Microsoft is reportedly preparing for a new series of significant gaming layoffs as the company pushes to restructure its Xbox division. According to reports from Games Beat, developers at State of Decay studio Undead Labs, along with teams at Bethesda and Blizzard, are facing potential closures and staff reductions.
This latest move follows a pattern of corporate downsizing at the company, which saw approximately 1,900 employees let go in January 2024. An anonymous insider characterized the upcoming changes as the “biggest single cut series for Xbox” to date. While the company has not released official figures, the scale of these potential cuts has prompted union leaders to negotiate for better severance packages and job protections.
The Scope of Xbox Studio Reductions
The uncertainty surrounding studio stability has rippled across the Microsoft portfolio. Previous reporting from Bloomberg indicated that other major teams, including Double Fine, Ninja Theory, and Compulsion, are also facing the prospect of closure or being spun off. Notably, the recent trailer for Ninja Theory's latest title at Summer Game Fest 2026 was reportedly an attempt to attract potential buyers for the studio.
Internal memos from division heads have used language describing the company as “over-extended,” suggesting that no subsidiary is safe from the current push to shrink operations. Despite these cuts, leadership has reportedly expressed a desire to accelerate the development of Elder Scrolls and Fallout titles, though it remains unclear how thinning the ranks at Bethesda aligns with that objective.
Labor Unions Respond
The scale of the cutbacks has spurred significant labor organization across Microsoft’s gaming arm. Workers at Blizzard, ZeniMax Online, and Activision Publishing have held calls to voice concerns over the loss of institutional knowledge and the impact on creative morale. “The people who remain take on more work while they’re wondering if they’ll be next,” said Blizzard senior editor Allison Veneto. “It drains away the energy we should be using to be creative.”
Employees are also highlighting a perceived disconnect between company financial health and staff security. Blizzard senior environment artist Mahreen Fatima noted the irony of massive corporate investments in generative AI and high executive compensation—such as CEO Satya Nadella’s $96.5 million in fiscal 2025—while simultaneously increasing console prices for players and cutting staff. “They are not short on money,” Fatima stated. “They’re just choosing not to protect us.”
While Microsoft signed a labor neutrality agreement with the Communication Workers of America in 2022 to assist in the acquisition of Activision Blizzard, it does not appear to have shielded workers from the current restructuring. As today marks the end of Microsoft's fiscal year, investors expect official announcements regarding the extent of the job losses to follow shortly.