Xbox layoffs: Microsoft reportedly closes studio The Initiative, cancels Perfect Dark, Everwild, and unannounced projects

Update 3, July 2, 2025: Microsoft is reportedly closing The Initiative, and cancelling the Perfect Dark reboot that was fully revealed last June. That’s according to Windows Central, which also shares an email sent internally from Xbox’s studio head Matt Booty. That same email was corroborated by Bloomberg’s Jason Schreier.

“Following Phil’s note, I want to share more about the changes to the Studios business units,” the email reads.

“We have made the decision to stop development of Perfect Dark and Everwild as well as wind down several unannounced projects across our portfolio. As part of this, we are closing one of our studios, The Initiative. These decisions, along with other changes across our teams, reflect a broader effort to adjust priorities and focus resources to set up our teams for greater success within a changing industry landscape. We did not make these choices lightly, as each project and team represent years of effort, imagination, and commitment.”

Booty also said the overall strategy with the company’s gaming portfolio remains unchanged, and that more than 40 projects are still in development at Xbox.

Update 2, July 2, 2025: Jason Schreier has also added that Call of Duty studio Raven Software and Forza Motorsport creators Turn 10 are the latest to be hit with layoffs, with almost 50% of Turn 10 staff reportedly laid off.

Update 1, July 2, 2025: More of Microsoft’s cuts across gaming are being made public. Bloomberg’s Jason Schreier reports that the long-in-development MMO from Elder Scrolls Online studio Zenimax Online Studios, codenamed Blackbird, has been cancelled.

Original story, July 2, 2025: Microsoft has begun making layoffs across its gaming division today, July 2, as was expected based on multiple rumours and reports from last week.

“We continue to implement organizational and workforce changes that are necessary to position the company and teams for success in a dynamic marketplace,” a Microsoft spokesperson told GamesIndustry.biz

CNBC reports that this is part of a larger 4% round of layoffs at Microsoft, affecting around 9,000 employees.

According to Bloomberg, Microsoft’s King mobile gaming division is laying off 200 people, or around 10% of the workforce, in Barcelona, Spain.

Employees in ZeniMax’s European offices have also been informed that cuts are underway, says the report.

The Rare game Everwild has reportedly been cancelled, too, according to Bloomberg’s Jason Schreier. VGC reports the same. How it affects the UK-based studio is unclear, but one staff member posted they were now looking for work on BlueSky. Microsoft has not commented on Rare specifically.

Bloomberg’s story mentions that US offices are expecting to be told how many staff will be laid off at each office later today.

The layoffs coincide with the end of Microsoft’s financial year on June 30. This is the fourth round of layoffs at Microsoft’s gaming division in 18 months. Microsoft laid off 3% of its staff back in May.

Xbox head Phil Spencer addressed the cuts in a memo to staff, as shared with IGN.

“Today we are sharing decisions that will impact colleagues across our organization. To position Gaming for enduring success and allow us to focus on strategic growth areas, we will end or decrease work in certain areas of the business and follow Microsoft’s lead in removing layers of management to increase agility and effectiveness. Out of respect for those impacted today, the specifics of today’s notifications and any organizational shifts will be shared by your team leaders in the coming days.

“I recognize that these changes come at a time when we have more players, games, and gaming hours than ever before. Our platform, hardware, and game roadmap have never looked stronger. The success we’re seeing currently is based on tough decisions we’ve made previously. We must make choices now for continued success in future years and a key part of that strategy is the discipline to prioritize the strongest opportunities. We will protect what is thriving and concentrate effort on areas with the greatest potential, while delivering on the expectations the company has for our business. This focused approach means we can deliver exceptional games and experiences for players for generations to come.

“Prioritizing our opportunities is essential, but that does not lessen the significance of this moment. Simply put, we would not be where we are today without the time, energy, and creativity of those whose roles are impacted. These decisions are not a reflection of the talent, creativity, and dedication of the people involved. Our momentum is not accidental — it is the result of years of dedicated effort from our teams.

“HR is working directly with impacted employees to provide severance plan benefits (aligned with local laws), including pay, healthcare coverage, and job placement resources to support their transition. Employees whose roles were eliminated are encouraged to explore open positions across Microsoft Gaming, where their applications will be given priority review.

“Thank you to everyone who has shaped our culture, our products, and our community. We will move forward with deep appreciation and respect for all who have contributed to this journey.”

This story will be updated as more information is learned about which studios or parts of the division are affected by the cuts.

During its most recent round of results for Q3 2025, Microsoft revealed that revenue increased 5% year-over-year for its gaming segment.

This article has been updated with Phil Spencer’s memo, Microsoft’s statement, CNBC’s report on wider Microsoft layoffs, and details on Everwild’s reported cancellation.