Microsoft announced further reset maneuvers for the Xbox brand, confirming additional layoffs as well as a reorganization of its first party studios. It's been a very up and down year for the Xbox brand as Microsoft continues its efforts to reset and refresh. With the second phase of this plan arriving, Microsoft has big changes in store, especially for some of its bigger studios, like Bethesda.
2026 has been a fairly turbulent year for Microsoft and its Xbox Games Division. On one hand, the 25th anniversary of Xbox saw the retirement of Phil Spencer, bringing on Asha Sharma as his successor. On the other hand, Sharma and leadership have been adamant about restoring the brand and its profitability, which has led to a lot of difficult moments, including mass layoffs and studio closures. While some development studios like Double Fine have embraced its return to being an independent developer, others have not been so fortunate. Unfortunately, Xbox is continuing its reset with even more massive changes to the brand and its structure.
In another message to global employees, Matt Booty revealed the next phase of its Xbox reset. Unfortunately, layoffs are another big piece to this announcement, with 268 roles being laid off across first party studios, central functions, and XGS management. According to Booty, the total number of Xbox layoffs so far in 2026 are about "three-quarters of the way through" from where they originally announced the restructuring.
However, the big news is that Microsoft is reorganizing its studios, merging Turn 10 and Playground together and expanding the remit of companies like Bethesda, Activision, and King. Specifically, Obsidian is now being added to the Bethesda umbrella, bringing these two companies with a lengthy shared history officially together. The announcement also confirmed that Obsidian will be continuing to develop its current projects like Grounded 2 as well as a new Fallout project that is a collaboration with Bethesda Game Studios. The overall goal of these reorganization efforts is to align groups that already work together and better strengthen franchises.
In addition to Obsidian and Bethesda, King also now includes Microsoft Casual Games while Activision was given Rare and World's Edge. However, one of the more surprising revelations in the message is that a new Halo game is now being developed at Activision, not Halo Studios. A new "purpose-built" team outside the Call of Duty umbrella is leading the project while Halo Studios is largely left to continue supporting the community and currently available games. Microsoft also confirmed additional layoffs at Halo Studios as well.
The histories of both Bethesda and Obsidian are well documented, two studios revered for their skills and iconic franchises. While both studios are now on the same team, they weren't always seeing eye to eye, especially after the controversies that arose over the development of Obsidian's beloved Fallout: New Vegas. Former senior designer Chris Avellone previously recalled the frustrations between both studios, with Bethesda highlighting all the things it felt Obsidian did wrong, confrontations over game performance, as well as the infamous metacritic score that prevented Obsidian from earning a bonus. While plenty of time has passed, the two seem to be on better terms with a new Fallout project in development.
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