Xbox’s Darkest Week: Halo Moves to Activision, 268 Jobs Cut, and the Empire Strikes Back at Itself

By Vito Ruocco — September 26, 2026

It was the kind of week that makes you put down the controller and just stare at the screen. On Tuesday morning, Xbox head Matt Booty sent a memo that shook the gaming industry to its foundation: Halo Studios was being gutted, 268 roles were being eliminated, and—most stunningly of all—the next Halo game would be developed by Activision. The franchise that built Xbox, the face of the console for over two decades, was being handed to the Call of Duty factory.

And that was just the beginning.

As the week unfolded, the sheer scale of Microsoft’s restructuring became clear. Ninja Theory, the beloved British studio behind Hellblade, is effectively closing. Obsidian Entertainment has been folded into Bethesda. Playground Games and Turn 10 Studios are merging. Rare and World’s Edge are moving under Activision’s wing. Undead Labs is being spun off as an independent studio after suffering its own layoffs. The Xbox first-party ecosystem—built over years of aggressive acquisition—is being torn apart and reassembled into something that looks very different from what Phil Spencer envisioned.

This is the story of the week Xbox reset itself, and what it means for the future of gaming.

The Numbers That Tell the Story

Let’s put this into perspective. Microsoft has now cut over 3,200 gaming jobs in 2026 alone. The first wave in the summer eliminated 1,600 positions. This week’s cuts added another 268. But those are just the direct layoffs. When you factor in the studio closures, the restructuring, and the teams that were simply dissolved, the human toll is staggering.

Windows Central reports that Halo Studios alone lost “hundreds” of employees—a studio that was already operating with a skeleton crew after years of attrition. One former employee, cinematic director Josh Daniels, shared a heartbreaking post on LinkedIn: “Promoted and laid off in the same week is pretty wild.” He was one of many who received the news via a carefully worded email from a corporate HR department, not from the leadership they’d worked alongside for years.

Bonnie Ross, the founder of 343 Industries (which became Halo Studios), responded publicly: “It was difficult to wake up to the news that the Halo Studio is essentially being shut down today, with only a small number of roles remaining. Hundreds of incredibly talented team members are being impacted.” Kiki Wolfkill, another legendary figure in Halo’s history, echoed the sentiment: “Sending love and support to everyone impacted. I know how much talent, heart, and care these teams pour into this work.”

The numbers don’t lie: this is the largest restructuring in Xbox history, and possibly the most significant shift of developer talent since the Activision Blizzard acquisition itself.

Halo: The Crown Jewel Changes Hands

The headline that stopped everyone cold: Activision is making the next Halo game. Not just co-developing. Not just publishing. A “purpose-built” team, separate from Call of Duty, has been created within Activision specifically to develop the next mainline Halo title. Halo Studios, meanwhile, is reduced to a “small” support team that will continue servicing the existing games and community.

Activision president Rob Kostich released a carefully measured statement: “Our goal is to make the greatest Halo game ever, worthy of its universe and legacy, while staying true to what made players love it in the first place.”

The fan response has been, predictably, a firestorm. Reddit threads have exploded with speculation. On Eurogamer’s coverage alone, the story generated 46 comments—extraordinary engagement for a Friday article. Some fans fear a full lore reboot, similar to what Disney did with Star Wars. Others are hoping for exactly that.

“Honestly that’s my biggest fear. I fear that they’ll just do a general reset on Halo’s established lore. If that happens, I’m out,” wrote one fan on X (formerly Twitter). Another countered: “Frankly I’m out if they DON’T do a semi-reboot and axe ALL of 343’s lore. There is zero future for any stories which share a continuity with Halo 4, 5, and Infinite.” The comment sections are a battlefield of competing visions for the franchise’s future.

There’s a compelling argument on both sides. The post-Bungie era of Halo has been, at times, narratively incoherent. The Forerunner trilogy introduced layers of “space magic” that alienated casual fans. But Halo Infinite ended on a clean slate—Cortana 1.0 was gone, the Banished were in play, and the stage was set for something new. Throwing that away feels wasteful.

At the very least, December’s Halo Fest is still going ahead. The series’ esports lead confirmed the event is “still on for December. No changes to dates, locations, etc.” That’s some small comfort for fans who were worried the celebration of Halo’s 25th anniversary would be cancelled.

Ninja Theory: Hellblade’s Home Goes Dark

Perhaps the most heartbreaking casualty of this restructuring is Ninja Theory. The Cambridge-based studio, acquired by Microsoft in 2018 for a reported $117 million, delivered one of the most artistically ambitious games of the generation with Hellblade: Senua’s Sacrifice and its sequel. The studio’s work on mental health representation in video games was groundbreaking, earning praise from both critics and mental health professionals.

Eurogamer confirmed that the studio’s impending closure is a direct result of this week’s cuts. The news was met with an outpouring of grief from the development community. Ninja Theory had been working on Project: Mara, an experimental horror game exploring mental health, as well as a new Hellblade title. Both projects are now presumably cancelled.

The closure raises uncomfortable questions about Microsoft’s commitment to smaller, artistically ambitious projects. Ninja Theory wasn’t a blockbuster studio—it didn’t sell 10 million copies or generate billions in revenue. But it made games that mattered, that pushed the medium forward, that told stories no other studio was telling. In the new Xbox “franchise-led model,” there may simply be no room for studios like this.

Obsidian Goes to Bethesda: The Franchise Machine

Not every move in this restructuring was a death sentence. Obsidian Entertainment, the celebrated RPG developer behind Fallout: New Vegas, The Outer Worlds, and Avowed, has been transferred from Xbox Game Studios to Bethesda’s umbrella. Bethesda president Jill Braff has promised that Obsidian will retain its “creative identity.”

“The creative identity and strengths that make Obsidian distinct will remain at the core of their studio and work,” Braff said in an email to staff. “CEO Feargus Urquhart and the Obsidian leadership team will continue to lead Obsidian, with the studio reporting to me.”

The context here is important. Obsidian had already lost roughly 25% of its workforce in the first wave of Xbox cuts this summer. Several in-development projects were cancelled. Now, it’s being merged into the same organization that controls Bethesda Game Studios—which is already working with Obsidian on “a new Fallout project.”

Xbox’s new CEO Asha Sharma has been clear about her “franchise-led model.” Instead of supporting a diverse portfolio of original IPs, Microsoft wants to focus on its biggest names: The Elder Scrolls, Fallout, Halo, Gears of War. Obsidian’s original games this generation—Avowed and The Outer Worlds 2—apparently underperformed. The result? Back to the wasteland.

For fans, this is bittersweet. On one hand, a new Fallout game from Obsidian is a dream come true. On the other, it signals that Microsoft is no longer interested in funding ambitious new IPs from talented studios. The message is clear: play in our sandboxes, or don’t play at all.

The Rest of the Fallout: Rare, World’s Edge, Undead Labs, and More

The restructuring ripples extend far beyond the headliners. Here’s the full picture of what changed this week at Xbox:

Rare (Sea of Thieves, Banjo-Kazooie) moves under Activision’s control. The studio had been enjoying a renaissance with Sea of Thieves, which has grown into a genuine live-service success story. What this means for its future projects—including the long-rumored Perfect Dark revival—remains unclear.
World’s Edge (Age of Empires) also moves to Activision. Reports indicate the studio lost “nearly half” of its staff in this week’s cuts. That’s devastating for a team that successfully revived one of PC gaming’s most beloved strategy franchises.
Playground Games and Turn 10 Studios are merging. Both studios work on racing games—Playground on Forza Horizon, Turn 10 on Forza Motorsport—so there’s some logic here. But consolidation always comes at a cost.
Undead Labs (State of Decay) has been spun off as an independent studio after suffering “major layoffs.” The zombie survival franchise has a dedicated fanbase, but its future is now uncertain.
Double Fine (Psychonauts 2) was reportedly separated from Xbox in the earlier summer cuts. Tim Schafer, Double Fine’s founder, has been publicly critical of the industry’s direction. In a recent interview, he said: “I assume someone is being greedy somewhere.”

In total, five first-party studios were parted with in the summer wave alone. Add this week’s casualties, and Xbox has effectively shed nearly a third of its first-party development capacity in under six months.

What Is Xbox’s “Franchise-Led Model”?

To understand why this is happening, you need to understand Xbox’s new strategy under CEO Asha Sharma. Since taking over the gaming division, Sharma has been more explicit about her vision than her predecessor Phil Spencer ever was: Xbox is doubling down on its biggest franchises, and everything else is on the chopping block.

The logic is brutally simple. A game like Halo Infinite cost over $500 million to develop. A game like Hellblade 2 sold maybe 3 million copies. The return on investment for mid-size titles simply doesn’t justify the expense, especially when Game Pass subscriber growth is slowing and the competition (PlayStation, Nintendo) is thriving.

But there’s a deeper issue here. Xbox spent nearly $80 billion acquiring studios—Activision Blizzard alone cost $69 billion. Now, it needs to show results. The restructuring is the inevitable consequence of massive consolidation without a clear artistic vision. You can’t buy two dozen studios and then claim you’re committed to “creative diversity” when the quarterly earnings call comes around.

The “franchise-led model” means fewer games, bigger budgets, more established IPs. It means Halo and Call of Duty and Fallout and The Elder Scrolls. It means smaller, riskier projects—the kind that defined Xbox’s reputation in the 360 era—are increasingly unlikely to survive.

Is this sustainable? Maybe. But it represents a fundamental shift in what Xbox stands for. The platform that once championed indie developers, original IPs, and creative ambition is now a franchise factory.

Marathon’s Struggle and the Destiny Connection

Ironically, Bungie—Halo’s original creator—is going through its own existential crisis this week. Marathon, Bungie’s long-awaited extraction shooter, has seen player numbers plummet below 1,000 concurrent on Steam. In response, Bungie announced a major pivot, planning to expand the game “beyond extraction” with new PvE content, Team Deathmatch, and more approachable experiences.

This is the same week that Halo moves to Activision. Two of the most iconic studios in first-person shooter history, both struggling to find their footing. It’s a sobering reminder that even the biggest names in gaming aren’t immune to the industry’s harsh realities.

Bungie’s roadmap for Marathon includes a Nightfall refresh in October, a PvE expansion (Symbiosis) in December, and a major structural overhaul in March 2027. But with player counts this low, many wonder if the game will survive long enough to see those changes.

Meanwhile, Destiny 2 is also in flux. Bungie has surprised players by “unvaulting” previously removed content, but sources indicate that regular Destiny 2 updates are unlikely to return to their former cadence. The Bungie of today is a shadow of the studio that defined online shooters for a generation.

What This Means for Gamers

The immediate impact for players is confusion and uncertainty. If you’re a Halo fan, you don’t know who’s making your next game, what it will look like, or if it will respect the franchise’s 25-year legacy. If you loved Hellblade, you’re mourning a studio that took risks no one else would. If you’re invested in Sea of Thieves, you’re wondering what Activision ownership means for Rare’s creative freedom.

But the long-term impact is more profound. Xbox is signaling that it’s no longer interested in being a platform for diverse creative expression. It’s a platform for blockbusters. Period. The indie-friendly, experimental Xbox of the early 2010s is dead.

This might be good business. It might even lead to better Halo games—Activision’s production pipeline is legendary, and a purpose-built team with fresh eyes could be exactly what the series needs. But it comes at a human cost that’s difficult to quantify. Hundreds of developers lost their jobs this week. Studios with decades of history are being dissolved. Dreams are being cancelled, literally and figuratively.

For PlayStation fans, this is an opportunity. Sony has been more cautious with its acquisitions, and its studios continue to produce a diverse range of high-quality games. Nintendo, as always, operates in its own universe, seemingly immune to the chaos engulfing its competitors.

For the industry as a whole, this is a warning. The consolidation wave that began with Microsoft’s acquisition spree is now entering its contraction phase. When you buy too much, you eventually have to cut. And when you cut, you don’t just lose employees—you lose expertise, institutional knowledge, and the creative spark that makes games worth playing.

The Silver Lining: What Survives

It’s not all doom and gloom. December’s Halo Fest is confirmed to go ahead, celebrating the series’ 25th anniversary with the community. The event will be a bittersweet gathering—celebrating Halo’s past while its future remains uncertain—but at least the fans get their moment.

Obsidian’s new Fallout game is apparently still in development, with Bethesda Game Studios providing support. If Obsidian can recapture the magic of New Vegas, this could be one of the most anticipated RPGs of the decade.

Undead Labs, while now independent, still has the State of Decay IP and a dedicated fanbase. Independence might actually serve the studio better than being trapped inside Microsoft’s corporate machinery.

And on the hardware side, the recently announced Xbox Series Z—a next-generation console expected in 2027—gives Microsoft a reason to keep fighting. A new console needs a killer app. Maybe that’s the new Halo. Maybe it’s a new Perfect Dark. Maybe it’s something we haven’t seen yet.

The pieces are still on the board. They’re just arranged very differently than they were a week ago.

Final Thoughts: The End of an Era

For those of us who grew up with Halo, who stayed up late playing Halo 2 on Xbox Live, who followed Bungie to Destiny and 343 to Halo 4 and Infinite—this week hurts. It’s the end of an era, not just for a franchise, but for a vision of what Xbox could be.

Phil Spencer’s Xbox was about community, about Game Pass, about bringing games to as many players as possible. The new Xbox, under Asha Sharma, is about franchises, about profits, about efficiency. It’s a colder vision. More corporate. More predictable.

But maybe that’s what Xbox needs to survive. The gaming industry is brutal, and even giants stumble. If the franchise-led model delivers great Halo games, great Fallout games, and a steady stream of blockbusters, players will ultimately benefit. The question is what gets lost along the way.

For the hundreds of developers who lost their jobs this week, for the studios that are closing, for the dreams that are being deferred—this is not a business strategy. It’s a tragedy. And it deserves to be remembered as one.

As Bonnie Ross wrote: “You will not find a more dedicated, capable, or community-driven group of people.” She was talking about Halo Studios, but she could have been talking about every team affected by this week’s cuts. The talent exists. The passion exists. The question is whether the industry that created these teams will give them a chance to create again.

The controller is still in our hands. We just don’t know who’s holding it anymore.

— Vito Ruocco | Published September 26, 2026