"Resetting" the company is how Xbox CEO Asha Sharma framed it. For the studios on the receiving end of that reset, the word barely covers what actually happened.
The full scope of Xbox's restructuring is now coming into focus, and it is significantly worse than the initial announcement suggested. A total of 3,200 jobs are going, split between 1,600 immediate cuts and another 1,600 rolling out through the end of fiscal year 2027. What that looks like on the ground, studio by studio, is a different picture entirely.
Obsidian takes a 25% hit
Obsidian Entertainment, the studio behind Avowed and The Outer Worlds 2, is facing roughly 60 to 70 layoffs. That figure represents about 25% of its total workforce, which sat at 285 employees in 2025. The cuts follow what Microsoft reportedly viewed as disappointing commercial returns on both titles, making this one of the more pointed reductions in the entire restructuring.
Here's the thing: losing a quarter of your team is not a minor correction. It is the kind of reduction that reshapes what a studio can realistically build next. Whether Obsidian continues pursuing large-scale RPGs or pivots to something smaller is an open question right now.
Id Software loses most of its coders
The situation at Id Software sounds even more severe. Reports indicate the studio's coding staff has been nearly or entirely eliminated. Id is the team behind DOOM and Quake, franchises that run on some of the most technically demanding engine work in the business. Losing that depth of engineering talent does not just affect the next project. It affects the studio's ability to function at the level it has historically operated.
No official statement from Id has addressed the scope of the cuts directly.
IOI's Istanbul studio shuts down entirely
IO Interactive is dealing with a different kind of loss. After Microsoft pulled funding from its project codenamed "Project Fantasy," IOI announced the full closure of its Istanbul studio. The studio only opened in 2023 and had been contributing to both Project Fantasy and 007: First Light alongside work on the Hitman series.
IOI described the closure as "hard, but necessary." The Istanbul team is now out of work entirely, adding to an industry-wide layoff count that has been climbing for over two years.
ZeniMax Online Studios and the ESO fallout
ZeniMax Online Studios, the team running The Elder Scrolls Online, was among the first hit. Several staff members who had been at ZOS for a decade or longer confirmed their departures publicly. The ESO team has already signaled that previously announced roadmaps will need to change, which will directly affect players waiting on upcoming content updates.
For a live service game that depends on consistent content delivery, losing experienced developers, especially long-tenured ones, is not something you recover from quickly. Keeping an eye on the Replaced release date and start times guide is a reminder of how much launch timing and delivery consistency matters to players.
Blizzard still waiting
Perhaps the most unsettling detail in all of this: Blizzard Entertainment employees were told the restructuring affects them, but that they would receive "further communications" about how. That means an entire studio of developers is sitting in uncertainty right now, waiting to find out if their roles survive the second wave of 1,600 cuts due before the end of fiscal year 2027.
Journalist Jason Schreier flagged this publicly, noting that because only half the layoffs happened immediately, remaining staff at studios not being spun off are left in a prolonged state of not knowing. That kind of sustained uncertainty has its own cost, both personally and in terms of what gets made.
What this restructuring actually signals
The pattern across all of these cuts points to Microsoft pulling back from ambitious, expensive projects that did not meet commercial targets. Project Fantasy canceled, Avowed and The Outer Worlds 2 underperforming, ESO roadmaps slipping. The studios being hit hardest are the ones tied to projects that did not convert investment into returns.
The key here is that this is not just a cost-cutting exercise. It is a signal about which kinds of games Microsoft is willing to fund at scale going forward, and which studios have the runway to keep operating as they were. For players invested in any of these franchises, the next 12 months of announcements will matter a lot.
For broader context on what Xbox's gaming output looks like heading into this period, the gaming guides hub is tracking coverage across Xbox titles as new information emerges.
