Xbox cuts 3,200 jobs and releases four studios — industry reacts with shock

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The latest mass layoff at Xbox will see roughly 3,200 people lose their jobs —1,600 today, and 1,600 more over the next fiscal year—and four game studios turned loose into the forest: Compulsion and Double Fine as independents, Ninja Theory and Undead Labs under new ownership. It's bad no matter how you look at it, a reflection of flailing leadership at Microsoft and a dreadful state of affairs for the game industry as a whole.

The bloodletting has inspired a range of reactions across the internet—and yes, there is a small subset of the gaming population celebrating what it sees as a victory of 'real gamers' over some imaginary ideology that holds too many game studios in its grasp.

For the most part, though, the responses are shocked, sorrowful, angry, and even among those who insist these cuts were necessary, filled with regret.

Griffin DeClaire, who was laid off from Bethesda Game Studios today, said the cut came as a complete surprise because he was just told he'd be getting a raise. "I really don't know what my next steps are," DeClaire wrote on LinkedIn.

Arkane founder Raphael Colantonio, who left the company in 2017 and now heads up WolfEye Studios, embraced a bit of dark humor in response to Sharma's statement:

(Image credit: Raphael Colantonio (Twitter)) We initially thought that Obsidian, which isn't mentioned in Sharma's announcement, had escaped the axe, but that later proved to be false: Narrative lead Kate Dollarhyde said on Bluesky that the studio "lost many excellent developers and wonderful people" in the layoffs.

Among those let go was Daniel Alpert , who joined the studio in 2005—just two years after it was founded—and most recently served as art director on The Outer Worlds games.

Alpert said he was grateful for having spent more than two decades at Obsidian but added, "We are clearly at a turning point in the games industry. These past months have been difficult for so many talented people, and unfortunately, it seems the challenges aren't over yet."

Larian's publishing head Michael Douse was as surprised as any of us to discover that through all these years, Xbox did not have a chief operating officer.

(Image credit: Michael Douse (Twitter)) Gloomwood developer Dillon Rogers pointed out the incongruity between Sharma's stated commitment to Bethesda's biggest franchises, and gutting the studios that make them:

(Image credit: Dillon Rogers (Twitter)) Mike Kern, who was laid off after nearly 14 years at ZeniMax Online Studios, noted the obvious difficulty that many in his position don't talk about publicly: The videogame industry simply cannot reabsorb all these people. Talent is going to be lost on a massive scale.

Dan Callan, a former designer who was let go amidst last week's layoffs at that company, reflected on the deep and inescapable shittiness of pre-announcing 1,600 layoffs that will happen over the next fiscal year.

This was the best part about the last year of Bungie, through multiple layoff cycles it was a daily battle between survivor’s guilt and waiting for the other shoe to dropI would reiterate people will not make a good video game under these conditions but that assumes any of these ghouls care

— @danjamin.bsky.social ( @danjamin.bsky.social.bsky.social ) 2026-07-06T22:08:18.292Z

Jason Schreier of Bloomberg shared the same sentiment, saying that Blizzard employees are being left hanging until further notice.

Case in point: the staff of Blizzard Entertainment were told today that they won't hear how the reorganization impacts them until "further communications"

— @jasonschreier.bsky.social ( @jasonschreier.bsky.social.bsky.social ) 2026-07-06T22:08:18.063Z

Others pointed out that the cuts come as Microsoft continues to pour billions of dollars into a pursuit of AI that seems to be growing increasingly desperate, including notable AI industry critic Ed Zitron , who had some harsh words for all involved:

(Image credit: Ed Zitron (Twitter)) This sounds insane until you remember that Microsoft is ALL IN on Ai. These folks believe most of us will be out of work in the next 5 years, drawing from UBI. What will we do with all that time? XBox hopes we'll spend our time & money with them. Dystopian thinking.www.pcgamer.com/gaming-indus...

— @crobertcargill.bsky.social ( @crobertcargill.bsky.social.bsky.social ) 2026-07-06T22:08:18.814Z

Sure Microsoft may have fired thousands of people and gutted its games division but at least it had more money to pour into Copilot, the 4th most popular AI, a product nobody wants or likes except rich executives, that is constantly losing horrendous amounts of money

— @oldpappythomas.bsky.social ( @oldpappythomas.bsky.social.bsky.social ) 2026-07-06T22:08:18.503Z

But AI-focused employees aren't immune: Kevin Flynn, a commerce growth and AI product manager who said he'd increased "PM AI adoption from 12% to 91% in 3 months by building a PM specific AI harness," revealed on LinkedIn that he'd been let go.

"The last four years have been brutal in the industry," Epic Games lead level designer Scott Maclean said in his own post about the layoffs. " I’ve not seen anything like this in my 25 year career. I keep expecting it to normalize, to balance out, but that seems to not be the case."

Keith D. Boney, a former user researcher at Bethesda whose entire team was impacted by today's layoffs, shared a similar thought, writing that "this recurring trend in the Games industry is one that is extremely detrimental to psychological safety , let alone fiscal stability."

There's more, of course, but the inherent absurdity of supposedly serious executives talking nonsense about entertaining "more than a billion people each day," which PC Gamer's Harvey Randall aptly described as " delusional ," has a way of making it all feel a bit futile .

Layoffs like this, which have become par for the course since Microsoft swallowed up Activision Blizzard in 2024, are outrageous and heartbreaking, and there has to be a better way. But as we careen from " never looked stronger " to "our business today is not healthy" over the course of a single year—both of them resulting in layoffs—I find myself wondering if we're ever going to find it, or if we're just going to keep howling into the social media void until there's nothing left.