In a significant reorganization within its Xbox division, Microsoft has announced the cancellation of the Perfect Dark reboot and the closure of its first-party studio, The Initiative. This move is part of a broader wave of layoffs affecting the company, particularly targeting its gaming sector. British developer Rare has also faced cuts, resulting in the cancellation of its action-adventure title, Everwild. Additionally, ZeniMax Online Studios, known for The Elder Scrolls Online, is affected, with an unannounced MMO project also being scrapped.
Microsoft Continues Job Cuts in Gaming Sector
The layoffs represent the fourth round of job reductions in Microsoft’s gaming division since early 2024, occurring after the completion of its substantial acquisition of Activision Blizzard for over $69 billion in October 2023. This latest restructuring initiative will see around four percent of Microsoft’s total workforce, equating to over 9,000 employees, laid off as the company seeks to streamline its operations.
According to Bloomberg, the cuts have significantly impacted key members of the Xbox division, including Candy Crush developer King, and teams behind the Call of Duty franchise such as Raven Software and Sledgehammer Games. While the full extent of layoffs in the gaming sector remains unclear, reports indicate that King is reducing its workforce by approximately 200 employees, or 10 percent of its staff.
Microsoft’s Xbox division has seen four rounds of layoffs since the Activision Blizzard-King acquisition
Photo Credit: Reuters
Cancellation of Perfect Dark and Other Titles
The Perfect Dark reboot was first introduced during The Game Awards in 2020 and was under development at The Initiative, located in Santa Monica, in collaboration with Crystal Dynamics, known for the Tomb Raider franchise. A gameplay trailer for the title was showcased at the previous year’s Xbox Games Showcase, but it did not make an appearance at the 2025 edition of the event.
The Initiative was built as a high-profile studio, recruiting seasoned professionals from notable companies such as Sony’s Santa Monica Studio, Naughty Dog, and Rockstar Games. Last November, it was reported that Insomniac Games’ Brian Horton, previously the creative director for Marvel’s Wolverine, joined The Initiative to spearhead the Perfect Dark project.
In an internal email obtained by Windows Central, Microsoft confirmed the cancellation of Perfect Dark and Everwild, along with several unannounced projects, alongside the closure of The Initiative. Xbox Game Studios head Matt Booty stated, “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.”
Booty emphasized that these decisions are part of a broader strategy to adjust priorities and allocate resources to enhance team success in an evolving industry. He acknowledged the emotional impact of these choices, noting the extensive commitment that each project and team represents.
Despite these changes, Booty reassured that Xbox’s overarching strategy remains intact, with a focus on growing its “biggest franchises.” He also pointed out that Xbox Game Studios has over 40 projects currently in development. Affected employees will receive severance packages and career transition support, and efforts will be made to reassign some to other roles within the gaming division.
Prior to Booty’s communication, Microsoft Gaming CEO Phil Spencer addressed Xbox staff, indicating that the division is following the company’s directive to streamline management. Spencer acknowledged the unprecedented player engagement and gaming activity, asserting that the current performance is built upon previous tough decisions. He reiterated the necessity of making strategic choices for sustainable future success.
At Xbox Games Showcase last month, Phil Spencer promised a healthy slate of Xbox games in 2026
Photo Credit: Microsoft
Ongoing Layoffs and Strategic Shifts in Xbox
The trend of layoffs within Xbox has been ongoing since Microsoft completed its acquisition of Activision, drawing increased attention toward the gaming division. Earlier layoffs included over 1,900 employees from Xbox in January of the previous year, accounting for about eight percent of the gaming workforce, and additional project cancellations occurred during this period.
In May 2024, Microsoft announced the closure of three Bethesda-owned game studios, including Tango Gameworks and Arkane Austin, to realign focus towards priority projects, resulting in significant staff reductions. Tango Gameworks has since been acquired by Krafton and is reportedly in the early stages of developing its next project.
Moreover, in September 2024, Microsoft laid off 650 employees from Xbox as part of cost-cutting measures following the Activision acquisition. Shifts in Xbox’s strategy have been evident, de-emphasizing home consoles in favor of prioritizing Xbox services such as Game Pass and cloud gaming. The company began releasing its first-party Xbox exclusives on rival platforms, a trend that continues into 2025, with plans for future releases on Sony’s PS5.
Despite these changes, Xbox is not stepping back from hardware development. The company recently entered a multi-year partnership with AMD to collaborate on chip development for upcoming devices, including the next generation of Xbox consoles. Microsoft remains committed to creating a versatile gaming experience not confined to a single platform while aiming to establish Windows as the premier gaming platform.
