Throughout 2026, Xbox laid off roughly 1,900 people, merged studios such as Obsidian and Rare under the Bethesda and Activision umbrellas, and cancelled World's Edge's new project. Game Pass subscriptions stalled at 30 million, while Bethesda shared a new roadmap focused on Fallout and The Elder Scrolls 6.
Xbox remained in the headlines throughout 2026 with a series of structural changes, waves of layoffs and studio restructurings. According to a statement by the company's head of content Matt Booty on September 22, another 268 people were laid off, and smaller studios such as Obsidian and Rare were folded under the Bethesda and Activision umbrellas. In July, CEO Asha Sharma had announced that Microsoft would cut a total of 3,200 jobs by July 2027. Roughly 1,900 people have reportedly been let go so far, with an additional reduction of about 1,400 expected in the coming months.
Microsoft's gaming division underwent a major leadership shakeup in February. Following the abrupt departures of CEO Phil Spencer and his presumed successor Sarah Bond, Sharma and Booty moved to rebuild trust in the brand. After the steep price hikes that drew heavy backlash last year, the company lowered Xbox Game Pass prices and confirmed its next-generation plans under the name Project Helix.
Just three days after the summer showcase on June 7, Bloomberg reported that large-scale layoffs were being prepared. Some of the games shown at the event had been developed by studios Xbox would part ways with weeks later. In a post published on July 6, Sharma and Booty announced a "reset" plan spread over the next 100 days. Among the reasons cited were low revenue, rising hardware costs and over-expansion during the pandemic.
Obsidian will keep its creative identity within Bethesda
According to an internal memo published after the September 22 changes, Bethesda Game Studios president Jill Braff said: "Today's announcement is first and foremost a reporting structure change. The creative identity and strengths that make Obsidian distinct will remain at the heart of the studio and its work."
Obsidian is expected to survive without being turned into a support studio; however, it is thought that it may not be able to preserve the same degree of creative freedom it enjoyed in past years. In another part of the memo, Braff pointed to the two studios' collaboration on an upcoming Fallout project, saying that "this structure keeps accountability clear for both the studio and the franchise while supporting the franchise-focused model we are strengthening."
World's Edge's new game cancelled, team downsized
World's Edge, the Age of Empires developer now operating under Activision, was hit hard by the September 22 cuts. According to a forum post by former creative director Adam Isgreen, Xbox eliminated positions across nearly half of the studio, including Isgreen's own role.
World's Edge software engineer Andrew Martz wrote on LinkedIn that Microsoft had also cancelled the studio's next project. Martz said: "Today our studio was restructured to fall under the Activision umbrella. As part of this restructuring, our next project was cancelled and a large portion of our studio was laid off. I was among those laid off." Martz noted that he had previously been let go from another Xbox team in May and had joined World's Edge in February 2026.
Activision absorbs Halo and Rare
According to Booty's September 22 statement, 268 layoffs affected Halo Studios, Xbox Game Studios and "other first-party studios." Booty also said the next Halo game would be developed by Activision under a new team operating separately from the Call of Duty franchise. Remaining Halo Studios employees will continue to support the series' existing games.
Two more small studios are being moved under the Activision umbrella. One is World's Edge, developer of the history-themed real-time strategy series Age of Empires. The other is Rare, the studio behind games such as Donkey Kong Country, GoldenEye 007 and Banjo-Kazooie during the Super Nintendo and N64 eras. Microsoft acquired Rare in 2002; the studio's most recent game is the 2018 live-service pirate adventure Sea of Thieves.
Obsidian comes under Bethesda
According to Booty's statement, "Bethesda will expand its remit to include Obsidian. Obsidian will continue its existing projects, including Grounded, and the new Fallout project co-developed with Bethesda Game Studios." Obsidian is the studio behind The Outer Worlds series, Fallout: New Vegas, Pentiment, South Park: The Stick of Truth and the Pillars of Eternity series. The extent to which Obsidian will operate independently of Bethesda remains unclear at this stage.
Uncertainty continues for Ninja Theory and Arkane
In July, Booty also shared updates on the five studios Xbox planned to divest. Compulsion and Double Fine became independent, retaining control of their intellectual property. Undead Labs plans to release State of Decay 3 with a new publisher and announced on September 22 that it had become an independent, employee-owned studio. Xbox continues talks with Arkane; the development status of Marvel's Blade remains unclear.
Two potential deals to acquire Hellblade developer Ninja Theory fell through in recent weeks. Booty said: "We will now begin consultations with employees about a possible closure while we continue to explore other options."
Major strategy shift at Bethesda
On July 17, Bethesda Game Studios shared a detailed roadmap charting the future of its major franchises such as Fallout, The Elder Scrolls and Starfield. The studio said Fallout would receive major emphasis in the coming months and years, stating that "we currently have multiple Fallout projects in active development."
Bethesda said Fallout 5 "remains our long-term goal" and that the game is in "pre-production." The studio also confirmed that remastered versions of Fallout 3 and Fallout: New Vegas are in the works; the New Vegas version is being developed by Obsidian Entertainment. No release dates were given for either game. Bethesda also dropped a hint about a 30th anniversary event to be held in Washington, D.C. in 2027.
The Elder Scrolls 6 is currently the team's "primary development focus." The studio said: "The next chapter is on its way. We're where we planned to be, we're happy with how it looks, and we play it every day."
Despite the April PS5 launch falling short of expectations, Starfield will continue to receive updates and support. The studio said: "As we enter year three, we'll continue to expand the Settled Systems with new stories, targeted gameplay improvements and additional updates; we're also preparing for the launch of new Starborn content next year." The Starborn content refers to Starfield's post-game section.
Major changes at ZeniMax
According to a July 15 report by Stephen Totilo of Game File, the studio behind The Elder Scrolls Online has made significant changes to its senior leadership in recent weeks. The ZeniMax studio reportedly lost 379 employees in Microsoft's latest round of cuts, including studio head Joe Burba, who had been with the company for 14 years.
Several ESO development leaders are also leaving the company, including executive producer Susan Kath, studio game director Rich Lambert and production director Ala Diaz. According to Game File, these four senior employees told colleagues that the transition would take place "over the next few months" and that they would remain in their roles during the transition period "to ensure a smooth handover."
Employee morale is low
According to a July 15 report by GameDeveloper, employees remaining at Xbox's studios are anxious following the company's fifth round of layoffs since January 2024. One source said that in this latest round, 136 people at id Software were laid off simultaneously in a meeting that lasted less than 60 seconds.
A source at id Software questioned the timing of the changes, coming just one day before the July 7 launch of the studio's major expansion for Doom: The Dark Ages. "They sent the team packing before seeing whether the product was a success. There's no benefit to being owned by Microsoft," the source said.
Another source told GameDeveloper: "No one left at Xbox's studios can possibly feel safe knowing that a new round of 1,600 cuts is coming. And what happens after June 2027? Will we be laid off in July for a third year in a row?"
Making sense of the layoffs
A day after Sharma's July 6 memo, the picture began to clarify of what was happening at Xbox studios that were neither becoming independent nor being bought by new owners. According to a Kotaku report, The Elder Scrolls Online developer ZeniMax Online Studios has been "almost completely emptied out."
According to VGC, Doom and Wolfenstein developer id Software lost as many as 95 employees. Obsidian Entertainment, the studio behind The Outer Worlds, Pentiment and Grounded, lost 25 percent of its staff in the cuts — roughly 60 to 70 people. Among them was the studio's art director, who had worked at Obsidian for 21 years.
Game Pass falls far short of target
Xbox rarely discloses Game Pass subscriber numbers. According to a July 6 report by The Wall Street Journal, Game Pass currently has 30 million subscribers. That is less than half of the 77 million players Microsoft aimed to reach by July 2026, according to court filings in the Federal Trade Commission case over the Activision deal.
The last time Microsoft publicly disclosed Game Pass subscriber numbers was in February 2024, when the service had 34 million users. After the steep price hikes in October 2025, prices were rolled back earlier this year, but Game Pass does not yet appear to have fully recovered.
