Microsoft has shut down The Initiative, its game development studio, and canceled its projects including Perfect Dark, Everwild, and other undisclosed titles as part of the recent layoffs at Xbox

Update 4, July 3, 2025: Job cuts in Blizzard, a division of Microsoft Gaming, have led to discontinuation of updates for the mobile game Warcraft Rumble. According to an internal email by company president Johanna Faries, detailed by Aftermath, the game will switch to a "live-ops only" status, akin to Heroes of the Storm and StarCraft 2.

The Verge noted that the Xbox user research team has faced layoffs, resulting in the departure of Mike Mongeau, head of product for family and child safety, as confirmed on LinkedIn.

Rumors regarding the retirement of Microsoft Gaming head Phil Spencer have been dispelled. Microsoft's communications leader, Frank X. Shaw, debunked the speculation on X. Kari Perez, head of Xbox communications, also told The Verge that Spencer is not retiring soon.

Update 3, July 2, 2025: Reports from Windows Central and corroborated by Bloomberg's Jason Schreier reveal that The Initiative is being shut down and the Perfect Dark reboot has been cancelled. Xbox's studio head, Matt Booty, explained in an internal communication that several unannounced projects would also be terminated as part of realigning priorities and resources.

Booty reassures that the general strategy for Xbox's gaming projects remains intact, with over 40 endeavors still in progress.

Update 2, July 2, 2025: Jason Schreier reports that significant staff reductions have occurred at Raven Software and Turn 10, with nearly half of Turn 10's team affected.

Update 1, July 2, 2025: More details on Microsoft's gaming division cuts have emerged. Bloomberg's Jason Schreier disclosed that the elder MMO in development by Zenimax Online Studios, known as Blackbird, has been scrapped.

Original story, July 2, 2025: Microsoft initiated layoffs in its gaming division as anticipated; reports from the previous week had suggested this.

A Microsoft spokesperson conveyed to GamesIndustry.biz that ongoing organizational shifts are aimed at adapting to a dynamic market environment.

CNBC reports that this is a segment of a larger 4% downsizing at Microsoft, impacting around 9,000 workers.

Microsoft's King mobile gaming unit has laid off 10% of its workforce in Barcelona, informed Bloomberg. Cuts are also in progress at ZeniMax's European branches.

The game Everwild by Rare, according to Bloomberg's Jason Schreier, is reportedly cancelled. VGC confirms this, although the effect on the UK-based studio is still unclear. A team member stated they are seeking new opportunities on BlueSky.

The cuts align with the end of Microsoft's fiscal year on June 30, marking the fourth set of layoffs in the gaming sector over the past 18 months. Previously, May saw a 3% reduction in staff.

Phil Spencer, Xbox head, addressed this downsizing in a memo obtained by IGN, emphasizing strategic focus and necessary workforce adjustments for continued growth.

The memo highlights the drive to prioritize successful segments and enhance productivity, despite the challenges these changes pose. Microsoft is committed to helping affected employees transition, providing severance, healthcare coverage, and job placement support.

Ongoing updates will reveal more details as specific studios or departments are affected.

In Microsoft’s Q3 2025 financial report, gaming revenue showed a 5% year-over-year increase.

Phil Spencer's memo, Microsoft's statement, CNBC's wider layoff report, and information on Everwild's cancellation are incorporated in this update.