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Updated  Jul 7, 2026, 10:49 AM EDT

It's been a tough few weeks for Team Green

What's happening at Xbox? Every change, rumor, and canceled game in a turbulent month

Image: Microsoft via Polygon

The last several months have been a roller coaster for Xbox, culminating in a sweeping wave of layoffs on July 6. Xbox CEO Asha Sharma announced that Microsoft will divest from five game studios and cut a total of 3,200 jobs by July 2027.

Microsoft's gaming division saw a major leadership turnover back in February, with CEO Phil Spencer abruptly leaving the company along with his heir apparent Sarah Bond. Incoming CEO Asha Sharma and chief content officer Matt Booty moved quickly to reestablish trust in the flagging brand. They cut prices on Xbox Game Pass after a 50% price hike sparked an exodus from the service. They reaffirmed that new high-end hardware was in the works, in the form of Project Helix. They boldly declared that their organization would be called XBOX, in all-caps. Xbox hosted a barnstorming summer showcase on June 7, and gave away hundreds of translucent green Series X consoles to fans who attended live.

It seemed like everything was going great! And then the wheels fell off the wagon. Just three days after the showcase, on June 10, Bloomberg reported that Sharma had planned a massive slate of layoffs that would begin in July. Sharma and Booty confirmed these reports in a post on Xbox Wire that outlined plans for a "reset" over the coming 100 days, citing lousy revenue, increasing hardware costs, and excessive expansion during the pandemic years. With some 1,600 jobs lost on July 6 — and more to come in the year ahead — it's clear the process won't be a pretty one.

It may take weeks or even months until we get an exact picture of all the changes taking place at Xbox, but here's what we know at present. The stories below are presented in reverse chronological order, so the newest developments will appear at the top.

Making sense of the layoffs

A day after Sharma's July 6 memo, we're starting to get a clearer picture of what's going on at the Xbox studios that aren't going independent or being acquired by new owners.

• The Elder Scrolls Online developer ZeniMax Online Studios has been "seemingly gutted," according to a Kotaku report.
• Doom and Wolfenstein developer Id Software reportedly lost as many as 95 staffers, according to VGC.
• Obsidian Entertainment — the developer behind The Outer Worlds, Pentiment, and Grounded — has reportedly lost 25% of its staff in the cuts, which shakes out to roughly 60 to 70 employees. This includes the studio's art director, who had been with Obsidian for 21 years.

Game Pass has missed the mark big time

Image: Microsoft

Xbox doesn't release subscriber numbers for Game Pass very often, and when a company does that, it usually means the numbers aren't very impressive. According to a Wall Street Journal report from July 6, Game Pass currently has 30 million subscribers — that's fewer than half of the 77 million players the company had hoped to reach by July 2026, according to Microsoft court filings from its Federal Trade Commission trial over the Activision deal. The last time Microsoft publicly reported the number of Game Pass subscribers was in February 2024, when the service had 34 million users. Clearly, Game Pass hasn't quite recovered from those eye-watering October 2025 price hikes, even after they were rolled back earlier this year.

3,200 layoffs at Xbox by July 2027

In a memo to the organization that was later posted publicly on Xbox Wire, Sharma detailed how many jobs would be eliminated. Though Microsoft eliminated 1,600 Xbox jobs on July 6, unfortunately, there's still more to come in the months ahead.

After careful consideration, I’ve made the difficult decision to reduce our team by approximately 3,200 throughout FY27. This will include approximately 1,600 role eliminations today, and in addition, four studios will leave XBOX to new management. I recognize that a year-long restructuring creates additional challenges. Unfortunately, it is not possible to make all the necessary changes in a single day, and I wanted to be direct about the scale.

Five studios will leave Xbox

Image: Double Fine Productions / Xbox Game Studios

As part of the wave of news on July 6, Sharma also announced that several studios will either go independent or be acquired by new owners. These include:

• Compulsion Games (independent)
• Double Fine Productions (independent)
• Ninja Theory (new owners)
• Undead Labs (new owners)
• Arkane Lyon (status currently unclear due to French labor law)

No first-party games cancelled... for now

In her July 6 memo to staff, Sharma said, "None of our first party publicly announced games or projects are being cancelled as part of these reductions." Rumors had swirled in recent weeks regarding the fate of Ninja Theory's Senua and Undead Labs' State of Decay 3, which had been prominently featured in the Xbox Showcase event on June 7.

The fate of Arkane's troubled Marvel project, Blade, remains unclear at present. According to Game File, the studio "is also slated for an exit. Given local laws, though, Microsoft has been unable to explore its future—ranging from sale, to management buyout to shutdown—until today." We won't know for sure whether Blade will see the light of day until the studio's fate is finalized, which may take months.

A digital-only future

On July 1, Sony announced it would no longer make physical game discs for games released after January 2028. That same day, reporting from The Verge claimed Xbox is working on a way to digitize physical game discs. Essentially, you'd insert a disc and then be granted an additional digital copy. These copies can be sold and borrowed, similar to Nintendo's game-key cards.

Bond developer caught in the crossfire

On June 30, IO Interactive cryptically announced on X that a "relationship with an external partner on our own IP, Project Fantasy, has come to an end." It was soon confirmed that Xbox was the external partner pulling out of the deal. IO will continue developing Project Fantasy, but said it will have to make "staffing decisions" in response to the funding change, which doesn't sound great.

Blade gets screwed over again

Image: Arkane Studios/Microsoft

Marvel's beloved vampire badass just can't catch a break lately. On June 30, The Verge reported that Microsoft is considering shutting down Arkane Studios, best known for the Dishonored series, Deathloop, and Prey (2017). That would also mean the end of Arkane’s upcoming game based on the comic book icon. Marvel’s Blade was originally supposed to debut later this year, but its internal ship date has allegedly slipped to late 2027.

State of Decay maker Undead Labs under threat

On July 29, GamesBeat reported that Undead Labs, alongside the three previously named studios — Compulsion Games, Double Fine, and Ninja Theory — was at risk of closure. Undead Labs is currently working on State of Decay 3, which was featured in Xbox's June 7 showcase and slated to release sometime in 2027.

Third-party developers claim their Xbox deals are on hold

On June 29, a variety of reports claimed that Xbox was planning further adjustments to Game Pass. According to Fernando Rizo, a consultant who advises self-publishing indie studios, Xbox has suspended discussions with third-party studios to sign deals to put their games on Game Pass. Rizo recently said on The Business of Video Games podcast that he'd spoken to a number of developers negotiating with Xbox who "got the rug pulled out from under them." Rizo's impression is that the deals were "on pause" rather than canceled, as Xbox seeks to reassess its Game Pass operation.