Xbox hands Halo to Activision, prepares to close Ninja Theory, and cuts another 268 jobs

Xbox has carried out a new round of layoffs and reorganized its network of internal studios. Development of the next Halo has been handed to Activision, where a new team assembled specifically for the project will work on it. Undead Labs has left the company. Ninja Theory, the creator of Hellblade, faces closure: two separate agreements on its future fell through.

Another 268 employees have lost their jobs. The cuts affected Halo Studios, other internal teams, as well as the management layer and central services of Xbox Game Studios. This was announced to staff by Matt Booty, chief content officer of the gaming division. His message was published on the Xbox Wire blog. According to Booty, the division is roughly three quarters of the way through the previously announced restructuring. “I am deeply grateful to my colleagues for what they have built, and I understand how hard this day will be for those who are leaving and for the teams around them,” he added.

The restructuring has been underway since July

The current round continues the plan Xbox announced in July 2026. At the time, the company said it would cut 3,200 positions by the end of the fiscal year. The first 1,600 layoffs hit major studios, including Obsidian, Zenimax Online Studios, and id Software.

That same July, Xbox sold Double Fine, the developer of Psychonauts, and Compulsion Games, which released South of Midnight. Double Fine kept its IP, its catalog of released games, and funding for the transition period. Xbox also said then that it was in similar talks with Undead Labs, Ninja Theory, and Arkane.

The fates of these three studios have played out differently:

• Undead Labs has left Xbox on terms similar to the Double Fine deal. State of Decay 3 will be released by a new publisher, and the game will be available on Game Pass on launch day.
• Ninja Theory was left without an agreement: both separate deals fell through. Xbox is beginning consultations with staff on the proposed closure of the studio but continues to explore other options.
• Arkane is still in protracted consultations with Xbox.

Xbox consolidates internal studios

Alongside the layoffs, Xbox is merging internal studios. The company wants to reduce its operational footprint and focus its publishing efforts. Activision, which Microsoft bought in 2023 for nearly $70 billion, is getting an expanded area of responsibility:

• the next Halo is being developed by a new team inside Activision assembled for the project. A small group from Halo Studios will continue to support the series' already released products;
• Rare and World's Edge are moving under Activision's management.

Obsidian is moving to Bethesda. The studio will continue work on its current projects, including Grounded and an upcoming Fallout game it is making together with Bethesda Game Studios. King is absorbing Microsoft Casual Games: according to Booty, this brings together “two global leaders” in casual game design and live operations. Playground Games (Fable) and Turn 10 (Forza) are merging into a single studio that will handle both franchises. According to Booty, these teams have worked together for more than a decade, and now their work is formally moving into one team.

The most notable change concerns Halo: Xbox's flagship franchise will be made by a team that didn't exist until recently.

In July, Xbox employees told Game Developer that five waves of mass layoffs in three years would weaken a number of internal studios through the loss of specialists. Those affected by the cuts also accused the company at the time of not treating people with proper respect.

What this means for the industry

By all appearances, Xbox is moving away from a model in which many internal studios existed as autonomous teams and is gathering them around a few large structures such as Activision, Bethesda, and King. The company is likely trying to make development costs more predictable after the expensive acquisitions of recent years. Handing Halo to Activision seems to suggest that in the new system, the franchise matters more than the studio that created it.

Selling studios while retaining IP and releasing games on Game Pass appears to be becoming a way for Xbox to cut costs: the company stops funding the team but keeps its games in the subscription. The outcome of talks with Arkane may also depend on how well this approach works. The job market will likely feel the consequences too: hundreds of experienced professionals are looking for work at the same time. Some of them may move to independent studios spun off from Xbox or into outsourcing.

Community reaction

The reaction is divided and generally somber. The loudest note is bitterness over Ninja Theory: after the collapsed sale deals, the studio's possible closure is being called insane and hurtful, and the cut of 268 people yet another price developers pay for corporate restructuring. The anger at Microsoft is about the people, not about the studio consolidation approach. The tone on Halo is different. A noticeable part of the audience writes that Halo Studios struggled with the series for years, so handing the next game to Activision actually gives them hope — as long as a different team takes on the franchise. Still, almost no one is happy about the layoffs themselves: even critics of the studio make a point of saying they feel for the people losing their jobs.

“Very sad to see the studio fall apart. It feels like the talent was wasted on a drawn-out development and games that never found a broader audience after Hellblade's initial success.”

— @RinoTheBouncer (X)

“Nothing crazy. Most of it looks logical — they're just consolidating. It's sad when people lose their jobs, but Halo Studios hasn't been up to the task for more than a decade.”

— @jakjons77 (X)

“I'm never happy when people lose their jobs, but when it comes to Halo specifically, this gives me hope. The Halo Studios experiment has been failing in plain sight, and I'm ready to see someone else take on my favorite series.”

— @Arrrrash (X)

What is behind this Xbox restructuring: a failed leadership strategy, expensive multi-year AAA projects, or weak console sales?