Layoffs Affecting 9100 Microsoft Employees, With the Hardest Hit Being on Xbox and Gaming Studios
Microsoft's gaming division is undergoing a significant transformation following a series of layoffs that affected approximately 9,100 employees globally in July 2025. The changes are not just about cost reduction, but represent a strategic pivot for Microsoft, aligning its gaming business towards cloud infrastructure, subscription models, and AI-driven innovation.
The shake-up has led to deep cuts and studio closures, with key studios such as The Initiative (responsible for the canceled Perfect Dark reboot) and Zenimax Online (canceling its Blackbird MMO) being shuttered. Turn 10 Studios, known for the Forza series, lost nearly half its staff, and Rare, famous for Banjo-Kazooie and Sea of Thieves, saw key leadership departures. Notable canceled projects include Perfect Dark, Everwild, and various unannounced MMOs, while franchises like Forza and Call of Duty continue, albeit with reduced teams.
Regional operations are also feeling the impact, with Xbox operations in Central Europe and other regions facing significant reductions, with some offices potentially closing entirely.
Despite the short-term setbacks, Microsoft is betting on consolidating resources and focusing on scalable, cloud-based services to unlock long-term value in its gaming assets. The company is shifting from a content-driven model to a service-led approach, with heavy investment in cloud gaming and the Game Pass subscription platform. Resources from the gaming division are also being reallocated to fuel Microsoft’s broader $80 billion AI ambitions and digital efficiency initiatives.
Internal memos from Gaming CEO Phil Spencer highlight a commitment to "continued success in future years," emphasizing increased player numbers and gaming hours despite the layoffs. The strategy is framed as necessary for adapting to a changing industry landscape.
In the midst of this profound reset, Microsoft Gaming is focusing on Game Pass, the Xbox Series X|S ecosystem, and select first-party franchises. Upcoming titles like Fable, Gears of War: Reloaded, Ninja Gaiden 4, The Outer Worlds 2, and Call of Duty: Black Ops 7 are still slated for release in 2025 and 2026.
The company is offering severance, healthcare continuation, and outplacement support to all impacted staff, in line with local regulations. Affected employees will receive priority consideration for other roles across Microsoft Gaming, and the company is removing layers of management to increase agility and effectiveness.
The latest round of cuts impacted approximately 650 Xbox employees in September 2024, following a series of studio closures and layoffs in May 2024 and June that affected Microsoft's HoloLens and Azure teams. In the past 18 months, Microsoft has cut over 19,000 roles across various departments.
As Microsoft Gaming moves forward, it is focusing on its strategic growth areas, aiming to secure its long-term future by consolidating efforts around the strongest opportunities.
- The strategic pivot in Microsoft's gaming division extends beyond cost reduction, also embracing technology and finance, as the company invests heavily in cloud gaming and the Game Pass subscription platform, and reallocates resources to fuel its AI ambitions.
- In the realm of sports, the future of gaming at Microsoft is tied to successful releases of upcoming titles, such as Fable, Gears of War: Reloaded, Ninja Gaiden 4, The Outer Worlds 2, and Call of Duty: Black Ops 7, which are planned for 2025 and 2026, signifying a continued commitment in this sector.
