Microsoft is fundamentally dismantling the traditional management structure of its gaming division, moving its most iconic franchises under the leadership of newly acquired publishers Activision and Bethesda. The restructuring, announced on September 22, 2026, includes 268 layoffs across Halo Studios, various first-party developers, and the core Xbox Game Studios (XGS) management layer.

The move marks a definitive end to the “loose federation” model of independent studios that previously defined Xbox’s internal culture. Under the new alignment, Activision will take over the development of the next Halo title with a purpose-built team separate from the Call of Duty production cycle. Halo Studios, formerly known as 343 Industries, will be reduced to a support role focused on existing titles and community management.

According to an official Xbox Wire memo from Microsoft Gaming CEO Asha Sharma and Chief Content Officer Matt Booty, these changes are part of an ongoing “reset” that began in early 2026. Microsoft confirmed that it is currently roughly 75% through this restructuring process, which previously saw 1,600 roles eliminated in July.

The Shift Toward Activision and Bethesda Oversight

The reshuffle effectively elevates Activision and Bethesda Softworks into dominant operational roles within Microsoft’s gaming hierarchy. Beyond the Halo transition, legacy Xbox studios Rare (Sea of Thieves) and World’s Edge (Age of Empires) are moving under the direct oversight of Activision. This consolidation suggests that Activision’s publishing infrastructure is being leveraged to manage Microsoft’s high-value live-service and strategy franchises.

Simultaneously, Obsidian Entertainment is being moved under the remit of Bethesda Softworks. This alignment will see Obsidian collaborate with Bethesda Game Studios on a new Fallout project, a move that unites the studio behind Fallout: New Vegas with the franchise’s primary owner for the first time in over a decade.

Internal consolidation is also occurring within the racing and RPG sectors. Playground Games and Turn 10 Studios are merging into a single unified entity. This new organization will oversee both the Forza franchise and the development of the upcoming Fable reboot, pooling technical resources between the two UK-based developers.

Closures and Divestitures

While some studios are being integrated, others are facing closure or independence. Microsoft has initiated a consultation phase regarding the proposed closure of Ninja Theory. The move follows two unsuccessful attempts to sell the Hellblade developer to external buyers. If the closure proceeds, it would follow the recent shuttering of Tango Gameworks and Arkane Austin.

Conversely, Undead Labs has transitioned to independent ownership. The studio follows in the footsteps of Double Fine and Compulsion Games, both of which recently left the Microsoft ecosystem. Despite its new independence, Undead Labs’ upcoming State of Decay 3 is still confirmed as a day-one release for Game Pass.

The reduction primarily targets the management and central functions layer that previously bridged the gap between individual studios and the broader Microsoft Gaming executive team.