Microsoft has kicked off another huge round of layoffs, axing around 9,000 workers from several groups and offices. The move is the company’s second large-scale reduction of workers in 2025, touching less than 4% of its worldwide workforce—but making a deep impact, especially on its gaming business.
Xbox Division Hit Hard: Game Cancellations and Studio Closures
The most sensational impacts have been within Microsoft Gaming, where a number of high-profile studios are being closed and long-awaited game titles canceled.
Affected studios are:
- The Initiative – closed after Perfect Dark cancellation
- ZeniMax Online Studios – lost one unannounced project
- Rare Studios – Everwild canceled after extensive development
- King (creators of Candy Crush) – cutting 10% of its workforce (~200 roles)
- Raven Software, Sledgehammer Games, Halo Studios, Turn 10 Studios – under deep job reductions
These moves are intended to “emphasize strategic growth areas” and set the gaming business up for “sustaining success,” as per an internal memo from Xbox CEO Phil Spencer.
Why the Cuts?
Microsoft explains the cuts are part of an overall restructuring plan designed to cut out middle management layers and simplify operations in order to “increase agility and effectiveness.”
A company representative said:
“We continue to make organizational changes that will best position the company and teams for success in a changing marketplace.”
The company is also investing heavily in AI innovation, having spent an estimated $80 billion on AI projects in its last fiscal year. This shift has been one of the main drivers of Microsoft’s overall workforce reorganization.
Four Layoffs in 18 Months: A Troubling Pattern
This is Microsoft’s fourth large-scale layoff in the company’s gaming unit in 18 months, and follows:
- 6,000 layoffs in May 2025, focused on product and engineering teams
- 300 additional job cuts in June 2025
- Ongoing trimming of smaller teams and leadership tiers post-acquisitions
The $69 billion Activision Blizzard acquisition in late 2023 added tens of thousands of new employees to Microsoft’s workforce, accelerating the need for internal realignment.
What Happens to Affected Employees?
Microsoft says impacted workers will receive severance packages, including:
- Pay and benefits continuation
- Healthcare coverage for a limited time
- Job placement support
- Priority access to positions in other segments of the firm
Though these resources are some consolation, the magnitude and abruptness of the cuts have stunned workers and analysts together.
A Defining Moment for Microsoft Gaming
As Microsoft doubles down on artificial intelligence and reorganizes its gaming empire, the world is waiting with bated breath. The shut down of The Initiative, the cancellation of Perfect Dark and Everwild, and the decimation of legendary studios all point to a radical change in how the company intends to construct its gaming future.
While Microsoft maintains it’s preparing for long-term dominance, the short-term price has been thousands of livelihoods and the destruction of years of innovative development.
