Xbox upheaval news: Rumors, changes, and cancelled games in 2026

The last several months have been a roller coaster for Xbox, culminating in a sweeping wave of layoffs on July 6. Xbox CEO Asha Sharma announced that Microsoft will divest from five game studios and cut a total of 3,200 jobs by July 2027.

Microsoft's gaming division saw a major leadership turnover back in February, with CEO Phil Spencer abruptly leaving the company along with his heir apparent Sarah Bond. Incoming CEO Asha Sharma and chief content officer Matt Booty moved quickly to reestablish trust in the flagging brand. They cut prices on Xbox Game Pass after a 50% price hike sparked an exodus from the service. They reaffirmed that new high-end hardware was in the works, in the form of Project Helix. They boldly declared that their organization would be called XBOX, in all-caps. Xbox hosted a barnstorming summer showcase on June 7, and gave away hundreds of translucent green Series X consoles to fans who attended live.

It seemed like everything was going great! And then the wheels fell off the wagon. Just three days after the showcase, on June 10, Bloomberg reported that Sharma had planned a massive slate of layoffs that would begin in July. Sharma and Booty confirmed these reports in a post on Xbox Wire that outlined plans for a "reset" over the coming 100 days, citing lousy revenue, increasing hardware costs, and excessive expansion during the pandemic years. With some 1,600 jobs lost on July 6 — and more to come in the year ahead — it's clear the process won't be a pretty one.

It may take weeks or even months until we get an exact picture of all the changes taking place at Xbox, but here's what we know at present. The stories below are presented in reverse chronological order, so the newest developments will appear at the top.

A major strategy pivot at Bethesda

On July 17, Bethesda Game Studios shared a detailed roadmap outlining the future of its major franchises, which include Fallout, The Elder Scrolls, and Starfield.

As has been widely reported and speculated, Fallout will be a major focus of the studio in the months and years ahead, with the studio noting that "we have multiple Fallout projects in active development right now." Bethesda also said Fallout 5 "remains our long-range destination," and later says the game is in "pre-production." The studio also confirmed that "remasters for both Fallout 3 and Fallout: New Vegas" are in the works, the latter coming from Obsidian Entertainment, but did not provide any information about a release date for either. Bethesda also teased a 30th anniversary event in Washington, D.C. in 2027, so we can probably expect some clarity on the timeline then.

The Elder Scrolls 6 is currently the team's "primary development focus." The studio added, "The next chapter is on the way. We’re where we planned to be, loving how it looks, and playing it every day."

Despite an underwhelming PS5 launch back in April, Starfield will continue to see further updates and support. "As we enter Year 3, we'll continue expanding the Settled Systems with new stories, targeted gameplay improvements, and additional updates, while preparing for the launch of new Starborn content next year." Starborn content refers to Starfield's post-game, so it sounds like these expansions will aim to serve the game's existing fanbase, rather than luring in new players.

Big changes at ZeniMax

The studio behind The Elder Scrolls Online has made some significant changes to senior leadership in recent weeks, according to a July 15 report from Stephen Totilo at Game File. While it was not clear when Xbox first announced the layoffs, we now know ZeniMax studio lost 379 employees in Microsoft's latest round of cuts, including studio head Joe Burba, who had been there for 14 years.

Several development leads on ESO will also leave the company, including executive producer Susan Kath, studio game director Rich Lambert, and production director Ala Diaz. According to Game File, those four senior staffers informed colleagues that the transiition will occur “over the next few months,” and that they plan to "remain in place during the transition period to help ensure a smooth handoff.”

Morale in the toilet

According to a July 15 report from GameDeveloper, remaining staffers at Xbox's stable of studios are understandably anxious after the company's fifth wave of layoffs since January 2024. One source told the outlet that 136 people at id Software were laid off simultaneously in a call that lasted less than 60 seconds during this latest round of cuts.

One source at id questioned why the changes came just one day before the launch of the studio's major expansion for Doom: The Dark Ages on July 7. "They didn't even wait to see if the product is successful before they got rid of the team," they explained. "There are no benefits to being owned by Microsoft."

"I don’t know how anyone remaining at Xbox studios can feel safe knowing another 1600 cuts are coming. And even then, what happens after June 2027? Will we get layoffs in July for the third year in a row?" another source told GameDeveloper.

Making sense of the layoffs

A day after Sharma's July 6 memo, we're starting to get a clearer picture of what's going on at the Xbox studios that aren't going independent or being acquired by new owners.

• The Elder Scrolls Online developer ZeniMax Online Studios has been "seemingly gutted," according to a Kotaku report.
• Doom and Wolfenstein developer Id Software reportedly lost as many as 95 staffers, according to VGC.
• Obsidian Entertainment — the developer behind The Outer Worlds, Pentiment, and Grounded — has reportedly lost 25% of its staff in the cuts, which shakes out to roughly 60 to 70 employees. This includes the studio's art director, who had been with Obsidian for 21 years.

Game Pass has missed the mark big time

Xbox doesn't release subscriber numbers for Game Pass very often, and when a company does that, it usually means the numbers aren't very impressive. According to a Wall Street Journal report from July 6, Game Pass currently has 30 million subscribers — that's fewer than half of the 77 million players the company had hoped to reach by July 2026, according to Microsoft court filings from its Federal Trade Commission trial over the Activision deal. The last time Microsoft publicly reported the number of Game Pass subscribers was in February 2024, when the service had 34 million users. Clearly, Game Pass hasn't quite recovered from those eye-watering October 2025 price hikes, even after they were rolled back earlier this year.

3,200 layoffs at Xbox by July 2027

In a memo to the organization that was later posted publicly on Xbox Wire, Sharma detailed how many jobs would be eliminated. Though Microsoft eliminated 1,600 Xbox jobs on July 6, unfortunately, there's still more to come in the months ahead.

After careful consideration, I’ve made the difficult decision to reduce our team by approximately 3,200 throughout FY27. This will include approximately 1,600 role eliminations today, and in addition, four studios will leave XBOX to new management. I recognize that a year-long restructuring creates additional challenges. Unfortunately, it is not possible to make all the necessary changes in a single day, and I wanted to be direct about the scale.

Five studios will leave Xbox

As part of the wave of news on July 6, Sharma also announced that several studios will either go independent or be acquired by new owners. These include:

• Compulsion Games (independent)
• Double Fine Productions (independent)
• Ninja Theory (new owners)
• Undead Labs (new owners)
• Arkane Lyon (status currently unclear due to French labor law)

No first-party games cancelled... for now

In her July 6 memo to staff, Sharma said, "None of our first party publicly announced games or projects are being cancelled as part of these reductions." Rumors had swirled in recent weeks regarding the fate of Ninja Theory's Senua and Undead Labs' State of Decay 3, which had been prominently featured in the Xbox Showcase event on June 7.

The fate of Arkane's troubled Marvel project, Blade, remains unclear at present. According to Game File, the studio "is also slated for an exit. Given local laws, though, Microsoft has been unable to explore its future—ranging from sale, to management buyout to shutdown—until today." We won't know for sure whether Blade will see the light of day until the studio's fate is finalized, which may take months.

A digital-only future

On July 1, Sony announced it would no longer make physical game discs for games released after January 2028. That same day, reporting from The Verge claimed Xbox is working on a way to digitize physical game discs. Essentially, you'd insert a disc and then be granted an additional digital copy. These copies can be sold and borrowed, similar to Nintendo's game-key cards.

Bond developer caught in the crossfire

On June 30, IO Interactive cryptically announced on X that a "relationship with an external partner on our own IP, Project Fantasy, has come to an end." It was soon confirmed that Xbox was the external partner pulling out of the deal. IO will continue developing Project Fantasy, but said it will have to make "staffing decisions" in response to the funding change, which doesn't sound great.