Microsoft's 9,000 Layoffs Cancel Perfect Dark, Everwild, and Shake Confidence in Xbox Game Pass

Microsoft has laid off approximately 9,000 employees across several departments, with the Xbox division receiving significant cuts. The layoffs have affected multiple studios and resulted in the cancellation of several games that were intended as major releases for Xbox Game Pass. These changes directly influence the service's future and its capacity to fulfill Microsoft’s gaming strategy.

Microsoft positioned Xbox Game Pass as a core part of its strategy by offering day-one access to first-party games and a rotating library of titles. To support this model, Microsoft has invested heavily in acquiring studios and intellectual properties. 

As a result of the layoffs, several major games have been canceled. Perfect Dark, which was in development at Microsoft’s internal studio The Initiative, has been shut down. The Initiative, which was formed specifically to work on high-profile titles, has also been closed and did not release any games before its closure. 

Everwild, a game developed by Rare and in development for several years, has also been canceled. Rare’s last release was Sea of Thieves in 2018, and it is now unclear when the studio’s next project will be released. An unannounced MMO developed by ZeniMax Online Studios has also been canceled.

Several studios were also affected by the layoffs, including Bethesda, Blizzard, Turn 10 Studios, and the team behind Halo. Call of Duty developers Sledgehammer Games, High Moon Studios, and Raven Software have also been affected. These changes occur despite Call of Duty being one of the best-selling game franchises annually and Microsoft reporting high profits.

Following the layoffs, concerns have been raised by developers about the sustainability of the Xbox Game Pass model. Raphael Colantonio, founder of Arkane Studios and currently president and creative director of WolfEye Studios, stated that Game Pass is an unsustainable model. He described it as damaging to the industry and dependent on Microsoft’s large financial backing. Colantonio said that Game Pass cannot co-exist with other business models without either eliminating them or failing itself.

Michael Douse, director of publishing at Larian Studios, agreed with Colantonio’s concerns. He said that one of the main reasons developers in his network avoid the Game Pass model is uncertainty about what will happen when Microsoft’s financial support ends. Douse stated that the business model never made financial sense and that it could not be relied on long-term.

Colantonio also mentioned Game Pass negatively affects game sales. He said that while Microsoft previously claimed otherwise, the company later acknowledged that launching games on Game Pass did impact sales. Douse responded by saying he preferred Sony’s method of releasing first-party games for sale first and only adding them to subscription services later. He referred to Sony’s model as a “lifecycle management strategy.” Colantonio said the only sustainable way Game Pass can operate without harming others is by focusing on older back-catalogue titles.

Colantonio further explained that Game Pass is not profitable on its own when including the cost of content acquisition. He said that Microsoft has spent billions on studios like ZeniMax and Activision Blizzard, and that these costs are amortized over time instead of being shown directly in profit and loss statements. He said that this approach hides the actual financial performance of Game Pass.

He added that the current price and content model of Game Pass is possible because Microsoft is subsidizing the service. He said this could change if Microsoft’s goal of market dominance is reached. According to Colantonio, once competition is reduced, the quality of games could decline, and subscription prices could increase. 

Games like Call of Duty, which are included in Game Pass, have also been criticized for including features that resemble gambling. Analysts have pointed out that the game’s loot box and supply drop systems use randomized rewards, which resemble gambling behavior patterns. These systems use real money and random outcomes without guaranteed rewards. They have been compared to casino-style mechanics and are accessible to underage players. Studies have linked these features to increased stress, impulsivity, and behaviors associated with gambling addiction.

In countries like Belgium and Austria, courts have ruled that similar mechanics in other games qualify as gambling. China and South Korea have passed laws requiring companies to disclose drop rates. The UK has also raised concerns about value-destructive business models. Although Call of Duty is still available in these regions, the regulatory landscape surrounding loot box mechanics is continuously evolving.

Phil Spencer, head of Xbox, addressed the state of Game Pass in an April 2025 interview with Variety. He said Game Pass remains a healthy option for some users but is not meant for everyone. Spencer noted that growth is strongest in PC and cloud platforms, while consoles are stable but not expanding. He said Game Pass is not intended to be the only way users play games, and Microsoft remains focused on making its games available for individual purchase. Spencer said that if all Game Pass users chose to buy games instead, that would still benefit the business.

Microsoft has not provided updated Game Pass subscriber numbers. In its earnings report for the quarter ending March 31, 2025, Microsoft reported 8% year-over-year growth in Xbox content and services revenue and a 45% increase in PC Game Pass revenue. However, the company did not disclose how much revenue Game Pass generates or whether it is profitable.

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