Halo Studios Experiences Layoffs Amid Organizational Changes at Microsoft

At least five employees at Halo Studios have been laid off as part of company-wide layoffs at Microsoft, according to a developer familiar with the situation. An estimated 200 to 300 people remain at the studio.

Employees across Microsoft's Xbox division received an email from Microsoft Gaming CEO Phil Spencer on Wednesday morning regarding upcoming organizational changes. Halo Studios employees who were laid off received an additional invitation to a meeting with organization leaders, which began two hours later. During the meeting, severance packages were discussed, and the reasons provided for the layoffs were consistent with Spencer's memo, which cited a goal to "increase agility and effectiveness."

Halo Studios is currently developing multiple games, including the next mainline Halo installment, and manages Halo: Infinite, which is reducing its content updates. The atmosphere at the studio is described as tense, particularly regarding a project that recently faced challenges, according to the developer.

"I don't think anybody is really happy about the quality of the product right now," the developer said. "There's been a lot of tension and pep talks trying to rally folks to ship."

The studio recently indicated it would reveal its current projects at this year's Halo World Championship in October.

In 2023, Halo Studios, then known as 343 Industries, experienced layoffs that primarily affected the campaign and narrative teams, including Halo veteran Joe Staten. This is cited as a reason for the absence of a continuing storyline in Halo: Infinite since that time. Currently, Halo Studios employs a mix of full-time employees and contractors, with junior producers and quality assurance roles generally contracted out.

343 Industries received criticism from fans for the launch state of Halo: Infinite. Over the years, several former employees have commented on the studio's reliance on contractors, who typically work with the company for a maximum of 18 months.

According to the developer, since 2023 there has been a shift toward working with contracted studios in the United States and Europe to accelerate Halo production. This approach is similar to the development models used by other major FPS franchises such as Call of Duty and Battlefield.

"Xbox in general feels years behind the curve in game development, and it leads to a lot of wasted time and effort," the employee said. At the same time, multiple departing team members have expressed positive sentiments about their time at Halo Studios and their colleagues.

The layoffs at Microsoft on July 2 affected 9,000 employees globally, including 830 in Washington, where Halo Studios is based. The Xbox division experienced significant layoffs, game cancellations, and studio closures. A Microsoft spokesperson stated that the Xbox team did not account for the majority of the layoffs, but given its relatively small size within the organization, the impact may be notable.

Under the Xbox brand, Rare's Everwild and The Initiative's Perfect Dark reboot were cancelled, and The Initiative was closed. Forza Motorsport developer Turn 10 Studios reportedly lost a significant portion of its employees, and Rare, ZeniMax Online Studios, King, Raven, Sledgehammer Games, and Halo Studios have all reportedly been affected. ZeniMax president Matt Firor is leaving after 18 years at the studio, and it is reported that veteran Rare designer Gregg Mayles is also departing after decades with the company. Blizzard is discontinuing Warcraft Rumble.

Microsoft has increased its focus on AI, which has contributed to its stock price reaching new highs. At Meta's Llamacon in April, CEO Satya Nadella stated that up to 30 percent of the company's code is now written by AI. In February, Activision acknowledged the use of AI in Black Ops 6. It is unclear how much AI contributed to the recent layoffs, but the use of Copilot is now required within Microsoft.

The developer commented, "They're trying to replace as many jobs as they can with AI agents."

News about specific Xbox teams appeared throughout the day as employees shared their experiences on social media and with various publications. Microsoft laid off 1,900 Xbox employees in January 2024 and 650 more in September. Last year, it closed Arkane Austin, Alpha Dog Games, and Tango Gameworks. Microsoft reported net revenue of $25.8 billion in the first three months of 2025, with an eight percent yearly increase in revenue from Xbox content and services.

Microsoft stated that the layoffs will affect less than four percent of the company's global workforce. A statement from a Microsoft spokesperson reads:

"We continue to implement organizational and workforce changes that are necessary to position the company and teams for success in a dynamic marketplace."