Recent job cuts across microsoft‘s gaming division, impacting thousands globally, also hit the team behind the iconic Halo series. While official reasons cited organizational shifts and a push for greater efficiency, insiders reveal a different picture at Halo studios (formerly 343 Industries). Even before the latest wave of Xbox layoffs in July 2025, significant challenges and internal pressure had created a tense atmosphere among developers.
Microsoft Gaming CEO Phil Spencer communicated the “organizational shifts” to Xbox employees in an email on Wednesday. This announcement preceded specific meetings for those impacted by the reductions. At Halo Studios, at least five employees were part of this latest downsizing. The team now consists of an estimated 200 to 300 people following the cuts. Laid-off staff received severance details in a separate meeting. The reasons provided aligned with Spencer’s memo, emphasizing a need to “increase agility and effectiveness” within the organization.
However, the tone of the corporate communication struck a nerve with some developers. One individual speaking to Engadget expressed strong frustration. They highlighted Spencer’s mention of the previous year being “the most profitable year ever for Xbox.” The developer felt this statement was jarringly placed alongside the news of job eliminations. “I’m personally super pissed,” the developer stated, questioning what part of that message they were supposed to feel proud about given the circumstances. This sentiment underscored a deeper dissatisfaction bubbling within the studio.
The team at Halo Studios is currently juggling multiple projects. This includes development on the next major Halo game. They also remain stewards of Halo: Infinite. Development cadence for Infinite has noticeably slowed. The developer characterized the mood internally as “tense.” They specifically pointed to issues with a project that had recently encountered a “crisis” situation. This suggests significant development hurdles impacting morale.
According to the developer, the quality of the current product is a major concern. “I don’t think anybody is really happy about the quality of the product right now,” they admitted. There has been considerable pressure on the team to meet deadlines. Efforts included “a lot of tension and pep talks,” according to the source, aimed at rallying staff to “ship” the work. Despite these challenges, the studio recently hinted at showing off their progress. An announcement or reveal is teased for the Halo World Championship scheduled for October.
This isn’t the first time the studio has faced significant upheaval. Halo Studios, operating as 343 Industries at the time, experienced substantial layoffs in 2023. Those cuts disproportionately affected staff working on campaign and narrative aspects of the game. Notably, veteran Halo figure Joe Staten departed during this period. The previous layoffs are cited as a key reason Halo: Infinite has lacked a continuous story arc since that time.
Historical criticism has also plagued the studio regarding its staffing model. 343 Industries faced scrutiny from fans and former employees. Many highlighted a heavy reliance on contract workers. These contractors typically faced tenure limits, often around 18 months. This approach was criticized for potentially impacting long-term project stability and knowledge retention.
Since the 2023 layoffs, the studio has seemingly shifted strategy. The employee indicated a move towards working more with contracted studios instead of individual contractors. This applies to partners in both the United States and Europe. The goal is reportedly to speed up Halo production cycles. This development model aligns with practices seen in other major first-person shooter franchises. Games like Call of Duty and Battlefield frequently utilize external studios for co-development.
Expanding beyond just the Halo team, the developer offered a critical assessment of Microsoft’s broader approach to game development. “Xbox in general feels years behind the curve in game development,” they asserted. This lag allegedly results in considerable “wasted time and effort.” However, the picture isn’t entirely negative. The developer also noted that many departing team members have spoken positively about their experiences. They often praise the people they worked alongside at Halo Studios.
The widespread layoffs across Microsoft on July 2 affected approximately 9,000 employees globally. This included around 830 people in Washington state, where Halo Studios is based near Microsoft’s headquarters in Redmond. The Xbox division bore a significant portion of these reductions. They also saw game cancellations and studio closures. A Microsoft spokesperson stated the gaming team did not absorb the majority of the company-wide layoffs. However, considering the division’s relative size, the impact was still profoundly felt across numerous teams.
Several high-profile projects within the Xbox banner were casualties. Rare’s long-anticipated Everwild was cancelled. The Initiative’s Perfect Dark reboot also faced cancellation, and the studio itself was completely shut down. Turn 10 Studios, known for Forza Motorsport, reportedly saw the departure of a “vast majority” of its staff. Other affected studios included Rare, ZeniMax Online Studios, King (maker of Candy Crush), Raven, and Sledgehammer Games, alongside Halo Studios. Notable leadership changes also occurred. ZeniMax president Matt Firor departed after 18 years. Veteran Rare designer Gregg Mayles, known for classic titles like Donkey Kong Country and Sea of Thieves, was also reportedly gone. Adding to the list of discontinued projects, Blizzard announced it is sunsetting Warcraft Rumble, its mobile strategy game, citing that it “struggled to find its footing” though internal reports suggest layoffs played a direct role.
Microsoft’s strategic focus has increasingly shifted towards artificial intelligence (AI). This focus has contributed to the company’s stock reaching new highs. Microsoft CEO Satya Nadella mentioned in April that AI now writes up to 30 percent of the company’s code. While a direct causal link to the July 2025 layoffs remains unclear, the mandatory use of AI tools like Copilot within Microsoft is impacting workflows. The developer shared their perception on this trend. They believe the company is “trying their damndest to replace as many jobs as they can with AI agents.”
The July 2025 layoffs are the latest in a series of significant reductions within Microsoft’s gaming arm. In January 2024, 1,900 Xbox employees were laid off. Another 650 job cuts occurred in September 2024. The previous year also saw the closure of key studios acquired by Microsoft, including Arkane Austin, Alpha Dog Games, and Tango Gameworks. Despite these workforce reductions, Microsoft’s financial performance remains robust. The company reported a net revenue of $25.8 billion in the first quarter of 2025. Revenue from Xbox content and services saw an eight percent year-over-year increase.
A Microsoft spokesperson provided a brief statement to Engadget. They confirmed ongoing “organizational and workforce changes.” These changes are deemed necessary “to position the company and teams for success in a dynamic marketplace.” The statement added that the recent layoffs would affect less than four percent of Microsoft’s global workforce. The scale of these recurring layoffs across the gaming division paints a picture of significant industry shifts and internal restructuring.
Frequently Asked Questions
What factors contributed to the recent Xbox layoffs at Microsoft?
Microsoft cited the layoffs as part of “organizational shifts” aimed at increasing “agility and effectiveness” across teams. While a company spokesperson stated they affect less than four percent of the global workforce (around 9,000 people total), the Xbox division saw significant impact. This follows previous large layoff rounds and studio closures. Some employees believe the company’s increasing focus on AI and profitability goals may also be underlying factors, despite the Xbox division reporting strong financial performance.
Which major Xbox studios and game projects were affected by the July 2025 job cuts?
The July 2025 Xbox layoffs impacted multiple studios. Halo Studios saw at least five employees laid off. The Initiative was shut down, leading to the cancellation of its Perfect Dark reboot. Rare’s Everwild was also cancelled. Turn 10 Studios reportedly lost a large number of staff. Other affected studios included ZeniMax Online Studios, King, Raven, and Sledgehammer Games. Blizzard also ceased new content development for Warcraft Rumble. Notable departures of long-time studio leaders were also reported.
How does the reported tension at Halo Studios connect with past development challenges?
The current “tension” and unhappiness with “product quality” described by a developer at Halo Studios echo previous issues. The studio, then 343 Industries, faced fan criticism for the launch state of Halo: Infinite. Layoffs in 2023 heavily impacted narrative and campaign teams, stopping the game’s story continuation. There has also been ongoing discussion about the studio’s historical reliance on contractors and a recent shift towards contracted studios, which a developer felt indicated Xbox was “years behind the curve” in development practices compared to competitors.
Despite the internal challenges and significant workforce changes, Halo Studios continues its work on the next mainline Halo title and maintaining Halo: Infinite. The wider landscape at Microsoft Gaming reflects a period of intense restructuring. This includes the cancellation of anticipated projects and the departure of key personnel across numerous teams. The contrast between record profitability and ongoing job cuts remains a point of contention for affected employees and observers alike, signaling a volatile period for one of the industry’s major players.
