Microsoft is preparing to cut between 500 and 1,000 jobs in its Xbox division, marking the largest round of layoffs in the gaming arm’s history, according to The Verge’s sources. Several internal studios, including Arkane Studios-the team behind Dishonored and Deathloop-are reportedly facing closure. This raises doubts about the future of high-profile projects like Marvel’s Blade, currently in development by Arkane’s French branch.
The studios potentially at risk include Compulsion Games, Double Fine Productions, Ninja Theory, Undead Labs, and Arkane Studios, The Verge reports. Arkane’s French team is working on Marvel’s Blade, a narrative-driven action game based on the Marvel license. The project was recently delayed from a 2026 launch to late 2027 and has exceeded its initial budget.
Marvel’s Blade represents a significant single-player release for Xbox, which has not seen a major new title from Arkane since the mixed reception of Redfall in 2023. Sources indicate that if Arkane shuts down, the game may be canceled outright.
The layoffs are expected to start as soon as July 6. Earlier reports from Bloomberg and GamesBeat suggested that some studios might avoid closure if Microsoft finds buyers for them. However, those deals would take months to negotiate, making immediate layoffs of central Xbox teams the more likely scenario in the near term.
History of Xbox layoffs and studio closures
This is not Microsoft’s first restructuring in gaming since its $68.7 billion acquisition of Activision Blizzard. In January 2024, roughly 1,900 employees across Xbox, Activision Blizzard, and ZeniMax were laid off. These cuts affected teams at Blizzard, Sledgehammer Games, and corporate gaming divisions.
Months later, Microsoft closed Arkane Austin, Tango Gameworks, Alpha Dog Games, and disbanded the internal Roundhouse Games team. This was a major blow, especially as Tango had just delivered Hi-Fi Rush-one of Bethesda’s best-received recent titles. Tango Gameworks was later sold to Krafton, while Arkane Austin was closed permanently.
The upcoming layoffs appear to continue this restructuring trend. Xbox is balancing its costly Game Pass subscription model, investing heavily in exclusive titles, and seeking to improve profitability after multi-billion-dollar acquisitions. According to Ampere Analysis, global gaming revenues topped $200 billion in 2024, but console growth lags behind mobile and services. Platform holders now face tighter deadlines and budgets for major releases.
Microsoft faces a difficult balance: closing studios reduces fixed costs but risks weakening its exclusive lineup and internal expertise on single-player games. Sony and Nintendo have more predictable portfolios-Sony relies on a stable of studios with flagship series like Spider-Man and God of War, while Nintendo depends on its own franchises, which rarely undergo abrupt development restarts.
If The Verge’s information is accurate, this will be Xbox’s largest round of layoffs by headcount. The fate of Arkane Studios and Marvel’s Blade should become clearer soon-initial layoff decisions are expected in July, while any deals to sell studios typically take months and require license-holder approval.
Looking ahead, Microsoft’s ability to maintain a steady stream of blockbuster exclusives will be tested. The closure of Arkane, if it occurs, would leave a gap in the studio lineup that will be difficult to fill given Arkane’s unique style and track record. Xbox’s challenge is to manage cost pressures without compromising the quality and identity of its first-party offerings as it competes with Sony and Nintendo in a crowded console ecosystem.