Microsoft also cancelled Everwild, the action-adventure title in development at Rare, and said it would wind down several unannounced projects.
The Perfect Dark reboot was being co-developed by The Initiative and Crystal Dynamics
Photo Credit: Microsoft
Microsoft has cancelled the Perfect Dark reboot and shut down its first-party studio The Initiative as part of widespread layoffs across the company that have hit the Xbox division hard. The latest round of cuts has also impacted Bristish developer Rare, whose action-adventure title Everwild has also been cancelled. The Elder Scrolls Online developer ZeniMax Online Studios has also been affected by the retrenchment drive, with an unannounced MMO from the company cancelled, as well.
This is the fourth round of layoffs at Microsoft's gaming division since the start of 2024 — all taking place after the Xbox parent completed its acquisition of gaming behemoth Activision Blizzard in October 2023 for over $69 billion. Microsoft's latest reorganisation efforts will see nearly four percent of its total workforce — over 9,000 employees — laid off as the company plans to thin down its organisational layers.
As per Bloomberg, the layoffs have cut deep into the Xbox division, impacting Candy Crush developer King, Call of Duty makers Raven Software and Sledgehammer Games, Halo Studios, and Forza Motorsport developer Turn10 Studios. The number of people impacted in the gaming division is unclear, but King is reportedly reducing its staff by 10 percent — around 200 employees.
Microsoft's Xbox division has seen four rounds of layoffs since the Activision Blizzard-King acquisition
Photo Credit: Reuters
The Perfect Dark reboot was revealed at The Game Awards 2020 and was in the works at Santa Monica-based The Initiative, with Tomb Raider studio Crystal Dynamics co-developing. The stealth action game also received a first-look gameplay trailer at last year's Xbox Games Showcase but was conspicuous by its absence at the 2025 edition of the event last month.
The Initiative, which was working on its first project, had attracted veteran staff from studios like Sony's Santa Monica Studio, Naughty Dog and Rockstar Games. Last year in November, Insomniac Games' Brian Horton, who then served as the creative director on Marvel's Wolverine, reportedly left the studio to join The Initiative to lead Perfect Dark.
In an internal email seen by Windows Central, Microsoft said Wednesday it was cancelling Perfect Dark and Everwild, among other unannounced projects, and shutting down The Initiative.
“We have made the decision to stop development of Perfect Dark and Everwild as well as wind down several unannounced projects across our portfolio. As part of this, we are closing one of our studios, The Initiative,” Xbox Game Studios head Matt Booty said in the email to Xbox staff.
“These decisions, along with other changes across our teams, reflect a broader effort to adjust priorities and focus resources to set up our teams for greater success within a changing industry landscape. We did not make these choices lightly, as each project and team represent years of effort, imagination, and commitment.”
Booty said Xbox's overall strategy would remain unchanged and its “biggest franchises” would continue to grow. The executive said Xbox Game Studios had over 40 projects in active development. Staff members affected by the layoffs will be provided severance and career transition assistance. Microsoft will also attempt to place some laid-off employees in roles available across other teams in the gaming division, the Xbox Game Studios chief said in his email.
Before Booty's message confirming affected studios and projects, Microsoft Gaming CEO Phil Spencer told Xbox staff that the division was following Microsoft's lead in reducing managerial layers to become more agile and efficient and ensure success in the future.
“I recognize that these changes come at a time when we have more players, games, and gaming hours than ever before. Our platform, hardware, and game roadmap have never looked stronger,” Spencer said in an internal memo seen by IGN. “The success we're seeing currently is based on tough decisions we've made previously. We must make choices now for continued success in future years and a key part of that strategy is the discipline to prioritize the strongest opportunities.”
At Xbox Games Showcase last month, Phil Spencer promised a healthy slate of Xbox games in 2026
Photo Credit: Microsoft
Layoffs at Xbox have become a regular occurrence since Microsoft finalised its takeover of Call of Duty maker Activision, increasing scrutiny on the company's gaming division. Last year in January, Microsoft laid off over 1,900 Xbox employees, including staff at the then newly acquired Activision Blizzard unit — about eight percent of the overall gaming division workforce. The Xbox parent also cancelled an unannounced survival game in the works at Blizzard at the time.
In May 2024, Microsoft announced it was shutting down three of its Bethesda-owned game studios, including Hi-Fi Rush developer Tango Gameworks and Redfall maker Arkane Austin, to shift focus to its “priority games”. The closures led to “significant layoffs” at the studios affected. Tango was later acquired by Krafton, and the studio confirmed last month that it had begun early work on its next project.
In September 2024, the tech giant laid off 650 employees at the Xbox division to rein in costs following the acquisition of Activision. Since the company closed the biggest deal in gaming history, it has also shifted its core Xbox strategy to de-emphasize the home console and prioritise Xbox services like Game Pass and cloud gaming. In 2024, Microsoft also began releasing its first-party Xbox exclusives on rival platforms, a strategic pivot that has continued into 2025. The company plans to release more of its first-party games, both new and old, on Sony's PS5.
Xbox, however, is not turning away from the hardware business. Last month, the company announced it had signed a multi-year agreement with AMD to co-develop chips for its slate of future devices, including the next-generation Xbox consoles. Microsoft said that its next-gen Xbox experience would not be locked to a single store or device, and it would focus on making Windows “the number one platform for gaming”.
Catch the latest from the Consumer Electronics Show on Gadgets 360, at our CES 2026 hub.