Microsoft Lays Off Thousands of Xbox Employees, Closes Game Studios

July 6, 2026 - 18:24

Microsoft has laid off thousands of employees across its Xbox division and closed multiple game studios, marking one of the largest restructuring moves in the company's gaming history. The cuts hit several teams, including those working on recently acquired studios and long-running franchises. Affected employees were notified earlier this week, with some studios shutting down entirely.

The layoffs are part of a broader cost-cutting effort at Microsoft, as the company shifts its focus and resources toward artificial intelligence. In recent months, Microsoft has poured billions into AI infrastructure and partnerships, including its deep investment in OpenAI. While gaming remains a key part of the business, the company is reallocating spending to areas it sees as higher growth.

This is not the first round of layoffs for Xbox. Earlier this year, Microsoft cut around 1,900 jobs from its gaming division, mostly from Activision Blizzard, which it acquired in late 2023. That deal, worth nearly $69 billion, was the largest in the gaming industry. Since then, Microsoft has been consolidating teams and reducing overlap.

The closures include several smaller studios that were working on niche or experimental projects. Developers from those teams were offered internal transfers in some cases, but many were let go. The exact number of affected workers has not been confirmed, but sources inside the company say the total is in the thousands.

Industry analysts say the move reflects a broader trend in tech and gaming, where companies are cutting costs to fund AI development. Microsoft is not alone. Sony, Google, and Amazon have also made similar cuts in recent years. For now, Xbox's major franchises like Halo, Forza, and Call of Duty remain unaffected, but the loss of smaller studios raises questions about the future of creative risk-taking in the industry.