Even before the Xbox layoffs, there was 'tension' at Halo Studios

At least five employees at Halo Studios have been fired as part of company-wide layoffs at Microsoft on Wednesday, according to a developer with knowledge of the situation. An estimated 200 to 300 people remain at the studio.

Employees across Microsoft's Xbox division received an email from Microsoft Gaming CEO Phil Spencer Wednesday morning addressing "organizational shifts" hitting the team over the coming days. Halo Studios employees who were laid off received an additional invite to a meeting with organization leaders, and two (very long) hours later, the Teams call began. Amid discussions of severance packages, the reasons provided for the firings aligned with Spencer's memo — to "increase agility and effectiveness."

"I'm personally super pissed that Phil's email to us bragged about how this was the most profitable year ever for Xbox in the same breath as pulling the lever" on the layoffs, the developer told Engadget. "I wasn't sure what part of that I was supposed to be proud about."

Halo Studios is currently working on multiple games, including the next mainline Halo installment, and it's the steward of Halo: Infinite, which is quietly spinning down its content cadence. The mood at the studio is tense, especially when it comes to one project that was recently in crisis, according to the developer.

"I don't think anybody is really happy about the quality of the product right now," they said. "There's been a lot of tension and pep talks trying to rally folks to ship." The studio recently teased that it would reveal what it's been working on at this year's Halo World Championship in October.

Halo Studios was rocked by layoffs in 2023, back when it was still called 343 Industries, and that culling mostly affected people on the campaign and narrative teams, including Halo veteran Joe Staten. (This is also the reason Halo: Infinite hasn't had a continuing storyline since that time period). Today, Halo Studios employs a blend of full-time employees and contractors, with junior producers and quality assurance roles generally contracted out.

343 Industries came under fire from fans for the launch state of Halo: Infinite, and over the years several ex-employees have spoken out about the studio's reliance on contractors, who typically work with the company for a maximum of 18 months.

The employee I spoke with said that, since 2023, there's been a general shift toward working with contracted studios — rather than individual contractors — in the United States and Europe to speed up Halo production. This mirrors the way other major FPS franchises like Call of Duty and Battlefield are developed.

"Xbox in general feels years behind the curve in game development, and it leads to a lot of wasted time and effort," the employee said. At the same time, multiple departing team members have spoken warmly about their time at Halo Studios and the people they worked with.

The layoffs at Microsoft on July 2 affected 9,000 employees globally, including 830 in Washington, where Halo Studios is based. The Xbox division endured significant firings, game cancellations and studio closures. A Microsoft spokesperson said the Xbox team did not absorb the majority of the layoffs, but given its relatively small size in the organization, that framing may not accurately reflect the impact.

Under the Xbox banner, Rare's Everwild and The Initiative's Perfect Dark reboot were cancelled, and The Initiative was fully shut down. Forza Motorsport developer Turn 10 Studios reportedly lost a "vast majority" of its employees, and Rare, ZeniMax Online Studios, King, Raven, Sledgehammer Games and Halo Studios have all reportedly been affected. ZeniMax president Matt Firor is out after 18 years leading the studio, and it's being reported that veteran Rare designer Gregg Mayles is also gone after decades with his team. And to top it all off, Blizzard is sunsetting Warcraft Rumble.

Microsoft has increasingly focused on AI, a shift that's propelled its stock price to new highs. At Meta's Llamacon in April, CEO Satya Nadella said that as much as 30 percent of the company's code is now written by AI. Activision in February admitted to using AI in Black Ops 6. It's unclear how much AI has to do with this latest round of layoffs, but use of Copilot is "no longer optional" within Microsoft.

The developer I spoke with said, "They're trying their damndest to replace as many jobs as they can with AI agents."

News about specific Xbox teams popped up throughout the day as employees shared their experiences on social media and spoke with various publications. Microsoft laid off 1,900 Xbox employees in January 2024 and 650 more in September, and last year it closed Arkane Austin, Alpha Dog Games and Tango Gameworks (the latter of which was acquired by Krafton). Microsoft reported a net revenue of $25.8 billion in the first three months of 2025, with an eight percent yearly increase in revenue from Xbox content and services.

Microsoft told Engadget that the layoffs will affect less than four percent of the company's global workforce. A statement from a Microsoft spokesperson reads as follows: "We continue to implement organizational and workforce changes that are necessary to position the company and teams for success in a dynamic marketplace."