Microsoft has announced the closure of The Initiative studio and the cancellation of several projects, including Perfect Dark, Everwild, and some undisclosed endeavors, as part of recent layoffs at Xbox

Update 4, July 3, 2025: The Microsoft Gaming division, particularly Blizzard, is experiencing workforce reductions. As noted by president Johanna Faries in an email revealed by Aftermath, Warcraft Rumble will now operate only in a "live-ops" mode, akin to Heroes of the Storm and StarCraft 2.

According to The Verge, the layoffs have involved Xbox’s user research team, notably affecting Mike Mongeau, head of product for family and child safety, who has been dismissed.

Microsoft has refuted circulating rumors concerning the retirement of Microsoft Gaming head Phil Spencer. Communications lead Frank X. Shaw dismissed these rumors on X, with Xbox's communications head Kari Perez also telling The Verge that Phil Spencer is not planning to retire soon.

Update 3, July 2, 2025: Reports indicate Microsoft is shutting down The Initiative studio and halting development on the Perfect Dark reboot disclosed last June. Windows Central has verified this through an internal email from Xbox's studio head Matt Booty, confirmed by Bloomberg's Jason Schreier.

In the email, Booty stated, "We have chosen to stop development of Perfect Dark and Everwild along with several undisclosed projects. Consequently, The Initiative studio will close. These measures aim to reorient our priorities and resources for thriving in a shifting industry landscape. Despite the difficulty of these decisions, they are necessary to sustain our momentum."

Booty mentioned that over 40 projects remain under development at Xbox, aligning with the unchanged strategy for the company's game portfolio.

Update 2, July 2, 2025: Schreier further noted that Call of Duty creator Raven Software and Forza Motorsport developer Turn 10 faced layoffs, with reports of around half of Turn 10 staff affected.

Update 1, July 2, 2025: As Microsoft's gaming job cuts are revealed, Bloomberg's Jason Schreier reports the cancellation of Elder Scrolls Online studio Zenimax Online Studios' MMO project codenamed Blackbird, according to his update.

Original story, July 2, 2025: Microsoft has commenced layoffs within its gaming sector, starting July 2, confirmed from prior reports by GamesIndustry.biz.

A Microsoft spokesperson communicated to GamesIndustry.biz that the company "continues to adapt organizational and workforce structures imperative for success in a changing marketplace." CNBC highlights that this involves a broader 4% workforce reduction, impacting approximately 9,000 employees.

Per Bloomberg, Microsoft's King mobile gaming unit is cutting around 200 jobs in Barcelona, Spain.

Additionally, ZeniMax's European office employees have been alerted to ongoing reductions.

The game Everwild has also reportedly been called off, sources reveal to Bloomberg's Jason Schreier. VGC confirms this as well. Details on its impact on the UK-based studio remain unverified, but a stafft member on BlueSky indicated they are seeking new employment. No official statement about Rare has been made by Microsoft.

Bloomberg reports that later updates will inform about the scope of layoffs in U.S. offices.

The layoffs align with Microsoft's fiscal year end on June 30 and mark the fourth significant cut in the gaming division in 18 months. In May, Microsoft had let go of 3% of staff.

Phil Spencer, Xbox head, addressed the situation in a memo shared with IGN.

Spencer stated, "Today, we announce decisions influencing colleagues organization-wide. To bolster Gaming's long-term success and concentrate on growth opportunities, certain operations will cease or reduce, aligning with Microsoft's strategy to trim managerial layers for greater agility. Details will be shared by team leads soon."

"Despite the timing of these changes, as we experience unprecedented engagement levels, these are strategic choices premised on earlier tough decisions. We aim to prioritize areas with substantial potential while meeting corporate expectations."

While prioritizing may lessen the moment's weight, Spencer noted, "Our success results from the effort and creativity of those affected by these decisions. HR will assist impacted employees with severance benefits and job placement resources, encouraging them to apply for available positions at Microsoft Gaming with prioritized application review."

Concluding, he added, "We proceed with gratitude and respect for all who have contributed to shaping our journey."

Future updates will further clarify which teams or divisions are implicated.

In its Q3 2025 fiscal report, Microsoft noted a 5% year-on-year growth in gaming revenue.

Recent updates incorporate Phil Spencer's memo, Microsoft's broad layoff details, CNBC's reporting, and Everwild's cancellation news.