Xbox lay off 268 people as Activision take over Halo and Rare, while Obsidian become part of Bethesda, plus Forza and Fable studios merge

Xbox undertook its second major restructuring in 2026, laying off 268 employees while orchestrating a sweeping consolidation of its studio portfolio. The cuts follow a brutal July round that eliminated 1,600 positions and severed ties with Double Fine, Arkane Studios, Undead Labs, Compulsion Games, and Ninja Theory.

The reorganization reshuffles Xbox's most valuable franchises across its remaining operations. Activision assumes stewardship of the Halo franchise, a seismic shift for a property that defined Xbox's identity for two decades. Rare, the legendary developer behind Banjo-Kazooie and Sea of Thieves, moves under Activision's oversight as well. This represents a significant consolidation of creative power within Activision's walls, strengthening the publisher's control over Microsoft's gaming crown jewels.

Obsidian Entertainment, creator of The Outer Worlds and Baldur's Gate 3's spiritual predecessor, becomes fully integrated into Bethesda. The move positions Obsidian closer to Bethesda's Elder Scrolls and Fallout franchises, potentially signaling collaborative development on these flagship RPG series. Obsidian's expertise in character-driven role-playing games aligns cleanly with Bethesda's core competencies.

The most consequential merger combines the Forza and Fable studios into a single operation. Forza Motorsport, Xbox's racing juggernaut, and the Fable fantasy RPG franchise now share leadership and resources. This consolidation suggests Microsoft is prioritizing these two franchises above others in its first-party portfolio, pooling talent and budgets to strengthen both properties.

The timing underscores a dramatic recalibration of Xbox's strategy. After aggressive expansion through acquisitions, Microsoft appears to be cutting costs and concentrating firepower on proven franchises and successful studios. The 1,600 layoffs in July eliminated entire teams, while this second wave of 268 cuts targets middle management and support functions across remaining studios.

This approach inverts the acquisition-heavy strategy that defined Microsoft's gaming division over the past four years. The company spent billions acquiring ZeniMax Media (containing Bethesda), Activision Blizzard, and smaller studios, expecting these purchases to bolster Game Pass and drive hardware sales. Instead, Xbox now faces serious challenges: Game Pass subscriber growth has stalled, hardware sales remain weak compared to PlayStation 5, and internally-developed games have underperformed commercially and critically.

By folding studios into larger entities and consolidating franchises, Xbox reduces overhead while centralizing decision-making. Halo's move to Activision could accelerate development on a new mainline entry, as Activision brings operational discipline and publishing experience. Fable and Forza's merger likely aims to create synergies in art direction, engine optimization, and live-service infrastructure.

The restructuring also reflects philosophical shifts within leadership. New strategic priorities emphasize profitability over expansion. A smaller, leaner organization answerable directly to Bethesda or Activision leadership may move faster than the sprawling, semi-autonomous studio system Xbox operated previously.

For players, these changes carry mixed implications. Consolidation can improve game quality through better resource allocation and focused vision. It also risks homogenizing creative output if merged teams dilute individual studio identities. The franchise shuffles signal that Microsoft intends to push Halo, Fable, and Forza as pillars of its platform strategy going forward, with corresponding investment and attention.