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Microsoft's Xbox division carried out sweeping layoffs and a major reorganization on September 23, 2026, affecting nearly 300 staff and restructuring several first-party studios. Obsidian Entertainment was placed under Bethesda Softworks (with Bethesda's president promising Obsidian's creative identity will remain intact and its new Fallout game still in development), Age of Empires studio World's Edge reportedly lost nearly half its staff and moved under Activision's control, State of Decay studio Undead Labs became independent but also cut a significant portion of its team, and Gears of War: E-Day's story director was laid off just two weeks before the game's launch. Double Fine founder Tim Schafer publicly questioned the economics of the games industry in light of the cuts. The restructuring is part of a broader 'reset' of Xbox's business that also saw Halo development handed to Activision. Developers and fans alike have reacted with alarm over the human cost and uncertain future of long-running Xbox franchises, with former studio leaders and industry figures voicing concern about the direction of Microsoft's first-party strategy.