XBOX Layoffs Reportedly Close Four Game Studios

Four studios gone, thousands of jobs on the line, and a fanbase wondering if there's anything left to save.

You've probably already heard the rumors, but the reality of the incoming XBOX layoffs is messier than the whispers suggested. As Microsoft's fiscal year wrapped up on June 30th, reports poured in that multiple studios under the XBOX umbrella were being shut down before July 1st, leaving industry veterans stunned by the scale of these XBOX layoffs.

Four separate studios under the XBOX Game Studios banner are being closed as part of this wave of XBOX layoffs, including Undead Labs, the team behind State of Decay. It's a gut punch that has people furious, since it feels like XBOX still doesn't understand what it would take to grow Team Green or keep the console relevant. 

You can't build a platform around a handful of tentpole releases like the next Elder Scrolls, a Bethesda title, or another Call of Duty and expect that to be enough. Right now, Forza and Gears of War are about the only franchises left standing, and that's not a lineup that sustains a console generation. This round of XBOX layoffs is expected to surpass Microsoft's record, as last year's cuts affected around 1,900 employees.

This time, estimates suggest the total could climb past 2,000, the largest single layoff event the gaming industry has ever seen.

Microsoft spent years scooping up beloved AAA and independent developers, promising that joining the XBOX Game Studios lineup would bring stability and creative freedom. Instead, what followed has been fewer releases, more firings, less experimentation, and increasingly generic games, a big reason so many people saw these XBOX layoffs coming from a mile away.

Before the announcement, it appeared that XBOX was cutting all ties with its primary PR agency, Assembly. But soon after, it became clear that although several people involved with the XBOX account at Assembly had been let go, this restructuring was part of an overall agency-wide restructuring.

Assembly continues to work with XBOX, although this news does point to a broader truth within the division. In preparation for the fiscal year-end, Microsoft has begun aggressively reducing vendor budgets and outsourcing contracts.

One of the loudest voices reacting has been a co-founder of 3D Realms and Apogee, the studio behind Duke Nukem, who spent years working inside XBOX himself.

Some accuse him of being overly critical, but it reads more like the frustration of someone watching a place he once called home get dismantled. He believes this could be the largest single layoff event in gaming history, comparing the fallout to a meteor strike, and warning that layoffs won't stop at the studios being closed, since teams that survive this round face their own internal cuts too.

That's arguably the most alarming part. It's not just studios shutting down; it's confirmation that even the divisions still standing are being thinned out, on top of a division already running on a shoestring budget while releases like the Oblivion Remastered port still sit broken on PlayStation 5. Comparisons to Sony have circulated, too, with some pointing out that Sony's Bungie shutdowns didn't draw as much backlash. That doesn't hold up, since plenty of people were furious with Bungie as well, given how much good work that team put out despite following the direction they were given.

State of Decay deserves its own mention because Undead Labs has quietly been one of Xbox's most reliable success stories. One issue that keeps coming up is that XBOX simply doesn't brag enough about what's working, rarely sharing Game Pass engagement stats the way Nintendo or Sony celebrate milestones. Most people don't realize that State of Decay consistently ranks among the platform's most-played Game Pass titles, alongside Grand Theft Auto and Minecraft.

Losing Undead Labs means losing one of the few franchises that isn't Minecraft, Fallout, or Elder Scrolls, a dangerous pattern for a platform already struggling to diversify. It raises an obvious question about why a division would eliminate a team whose game has been publicly in development for years and is reportedly near a releasable state. Job security across the game industry has become practically nonexistent since 2023, with layoffs growing larger across nearly every major publisher, and these XBOX layoffs are just the latest example.

There's a common argument that if a studio isn't selling at a massive scale, cuts are inevitable, a framing that ignores how many developers were simply doing what they were told to do.

A lot of people inside XBOX Game Studios reportedly feel punished for following orders they were explicitly given. Leadership pushed studios toward live service models, aggressive sales targets, and platform integration, marching orders that pointed off a cliff, a nd most teams complied anyway, only to face consequences for chasing those same goals. Tango Gameworks is the clearest example.

The studio behind The Evil Within, one of the more underrated horror franchises around, was reportedly told to try something different and delivered Hi-Fi Rush, an award-winning game ported to nearly every platform, only to still get shut down. If doing exactly what leadership asked still ends in closure, it's hard to see what would have satisfied them.

The confirmed list of studios facing closure includes Double Fine, Undead Labs, Compulsion Games, and Ninja Theory, assuming Microsoft can't find outside buyers. Clips from the original E3 announcements welcoming these studios into the XBOX Game Studios family have been circulating again, a reminder of the fanfare around acquisitions like Psychonauts creator Double Fine and Hellblade developer Ninja Theory, teams brought in for the creative, distinctive work they produced.

No,w Microsoft appears set to close them while retaining the intellectual property they built. Reports indicate Microsoft is exploring a sale of these studios to preserve jobs, but closure is the fallback if no buyer steps forward. Double Fine reportedly employs around 100 people, Undead Labs about 110, Compulsion Games close to 90, and Ninja Theory roughly 135, well over 400 jobs tied to these four teams alone, before accounting for the wider XBOX layoffs expected across the rest of the division. Additional cuts are reportedly set to begin in early July.

A lot of criticism has been leveled at XBOX's leadership.

With many pointing to Asha Sharma as someone brought in to restructure the division through sales and dismantlement rather than growth, positioned to sell off IP, break apart brands, and manage the XBOX layoffs rather than rebuild creative momentum, which contrasts with what some fans expected when she stepped into the role.

Even longtime XBOX supporters among content creators and podcast hosts, typically the most forgiving voices in the space, seem to be acknowledging this has gotten out of hand. Loyal fans invested time and money into a platform that isn't delivering games, Game Pass value, or exclusives in return, essentially backing what feels like a dead platform, with nowhere else to place the blame except the decisions made at the top. Whatever comes next, these XBOX layoffs have already changed how longtime fans view the brand.

None of this should come down to whether a game sells as many copies as Call of Duty. Plenty of value comes from strange, niche, experimental titles that don't need blockbuster numbers to matter, and trading that variety for safe, forgettable releases is a real loss for anyone who cares about games as more than spreadsheets. Most people would rather see the industry take chances on weird passion projects than churn out another mass-produced live service release, and that's the kind of creativity these XBOX layoffs are putting at risk.