Microsoft is currently navigating a fundamental transformation of its gaming business, a period officially labeled as the “Xbox Reset.” Internal memos cite hardware crises and declining annual revenue as primary drivers for the structural overhaul.

Organizational Changes for Xbox Game Studios

This shift is manifesting in major organizational changes for flagship franchises and veteran studios:

• Halo: Development of the flagship franchise is being transferred from Halo Studios (formerly 343 Industries) to Activision.
• Obsidian Entertainment: The studio responsible for The Outer Worlds and Avowed is being moved under the Bethesda organization.
• Studio Independence: Studios such as Undead Labs and Double Fine have reportedly returned to independent status or otherwise cut ties with Microsoft’s balance sheet.

Financial Pressures and the Hardware Crisis

The structural overhaul follows the official acknowledgment of the Xbox Reset. Microsoft has since confirmed plans to eliminate approximately 3,200 roles within the gaming division—roughly 20% of its workforce—throughout fiscal 2027.

In a letter titled “Next 100 Days: Xbox Reset,” Asha Sharma cited declining annual revenue and an ongoing “hardware component crisis” as the primary drivers for these reductions.