In July 2026, Microsoft began a major restructuring of its Xbox division, describing the move as a "reset" aimed at simplifying operations. The company had previously announced layoffs of 4,800 employees across its gaming division, with 1,600 of those cuts directly affecting the Xbox team. These layoffs are part of a larger plan to reduce the workforce by 3,200 by the end of the fiscal year in June 2027. Four studios were reportedly pushed toward closure, though no official details have been confirmed yet. The restructuring has raised concerns about the future of several game studios. Rumors suggest that the Halo studio, a well-known developer of the popular Halo franchise, may merge with Activision, a major game publisher acquired by Microsoft in 2023. Other reports indicate that multiple studios are undergoing a process called "consolidation," which involves merging teams rather than outright closures. While this may not result in immediate shutdowns, it could lead to the disappearance of some studio names as Microsoft seeks to streamline its operations. This latest round of cuts is part of a long-term trend of workforce reductions at Microsoft. Since acquiring Activision Blizzard for nearly $69 billion in October 2023, the company has made several significant layoffs. In January 2024, approximately 1,900 jobs were cut, followed by another 650 in September 2024. In 2025, a larger wave of 9,000 layoffs occurred across the entire Microsoft group. Additionally, Microsoft has paused some Game Pass agreements with third-party studios, signaling a broader effort to reduce the scale of its gaming operations. The current situation has left uncertainty among employees and studios within Microsoft Gaming. The division’s new head, Asha Sharma, has described the current state as "not healthy," and some teams, like id Software, have been reduced to "empty shells" following previous restructuring efforts. With potential layoffs expected soon, many within the division, from Bethesda to Blizzard, are questioning their roles in a division that its leadership admits is in need of significant change.