Tensions are running high within the Xbox development community following the latest round of layoffs at Microsoft. Hundreds of positions have been eliminated across the gaming division, leaving many industry veterans concerned about the future of their projects. The Initiative, which had been working on the much-anticipated Perfect Dark reboot, has officially been disbanded, while ZeniMax Online’s MMORPG, Project Blackbird, was abruptly canceled. Rare’s new IP, Everwild, also met the chopping block, leading to the departure of veteran developer Gregg Mayles. 
In another blow, Turn 10, the studio behind the popular racing series Forza, saw most of its staff laid off.
However, the cuts don’t stop there. Engadget recently reported that Halo Studios also lost five of its team members. Despite Microsoft’s boast of record-breaking numbers in terms of users, games, and gaming hours, the layoffs have left many feeling disillusioned with the company’s approach to gaming. One anonymous source expressed frustration with an internal memo from Phil Spencer, the CEO of Microsoft Gaming, which started with a statement celebrating Xbox’s financial success, only to be followed by the announcement of mass layoffs. The source shared, “I wasn’t sure what part of that I was supposed to be proud about.”
In addition to the layoffs, Halo Studios is now working with contracted teams from across the United States and Europe, which many developers find frustrating. Xbox’s development process, according to the source, is outdated and leads to inefficiency and wasted time. What’s even more concerning is the belief that Microsoft is actively attempting to replace human workers with AI agents. The anonymous source explained, “They’re trying their damndest to replace as many jobs as they can with AI.”
Although it remains unclear whether AI will truly take over many roles within Xbox development, the fear of such a shift has been growing for years. With rumors swirling, the possibility of AI playing a larger role in gaming production seems all too real. Adding to the uncertainty, the source expressed doubt about the current quality of Halo’s upcoming projects, saying, “I don’t think anybody is really happy about the quality of the product right now.”
The Halo franchise has a lot riding on its next big reveal, especially after the mixed reception of Halo Infinite. With the HaloWC 2025 event scheduled for October, developers are feeling the pressure to avoid another disaster. The stakes are high, and with more layoffs looming, Microsoft’s gaming division is at a crossroads.