XBOX's "Great Reset" Could Change the Platform as Studio Cuts and Layoffs Take Shape

If you've been following XBOX over the past several years, you're now watching what many are calling the platform's biggest turning point yet. According to claims shared by insider sources, XBOX has entered what is being described as a "great reset," with sweeping layoffs, studio changes, and a complete shift in how the company plans to make games going forward.

The restructuring reportedly comes under XBOX CEO Asha Sharma, who is said to be pushing through aggressive changes after years of heavy spending, inconsistent game releases, and disappointing returns from several studios. The first wave of layoffs is said to affect around 1,600 employees across XBOX, while Microsoft is reportedly planning to eliminate roughly 3,000 XBOX positions over the next year as part of even broader company-wide cuts.

The reported strategy behind the changes is straightforward. 

XBOX wants to focus much more heavily on its biggest franchises while stepping away from funding smaller niche projects that failed to grow Game Pass significantly. According to the sources, many developers are prepared to move on to larger franchises under the new direction. However, some reportedly prefer not to leave the projects they are already working on.

The report claims XBOX lost roughly 30 cents for every dollar invested in some of its smaller studios. That financial pressure, combined with the expensive shift toward releasing games across PlayStation, Nintendo, and XBOX, reportedly convinced leadership that maintaining nearly 30 internal studios was no longer sustainable.

One of the biggest surprises involves the studios themselves. Rather than simply shutting them down, Asha Sharma reportedly offered some teams something rarely seen from a gaming executive: independence. According to the report, studios are being allowed to leave XBOX while keeping ownership of their intellectual property, either by becoming independent again or finding new buyers.

Double Fine is reportedly one of those studios. 

The team behind Psychonauts has allegedly been offered its independence through a symbolic one-dollar buyback led by Tim Schafer. If the deal goes through, Double Fine would retain franchises including Psychonauts, Brutal Legend, and Keeper.

The studio reportedly released four games during its time under XBOX, with Psychonauts 2 standing out as its biggest success after earning a Game of the Year nomination. The report argues that XBOX's 2019 acquisition may have kept Double Fine alive financially. Still, that independence could allow the studio to continue making its uniquely styled games across Xbox, PlayStation, and Nintendo.

Compulsion Games is also reportedly leaving as an independent developer. The Canadian studio, comprising around 80 to 100 employees, would reportedly retain ownership of We Happy Few and South of Midnight. While sequels to those games may not happen anytime soon, the studio itself is expected to continue operating across multiple platforms.

Ninja Theory's future appears less certain. 

Reports claiming the studio would be sold because of its motion capture expertise have not been finalized, with confidential buyer discussions reportedly still underway. For now, the studio is expected to remain operational while negotiations continue. The good news, according to the same sources, is that the team's next Senua project remains on schedule. If a sale is completed, the game is expected to launch across all major platforms.

Undead Labs is also reportedly navigating confidential buyer discussions, but State of Decay 3 does not appear to be in immediate danger. The game is still said to be targeting a 2027 release, while early alpha gameplay has already been shown privately to content creators. The report suggests XBOX still sees considerable value in Undead Labs, and fans should eventually receive the completed version of State of Decay 3.

One of the biggest uncertainties surrounds Arkane Lyon and Marvel Blade. According to the report, foreign ownership rules involving the French studio have complicated negotiations, preventing formal discussions until XBOX officially announces its restructuring.

As a result, XBOX reportedly has two options on the table. One would involve canceling Marvel Blade altogether after years of development delays. The other would bring in a co-development partner to help finish the project more quickly.

The situation is reportedly even more complicated because XBOX would also need to negotiate licensing arrangements with Disney before making any final decision about the game's future. While Arkane Lyon has built a strong reputation through titles like Deathloop and the Dishonored series, Marvel Blade is described as a project that has struggled through a long and difficult development cycle.

Bethesda and ZeniMax are also expected to experience some of the largest staffing reductions. 

MachineGames, the developer behind Wolfenstein and Indiana Jones, is reportedly among the studios being affected. Even so, reports suggest XBOX remains committed to Wolfenstein, with plans to complete the trilogy that began with The New Colossus eventually. There have also been reports of discussions about adapting the franchise into a television series.

id Software will reportedly experience layoffs as well after Doom: The Dark Ages became one of the lowest-selling entries in the franchise. Bethesda Game Studios and ZeniMax Online are also expected to reduce staffing by roughly 20 percent.

Despite those reductions, XBOX reportedly considers Bethesda's biggest franchises more important than ever. Some studios have reportedly been asked to assist with future Fallout projects, while others have volunteered to contribute to both Fallout and The Elder Scrolls.

Mojang Studios appears to be moving in the opposite direction. 

The Minecraft developer is reportedly being placed under the direct oversight of Asha Sharma because of the franchise's enormous value. Leadership reportedly wants more direct involvement in growing Minecraft after years of relatively limited first-party content.

Taken together, the reported layoffs paint a picture of just how large XBOX had become over the past six years. According to the report, many studios spent an entire console generation working on projects that failed to significantly expand Game Pass or generate enough revenue to justify continued investment.

That has reportedly forced XBOX into making difficult decisions that perhaps should have happened years ago. The report argues that weak leadership, delayed decision-making, expensive acquisitions, and the company's shift toward becoming a multiplatform publisher all contributed to the situation now unfolding.

The platform still owns some of gaming's biggest franchises, including Halo, Gears of War, Doom, Fallout, and The Elder Scrolls. However, the report suggests those valuable brands were never supported by a consistent release strategy or enough quality control to maximize their potential.

If these reported plans move forward, XBOX will become much more focused on major AAA releases while reducing the number of smaller, experimental projects developed internally. That shift could ultimately mean fewer original ideas making their way onto the platform, even if the company becomes leaner financially.

The restructuring is expected to leave a lasting mark across the gaming industry. 

Thousands of employees are reportedly losing their jobs, several well-known studios could soon become independent again, and some franchises may never be associated with XBOX in the same way they once were.

For many longtime fans, this represents one of the most difficult moments in XBOX's history. While the company may eventually emerge as a more efficient business, the transition is expected to be painful for developers, players, and the industry alike as one of gaming's largest publishers reshapes itself from the ground up.