Microsoft’s Xbox turmoil isn’t slowing down

In a week when Xbox fans were hoping to hear a response from Microsoft to the PS5 Pro, the software giant is making a third round of gaming layoffs instead. 650 employees at Microsoft’s gaming business are being laid off, part of continued cuts at Xbox after Microsoft’s $68.7 billion acquisition of Activision Blizzard.

Microsoft cut 1,900 Activision Blizzard and Xbox jobs earlier this year and then shuttered four studios it acquired as part of its $7.5 billion Bethesda acquisition in May. Thankfully, Hi-Fi Rush studio Tango Gameworks was eventually saved from Microsoft’s shutdown after Krafton, the South Korean publisher behind PUBG: Battlegrounds and The Callisto Protocol, acquired the Japanese studio from Microsoft instead.

Xbox chief Phil Spencer announced the latest layoffs to employees in an internal memo, seen by The Verge, at 3AM PT this morning. The cuts are part of the continued restructuring around the Activision Blizzard deal, and “no games, devices or experiences are being canceled,” says Spencer. Unlike prior layoffs, no studios are being closed this time, either. The 650 job cuts will primarily impact “corporate and supporting functions,” according to Spencer, meaning cuts to HR and marketing roles.

The big question is when these Xbox cuts will end. Employees have been bracing for these cuts for days, as word of imminent layoffs started circulating internally recently. I understand that Microsoft is even going dark on social media today, instructing Xbox employees to cancel scheduled posts. Last time Microsoft announced Xbox job cuts, it still launched a fiery-themed controller with a “feel the burn” slogan that generated backlash both publicly and inside of Microsoft. Lots of employees expressed their dissatisfaction over the Xbox controller announcement mistake in posts on Microsoft’s employee-only messaging board at the time.

The continued cuts are having a big impact on morale, according to several Xbox employees I’ve spoken to recently. Some are worried about potential cuts to studios in the future, and most employees I’ve talked to are straight-up confused about Microsoft’s overall gaming strategy.

These latest cuts come amid a continued shake-up after the Activision Blizzard acquisition. Without that acquisition, gaming revenue at Microsoft would have been down 4 percent in the recent quarter, and the additional Activision Blizzard revenue is also helping boost Xbox content and services revenues. With Game Pass subscription growth slowing and Xbox Series S / X sales stalling, Microsoft has turned to bringing some of its Xbox-exclusive games to PlayStation as a way to generate more revenue. It’s a strategy that has a lot of people confused right now, and Microsoft has even been struggling to explain it to employees for months.

Ultimately, for Microsoft’s gaming business, it’s the debt of acquiring Activision Blizzard that’s forcing the division to look at bringing more Xbox games to PlayStation. “We run a business,” admitted Spencer recently, responding to a question about Xbox games on PlayStation during Gamescom. “It’s definitely true inside of Microsoft that the bar is high for us in terms of the delivery that we have to give back to the company because we get a level of support from the company that’s just amazing and [helps] what we’re able to go do.”

Sources tell me Microsoft is banking on Call of Duty on Game Pass to shift the needle for its subscription numbers and help grow its gaming revenues. There had been a long debate internally over whether to put this year’s Call of Duty: Black Ops 6 release on the service, and the company is now gambling that it will help improve Game Pass subscriber numbers amid a busy holiday season for new Xbox games and a promising year ahead.

While the results of the Call of Duty bet won’t be felt until next year, Xbox employees are certainly hoping that the gaming layoffs of 2024 are a thing of the past for 2025.

Microsoft isn’t planning to launch a mid-gen refresh to compete with Sony’s PS5 Pro anytime soon. The only new Xbox hardware on the horizon are new Xbox Series X and S console variants this holiday that will arrive alongside plenty of new Xbox games. While the 2TB special-edition “Galaxy Black” Xbox Series X looks pricey at $599, it’s going up against Sony’s PS5 Pro at $699 that has an improved GPU and promises to make PS5 games look better and run smoother.

Maybe it’s a good thing that Microsoft doesn’t have a PS5 Pro answer, because there’s been a big backlash to Sony’s $699 PS5 Pro pricing this week. I firmly believe that the price tag is part of a big test of prices for next-gen consoles, and I wouldn’t be surprised if we see similar pricing for future hardware from both Microsoft and Sony.

Microsoft is now focused on its next-generation hardware instead of a refresh. As the future of Xbox looks increasingly a lot like a PC, I’m not expecting the next generation of consoles to come cheap.

Thanks for subscribing and reading to the very end. What are you hoping to see from Microsoft’s Copilot event next week? You can reach me via email at notepad@theverge.com.

If you’ve heard about any of Microsoft’s other secret projects, you can also speak to me confidentially on the Signal messaging app, where I’m tomwarren.01. I’m also tomwarren on Telegram if you’d prefer to chat there.