, but the trailer did not mention a possible release date.
Matt Booty mentioned in his letter that canceling a number of games will not affect Microsoft’s overall publishing strategy in any way. According to the head of Xbox Game Studios, there are more than 40 other projects in active development right now. Judging by the number, this number also includes games that are created by third-party companies that do not belong to Microsoft.
Large-scale layoffs in the gaming industry and the entire IT industry have been going on for several years. These are the consequences of Covid and (possibly) the development of AI
Microsoft Gaming head Phil Spencer explained in a letter to employees that the cuts in the gaming division are due to the need to focus on the most promising areas of the business. He also noted that he follows the example of the entire Microsoft Corporation, which wants to simplify the management structure and make the company more flexible.
The cuts come against the backdrop of Microsoft’s fairly successful fiscal year, which ended June 30. The company has yet to report its results, but in each of the first three quarters it has reported growth in all key financial metrics compared to the same periods of the previous fiscal year. The Xbox division’s revenue has also been growing.
What’s more, the past year has also been a success in terms of the games themselves, as Phil Spencer himself points out. In the last nine months, Microsoft released Call of Duty: Black Ops 6, Indiana Jones and the Great Circle, Avowed and Doom: The Dark Ages, all of which received high marks from the press. In addition, the Game Pass catalog was enriched with several quality games that should draw the audience’s attention to the service. Among them is Clair Obscur: Expedition 33, one of the best games of the year, which hit the subscription on release day.
Corporation-wide, Microsoft didn’t lose many employees – about four percent. In June 2024, the company employed 228,000 people, the Associated Press specifies. However, this is the fourth wave of layoffs in a year. And the previous one was quite recently – in May 2025. Then about 6000 people lost their jobs, i.e. about three percent of employees.
Mass layoffs in the IT industry have been going on for the past few years. Some Western publications even keep lists of companies affected by them. Many attribute the layoffs to the effects of the pandemic, when demand for digital services surged and the IT sector began to actively hire new employees. Now, however, companies are being forced to optimize costs and make layoffs.
In the case of Microsoft’s gaming division, there is another reason for constant restructuring. The purchases of ZeniMax Media (Bethesda’s parent company) and Activision Blizzard cost the company more than 76 billion dollars. Such large expenditures have led to increased control by the corporation’s management, Jason Schreyer tells May 2024. Microsoft Gaming is now under a lot of pressure as the gaming division is expected to make major financial strides.
On top of that, it’s unclear how justified Game Pass is. The current Xbox business model implies that all Microsoft games go into the subscription catalog from the moment of release. Thus, many gamers would rather spend $20 a month and have access to hundreds of games than buy each one for $70. And while Microsoft regularly reports on the success of Game Pass, there are doubts that the service is really that profitable, including for partner developers.
The development of neural networks may also be pushing Microsoft to cut employees. The company is actively introducing artificial intelligence into its work processes. And some departments are already trying to completely restructure themselves to meet the trends.
The day before the layoffs were announced, Microsoft Vice President and Chief Commercial Officer Judson Althof sent out an email that called for greater use of AI, according to Business Insider. It later emerged that it was his department that was hit hard by the layoffs. Journalists speculate that the restructuring may be related to the company’s new strategy focused on neural networks.
The AI craze is causing discontent in the gaming division as well. “They are trying hard to replace as many jobs as possible with AI agents,” a Halo Studios developer told Engadget, referring to Microsoft management. However, the studio itself, which is responsible for the development of the popular shooter, the cuts almost did not affect.
