The hits keep coming for Xbox and Microsoft Gaming. After weeks of mounting speculation, reports now confirm that even more studios are on the chopping block, and this time it includes some of the most creatively ambitious teams in the industry.
Arkane, the studio behind beloved immersive sims like Dishonored and Prey, is reportedly facing closure alongside the cancellation of their Marvel Blade game. The project was originally slated for a 2026 release but has reportedly slipped to next year and gone over budget. Microsoft is said to be exploring a potential sale of the studio, though any acquisition talks could drag on for months.
Meanwhile, Undead Labs, the team behind the State of Decay franchise, is also apparently on the list of studios Microsoft may shutter. The news adds to an already brutal picture that now includes Double Fine, Ninja Theory, and Compulsion Games, all of whom were previously reported as facing closure or sale. If all five studios ultimately close, that represents an additional 500 jobs lost beyond the roughly 1,000 Xbox layoffs expected to begin as early as July 6.
Bethesda and Blizzard have not been spared either, with both divisions reportedly facing significant headcount reductions as part of what one insider described as the biggest single cut series for Xbox.
What makes this particularly galling is the financial context. Microsoft just raised console prices on players for the third time since 2025, and the company continues to pour billions into generative AI investments. As Blizzard senior environment artist Mahreen Fatima pointed out during a recent union call, leadership points to revenue margins to justify fighting workers, then spends lavishly elsewhere. Microsoft CEO Satya Nadella took home $96.5 million in compensation during fiscal year 2025 alone.
Union representatives have been vocal in their opposition. Workers across World of Warcraft, Diablo, Overwatch, Doom, and Psychonauts have all voted to organize in recent years, and the CWA has been coordinating efforts to protect jobs and ensure decent severance packages. But the sheer scale of cuts, coming just two years after Microsoft laid off nearly 2,000 gaming employees, has left many feeling disillusioned.
The bitter irony is hard to ignore. Microsoft spent $69 billion acquiring Activision Blizzard partly on the promise of building out Game Pass content. Now they are closing the very studios they bought to fill that pipeline. It is a pattern that has become depressingly familiar across the industry: acquire, expand, then cut when the spreadsheet demands it.
July 6 is the date to watch. That is when the layoffs are expected to formally kick off, and we should get official confirmation alongside Microsoft’s end-of-fiscal-year reporting. For now, hundreds of developers across multiple studios are left waiting to find out whether their jobs, and the games they have been building, will survive the guillotine.
Jordan Hayes is a staff writer at SteamGamer.net covering PC gaming news, hardware, and the latest from the Steam ecosystem. When not writing, Jordan is probably buried in a roguelike or arguing about GPU prices.
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