Xbox Layoffs Could Become the Largest in Gaming History, Five Studios at Risk

Division: Xbox / Microsoft Gaming  |  Studios at Risk: Compulsion Games, Double Fine, Ninja Theory, Arkane, Undead Labs  |  Expected Timing: July 6-7, 2026  |  Escala: Up to 2,000 jobs reported

Multiple insiders now describe the Xbox layoffs expected this week as potentially “the largest single layoff event in gaming history.” Up to five studios, Compulsion Games, Double Fine, Ninja Theory, Arkane, and Undead Labs, are reportedly at risk of closure, sale, or being spun off. Microsoft has not officially confirmed any studio closures or a specific headcount at the time of writing.

This article is based on multiple insider reports and industry sources. Microsoft has not officially confirmed the studios affected, the total number of positions cut, or the scale comparison to previous industry layoffs. MegaGames will update this article as new information becomes available.

What Insiders Are Saying

Bloomberg first reported in June that Microsoft’s Xbox division was planning major job cuts timed to the close of the company’s fiscal year on June 30. The Straits Times, citing Bloomberg’s original sourcing, confirmed that Xbox CEO Asha Sharma is overhauling the division to address declining revenue. The report specified that marketing budgets and other operational areas face significant cuts alongside personnel reductions.

Industry veteran and former developer George Broussard escalated the framing significantly in late June, stating the layoffs “will likely be the largest single layoff event in gaming history.” ScreenRant reported that decisions were reportedly finalized internally on June 30, with cuts expected to begin as early as July 7. For context, Microsoft’s January 2024 layoffs following the Activision Blizzard acquisition cut approximately 1,900 positions and were, until now, considered the largest single Xbox-related reduction in the company’s history.

The Five Studios Reportedly at Risk

TweakTown reported that Microsoft is weighing closure, sale, or spin-off for five specific studios, citing poor financial performance and low profit margins as the driving factors. Each studio carries significant creative history within Xbox’s portfolio.

• Compulsion Games: Developer of We Happy Few and South of Midnight, acquired by Xbox in 2018
• Double Fine: Tim Schafer’s studio behind Psychonauts and Psychonauts 2, acquired in 2019
• Ninja Theory: Creator of Hellblade: Senua’s Sacrifice and Senua’s Saga: Hellblade II, acquired in 2018
• Arkane Studios: Developer of Dishonored, Prey, and Deathloop, part of Xbox since the Bethesda acquisition in 2021
• Undead Labs: Creator of State of Decay, acquired in 2018, without a new release since joining Xbox

Polygon reported that “several other studios within the portfolio are at risk of closure” beyond just the three initially named, citing Bloomberg’s own sourcing. Furthermore, Push Square separately reported that Xbox is considering cancelling Marvel’s Blade, a project in development at Arkane, as part of the broader restructuring under consideration.

Why These Specific Studios

Every studio on the list built its reputation on narrative-driven, creatively ambitious single-player games rather than live-service or multiplayer titles designed for sustained engagement. This pattern directly contradicts the priorities Xbox CEO Asha Sharma outlined in her June 10 “Next 100 Days: Xbox Reset” memo, which explicitly promised a return to Signature Exclusives and higher-quality, less frequent releases.

However, the memo also stated plainly that “budget cuts, project cancellations, and further studio closures remain possible outcomes” of Xbox’s ongoing financial review. Consequently, the studios now reportedly at risk represent exactly the kind of smaller-scale creative teams that a leaner, exclusives-focused Xbox may no longer have room to support financially, even if their games received strong critical reception.

Undead Labs stands out as a particular case. The studio has not shipped a title since Microsoft acquired it in 2018, a gap of eight years without a release. That track record makes it a difficult case for Xbox to defend internally regardless of the studio’s creative potential.

What Happens July 6

Multiple sources point to July 6 or 7 as the date when concrete details will emerge. Microsoft’s gaming division fiscal year runs from July 1 to June 30, meaning cuts timed to the fiscal close would land in the first week of the new fiscal year. Neither Microsoft nor any of the five named studios has issued a public statement confirming or denying closure at the time of writing.

Consequently, everything in this article beyond the confirmed February memo and the confirmed fiscal timing remains insider reporting rather than official confirmation. Readers should treat specific studio names and the “largest in gaming history” framing as credible but unverified until Microsoft communicates directly with affected employees and the public.

Conclusión

Xbox has not confirmed a single detail in this story publicly. However, the sourcing comes from Bloomberg, corroborated independently by Polygon, TweakTown, ScreenRant, and Push Square, which gives the reporting significant weight even without official confirmation. If even three of the five named studios close, Xbox will have shut down more narrative-focused single-player studios in one week than most publishers close in a decade. MegaGames will publish full confirmed details as soon as Microsoft communicates them.