A leaked internal memo from Head of Xbox Phil Spencer has revealed significant layoffs across Microsoft’s gaming division. The cuts, which are part of a broader corporate restructuring, are impacting developers at ZeniMax Media and King. In a devastating blow to a highly anticipated project, the memo also confirms the closure of The Initiative, the studio behind the ambitious reboot of the Perfect Dark franchise, effectively killing the game.
The memo, which surfaced online earlier today, outlines the difficult decision to reduce the workforce as Microsoft seeks to align its resources and strategic priorities for the future. While Spencer’s message spoke of positioning Xbox for long-term success, the immediate reality for many talented developers is one of uncertainty and loss.
Today we are sharing decisions that will impact colleagues across our organization. To position Gaming for enduring success and allow us to focus on strategic growth areas, we will end or decrease work in certain areas of the business and follow Microsoft’s lead in removing layers of management to increase agility and effectiveness. Out of respect for those impacted today, the specifics of today’s notifications and any organizational shifts will be shared by your team leaders in the coming days.
Xbox CEO – Phil Spencer
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. 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. We will protect what is thriving and concentrate effort on areas with the greatest potential, while delivering on the expectations the company has for our business. This focused approach means we can deliver exceptional games and experiences for players for generations to come.
Prioritizing our opportunities is essential, but that does not lessen the significance of this moment. Simply put, we would not be where we are today without the time, energy, and creativity of those whose roles are impacted. These decisions are not a reflection of the talent, creativity, and dedication of the people involved. Our momentum is not accidental—it is the result of years of dedicated effort from our teams.
HR is working directly with impacted employees to provide severance plan benefits (aligned with local laws), including pay, healthcare coverage, and job placement resources to support their transition. Employees whose roles were eliminated are encouraged to explore open positions across Microsoft Gaming, where their applications will be given priority review.
Thank you to everyone who has shaped our culture, our products, and our community. We will move forward with deep appreciation and respect for all who have contributed to this journey.
The layoffs are not concentrated in one area, with reports indicating that various teams within the sprawling Xbox ecosystem are affected. Among the most prominent are ZeniMax Media, the parent company of acclaimed studios like Bethesda Game Studios (The Elder Scrolls, Fallout) and id Software (DOOM), and King, the mobile gaming giant behind the ubiquitous Candy Crush Saga. The full scope of the job losses at these studios is still becoming clear, but the impact is expected to be substantial.
However, the most startling revelation from the leaked communications is the shuttering of The Initiative. Founded in 2018, the Santa Monica-based studio was billed as a “AAAA” developer, assembled with top-tier talent from across the industry to create groundbreaking experiences. Their sole announced project was the revival of the beloved Perfect Dark series, a title that has been eagerly awaited by fans since its announcement.
In a separate internal email, Head of Xbox Game Studios Matt Booty confirmed the difficult decision to cease development on Perfect Dark and close The Initiative. He cited the challenges of the project and a re-evaluation of the studio’s long-term capabilities as key factors in the decision.
“Following Phil’s note, I want to share more about the changes to the Studios business units.
Matt Booty, Xbox Game Studios
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. 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.
Our overall portfolio strategy is unchanged: build games that excite our players, continue to grow our biggest franchises, and create new stories, worlds, and characters. We have more than 40 projects in active development, continued momentum on titles shipping this fall, and a strong slate headed into 2026.
For those directly affected, we are working closely with HR and studio leadership to provide support, including severance, career transition assistance, and where possible, opportunities to explore roles on other teams.
To everyone across our studios: thank you. Your creativity and resilience continue to define who we are. I believe in the strength of our teams and the direction we’re taking on the path ahead.”
The cancellation of Perfect Dark is a particularly bitter pill to swallow for the Xbox community. The original Nintendo 64 title is a revered classic, and the prospect of a modern reboot helmed by a team of industry veterans had generated immense excitement. The game’s development had been a subject of speculation, with reports of a collaborative effort with Crystal Dynamics, but today’s news brings a definitive and heartbreaking end to those hopes.
This latest round of layoffs and studio closures marks a significant and somber moment for Microsoft’s gaming ambitions. While the company has seen tremendous growth with its Game Pass subscription service and the acquisition of Activision Blizzard, these cuts paint a picture of a division undergoing a painful and significant transformation.
As the dust settles, the focus will undoubtedly turn to the talented individuals who have lost their jobs and the future of the franchises and studios that remain. For now, the gaming world mourns the loss of a promising studio and the death of a dream for many Perfect Dark fans.
