Layoffs at Microsoft Hit Xbox & Studios, Perfect Dark and Everwild Cancelled

Microsoft has announced a major round of layoffs affecting approximately 9,100 employees—about 4% of its global workforce—with gaming divisions hit particularly hard. Xbox, King, ZeniMax, and Forza Motorsport developer Turn 10 are among the groups most impacted, as part of a strategic reorganization intended to streamline operations and focus on growth areas.

Phil Spencer, head of Microsoft Gaming, framed the changes as necessary for giving the division greater agility. “To position Gaming for enduring success and focus on strategic growth, we are ending or reducing work in certain areas and removing layers of management to increase effectiveness,” Spencer wrote in an internal memo, noting that the changes come despite record engagement across Xbox gaming.

King, the mobile gaming unit best known for Candy Crush, will eliminate around 200 roles—about 10% of its Barcelona team. ZeniMax Europe also faces workforce reductions, while Turn 10 is losing roughly half its staff, shifting its role to support the Forza Horizon franchise and engine development. Layoffs have also occurred at ZeniMax Online, including the cancellation of its in-development MMO project, internally known as Blackbird.

As part of the cuts, several anticipated titles have been cancelled. Rare’s long-delayed Everwild and The Initiative’s ambitious reboot of Perfect Dark have both been scrapped. The Initiative studio—established in 2018 specifically to revive Perfect Dark—will be shuttered entirely. This marks a major reversal after years of investment and public reveals for both projects.

Despite these setbacks, Xbox Game Studios still reportedly has over 40 active projects in development, with plans extending into 2026. Management emphasized that successful franchises will continue to receive focus and funding. Support for affected employees will include severance packages, extended healthcare, and priority placement in other roles within Microsoft.

This marks the fourth significant round of gaming-related layoffs at Microsoft since early 2024, following cuts tied to Activision Blizzard, cloud and mixed reality units like HoloLens, and other internal restructuring. Analysts say the moves reflect industry-wide pressure from rising development costs, competitive saturation, and the need to prioritize high-return investments such as Game Pass and blockbuster franchises.

Microsoft’s aggressive acquisition strategy—totalling over $70 billion with Activision Blizzard—has built the world’s largest gaming publisher, but also created overlap and management complexity. Critics are warning that continued studio closures and mass layoffs could stifle creativity and weaken first-party exclusives moving forward.

As stakeholders digest the news, Microsoft is vowing to pivot toward its most promising areas while cutting projects that no longer align with long-term strategy. The next phase will test whether the restructuring can balance operational efficiency with creative ambition and market relevance.