Microsoft plans to initiate layoffs within its Xbox studios and among employees starting July 6, 2026. This action is part of a broader restructuring effort that includes evaluating studio closures, game cancellations, and the potential sale or spin-off of several internal development teams.

As part of these changes, Microsoft is considering closing at least five studios. The company is also exploring the cancellation of the game Blade, developed by Arkane Studios. Blade, created by the France-based studio, is currently over budget, and its internal ship date has been delayed to late 2027.

Microsoft is exploring options to sell Arkane Studios. The company is also working to spin off Compulsion Games, Double Fine, and Ninja Theory. Compulsion Games is known for developing South of Midnight, and its employees have been advised to seek employment elsewhere. Earlier in June 2026, employees at Ninja Theory, a UK-based studio, were informed that Microsoft intended to either close the studio or spin it off. Separately, Microsoft is actively seeking a buyer for Undead Labs, the studio responsible for the game State of Decay.

Asha Sharma, CEO of the Xbox division, addressed the company's strategic goals. Sharma stated her mandate is to be the number one gaming and entertainment company.

Why It Matters

This restructuring represents major changes for Microsoft's Xbox division, impacting multiple game development studios and their respective projects. The planned layoffs and potential divestitures of studios like Arkane, Compulsion Games, Double Fine, Ninja Theory, and Undead Labs indicate a shift in Microsoft's strategy within the gaming industry. These actions could affect the future development and release of titles currently in progress, such as Blade and South of Midnight, and reshape the landscape of Microsoft's internal game development capabilities as the company aims to achieve its stated mandate.