“Like a Meteorite Impact” — Mass Layoffs at Xbox Cast a Dark Shadow; Marvel’s Blade, Hellblade 3, and Other Games at Risk

Under its new CEO, Asha Sharma, Xbox plans to drastically cut costs. According to insiders, the company is planning what is likely to be the largest wave of layoffs in gaming history. External partnerships are also hanging in the balance.

At Xbox, nothing has been the same since late February. With the departure of longtime CEO Phil Spencer, the company also threw its previous gaming strategy overboard. Since then, new CEO Asha Sharma has been diligently restructuring Microsoft’s console division: Game Pass has become more affordable again, exclusive titles are making a comeback, and Xbox aims to give its customers a reason to play within its own ecosystem once more.

At the same time, Xbox is in the midst of a serious crisis. The major studio acquisitions of recent years have not yet resulted in the blockbuster hits that were hoped for; given the current hardware crisis, manufacturing Xbox consoles has become so expensive that Microsoft recently had to raise prices again for the Series generation, which is now over five years old.

In light of this, the new head, Asha Sharma, recently announced acompleteresetof the gaming business. Although job cuts were not explicitly mentioned, insiders feared even then that the impact on staff would be massive.Now it’s slowly becoming clear what that means in concrete terms.

A Wave of Layoffs Like a Meteorite Impact

With the start of the new month, Microsoft also begins a new fiscal year. This means the annual financial statements have been finalized; corporate management has a clear overview of current costs. From a management perspective, this makes it the perfect time for restructuring: The turn of the year not only symbolizes a fresh start psychologically but also offers the opportunity to streamline the books (in terms of personnel) for the coming year.

As early as June, insiders such as Bloomberg journalist Jason Schreier warned that the wave of layoffs at Microsoft would begin in July. The website The Vergereported at the time that there would be about 1,000 layoffs. Industry veteran George Broussard (co-creator of Duke Nukem), however, is now going much further and warning ofthe largest wave of layoffs the gaming industry has ever seen:

On Twitter, the developer compares the upcoming layoffs to the meteorite impact that once wiped out the dinosaurs. And Jason Schreier is now also speaking of an impendingbloodbath(viaIGN). Since Microsoft already cut around 9,000 jobs in 2025, employees now fear an even more drastic cutback that is also expected to affect active and otherwise established studios.

Major Studios and Games on Shaky Ground

The French studio Arkane could be the first casualty. The creators of Prey and Dishonored are reportedlyreportedlyon the verge of closing or being sold. Their highly publicized Marvel project, Blade, is apparently running over budget and facing ever-longer delays. Microsoft is therefore now considering scrapping the project. If the studio cannot be sold, Arkane may be facing closure.

But the studio isn’t alone in this. Microsoft is currently desperately trying to downsize its portfolio and get rid of teams with lower profit potential. Shortly after the announcement of the third Senua’s Saga game at the Xbox Showcase in early June, it became known that Microsoft actually wants to sell its developer, Ninja Theory. The trailer was thus less of an advertisement for customers andmore of a teaser for potential investors.

The studios that cannot be sold,will in all likelihood be shut down. On the chopping block areaccording to an IGN report as well as Tim Schaffer’s studio Double Fine, theSouth of Midnight developers Compulsion Games, and Undead Labs, which recently presented new footage forState of Decay 3at the Xbox Showcase.

Xbox Withdraws as Publishing Partner

However, the cost-cutting measures are also affecting external developers. For example, it was announced at the end of June that the Danish studio IO Interactive—the creators of Hitman and the extremely successful007: First Light—will lose Xbox as the publisher and financier for their upcoming online role-playing game, Project Fantasy. Microsoft apparently does not want to continue investing money in the project and is pulling the plug on the partnership. As a result, IO Interactive must now lay off employees and look for new partners (via Polygon).

Dear gaming community,

For quite some time now, the news from IO Interactive has been entirely positive. We remain humbled and honored by the response to our latest installment featuring a young, unproven Bond. A bold new story and a fresh take on one of the most famous characters in entertainment, which…

— IO Interactive (@IOInteractive) June 30, 2026

Less volume, more blockbusters

But why is Microsoft pulling the plug on all these mid-sized studios and projects? According to an internal memo from head Asha Sharma, Xbox is currently operating on an extremely tight profit margin of just three percent. Over the past five years, the company has invested around 20 billion U.S. dollars in games and platforms, but lost nearly half a billion dollars in revenue during the same period.

The problem: While many Xbox studios deliver fantastic games that win awards and are celebrated by critics, games like Hi-Fi Rush and South of Midnight still fell spectacularly short of Microsoft’s commercial expectations. Asha Sharma now wants to turn the financial ship around and is stepping on the gas with the major franchises. Microsoft expects guaranteed blockbusters from series like The Elder Scrolls, Fallout, and Halo, so Xbox plans to bring more sequels to market faster in the coming years.

Whether this strategy will pay off, however, remains completely unclear at this point. In the coming months, Microsoft will likely first have to deal with its employees—who are justifiably upset given the impending layoffs—and their labor representatives.