Welcome to Video Games Weekly on Engadget. Expect a new story every Monday or Tuesday, broken into two parts. The first is a space for short essays and ramblings about video game trends and related topics from me, Jess Conditt, a reporter who's covered the industry for more than 13 years. The second contains the video game stories from the past week that you need to know about, including some headlines from outside of Engadget.

Please enjoy — and I'll see you next week.

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This week, I’m fried. Maybe it’s the plodding and ever-present crumbling of society and human decency, or maybe it’s because Love Island USA just ended so I’m feeling extra listless. It’s a familiar summer sensation, but this year everything is exaggerated and extra tense, the stakes of every action seem higher, and instead of melting into the warmth of the season with a popsicle and a smile, I often find myself frozen and numb. I am the popsicle, coo coo ca choo.

I’m not sure exactly what I’m trying to convey here, but I think it’s clear that I shouldn’t be writing anything too serious at the moment. I’m working on a few reports and trying to keep my composure amid the chaos, and all the while, the video game headlines keep rolling on. I’ve included a few more than usual this week, as penance for my popsicle state.

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The news

The Chinese Room escapes from Tencent

UK studio The Chinese Room, creator of Still Wakes the Deep and Everybody’s Gone to the Rapture, is independent once again. The Chinese Room leaders completed a management buyout with help from VC firm Hiro Capital to fully split the studio from Tencent subsidiary Sumo Digital, which acquired it in 2018. A number of people were laid off as part of the transition and the studio is left with a total of 55 employees. The Chinese Room is still working on Vampire: The Masquerade — Bloodlines 2 for Paradox Interactive, and it also has original projects in development.

Still Wakes the Deep was one of my absolute favorite games of 2024. Whether you’re a fan of beautiful paranormal horror or you're just really into oil rigs, give it a go.

Read these stories that Vice censored

Vice’s owner, Savage Ventures, doesn’t want you to read this story. Or this one.

Vice removed two articles about Steam’s new ban on certain “adult-only” content and the organization that pushed for the change, Collective Shout, which has the support of prominent anti-pornography groups with conservative religious foundations. The stories were written by contributor Ana Valens, who said the removals were “due to concerns about the controversial subject matter — not journalistic complaints.” Valens has vowed to never write for Vice again and a handful of reporters there have resigned in solidarity.

Censoring stories about censorship is certainly a choice, Vice.

Supermassive delays Directive 8020 and shrinks its team

The home of Until Dawn and The Dark Pictures Anthology, Supermassive Games, is laying off 36 people, restructuring its team and delaying one of its projects into 2026. A statement from the studio says the decisions were in response to the video game industry’s “challenging and ever-evolving environment.” It’s estimated that Supermassive had more than 300 employees before the layoffs.

Directive 8020, the fifth installment in the Dark Pictures Anthology, is now due to come out in the first half of 2026, rather than this fall. Honestly, I’m not surprised to hear Supermassive needs more time to work on Directive 8020. I watched Engadget UK bureau chief Mat Smith play the demo at Summer Game Fest in June, and while it looked great, we were both surprised by how short and non-interactive the segment was. He summed up this feeling in his preview with the line, “Finally, I got to play (but only for a few minutes).”

Supermassive is also working on Little Nightmares III, a series that it took over from Tarsier Studios. Tarsier created Little Nightmares and its sequel, but lost the rights to the IP when the team was acquired by a subsidiary of Embracer Group in 2019. Series publisher Bandai Namco kept the Little Nightmares brand and commissioned Supermassive to build the third game, while Tarsier is working on its own project, Reanimal.

It makes sense that Supermassive would prioritize Little Nightmares III in order to fulfill its obligations with Bandai. The game has already been delayed once, and it’s set to hit PC and consoles on October 10.

FBC: Firebreak is getting less busted

I still have high hopes for FBC: Firebreak to be the Left 4 Dead revival we’ve always wanted, but fact is, it’s not quite there yet. Remedy Entertainment is aware of this hard truth and has a plan to fix it. The studio laid out its pipeline for making FBC: Firebreak easier to jump into, more fun to play and less confusing overall, with most major changes coming in an update this winter.

Valve is still the best retirement community in game development

PCGamesN published an interview with Counter-Strike co-creator Minh Le, who left Valve years ago to try out independent development. One sentiment stuck out to me.

“They didn't force me out or anything,” Le told PCGamesN. “But a part of me kind of regrets it. Looking back, my decision to leave Valve was, financially, kind of a poor decision. If I had stayed with Valve, I would have been able to retire by now.”

It’s not presented as an indictment of Valve, but I find it notable that Le describes the studio as a place to retire, rather than a space to innovate and create the next generation of video games. At this rate, Valve will never outrun its reputation as the studio where talented game developers go to die (professionally speaking). 

But, hey, at least they're not getting laid off en masse. Which, unfortunately, brings us to the next headline.

Your favorite studio’s favorite studio faces layoffs

Cyberpunk 2077, Sea of Thieves and Dune: Awakening support studio Virtuos is laying off 270 developers, which is about seven percent of its staff. Virtuos is currently best known as the studio behind The Elder Scrolls 4: Oblivion Remastered alongside Bethesda, and it has more than 4,000 employees across Asia, Europe and North America. The cuts affect developers in Asia and Europe, with “fewer than 10” in France, where work on Oblivion Remastered was headquartered.

Heck yeah, there’s gonna be a Hellraiser game

Make sure to pin this one on your calendar. Saber Interactive is making Clive Barker's Hellraiser: Revival, a first-person, action-survival horror game that features actor Doug Bradley as Pinhead for the first time in nearly 20 years. Barker himself provided input on the story, too. It’s coming to PlayStation 5, PC and Xbox Series X/S, with no release date yet.

"The Hellraiser universe is defined by its unflinching exploration of pain, pleasure, and the thin and terrifying line that separates the two," a description from Saber Interactive reads. "That essence is at the heart of our game."

An inside look at the fallout of the Zenimax layoffs

Game Developer reporter Chris Kerr spoke with a number of employees at Zenimax who are still reeling from the layoffs that Microsoft enacted in early July. The vibes there sound pretty terrible.

“This carcass of workers that remains is somehow supposed to keep shipping award-winning games," one senior QA tester told Kerr. The developer continued, “Microsoft just took everything that could have been great about the culture and collaboration and decimated it. Morale is terrible. It's grotesque. People are stressed. They're crying.”

Xbox cloud play anywhere

When Xbox isn’t firing thousands of employees in one blow, it’s quietly laying the groundwork for the future of video game distribution. An update for Xbox Insiders this week introduces cross-platform cloud support, bringing your cloud library and play history to the Xbox PC app. This means you can access cloud activity on an Xbox console, PC or Windows handheld, and seamlessly play cloud games across devices. This is just how video games are going to work in the coming decades, and it’s interesting to watch our future slowly roll out in blog posts and software updates.

Subnautica 2 scandal catch-up

Did you miss all of the mess around Subnautica 2 last week? Or, more accurately, this past month? To quickly summarize, Subnautica publisher Krafton is being sued by the series creators after it fired them and then delayed their game, allegedly sabotaging a $250 million bonus payout due to developers. To not-quickly summarize, see my complete breakdown of the drama.

My Melody & Kuromi hits Netflix this week

I don’t know who else needs a little levity in their life right now, but I certainly do. Thankfully, the stop-motion show My Melody & Kuromi is coming to Netflix on July 24, and there’s already an adorable tie-in music video by LE SSERAFIM to enjoy. Zen out, watch all of the Sanrio sweetness and finally settle the debate: Are you more of a Kuromi or a My Melody?

Additional reading

• Kris Holt's weekly indie game roundup

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Have a tip for Jessica? You can reach her by email, Bluesky or send a message to @jesscon.96 to chat confidentially on Signal.

This article originally appeared on Engadget at https://www.engadget.com/gaming/video-games-weekly-censorship-shrinkage-and-a-subnautica-scandal-221839722.html?src=rss

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© Saber Interactive

If I had to describe the status of Subnautica 2 in just three words, it would be these: messy, messy, messy. That’s not to say the game itself is in terrible shape — this is actually a pivotal claim in the whole situation — but the relationship between Subnautica series developer Unknown Worlds and its parent company, Krafton, is in shreds. This month alone, Krafton fired the founders and CEO of Unknown Worlds, Subnautica 2 was delayed until 2026 and the ousted leaders filed a lawsuit against Krafton, looking to regain creative control of the game and the studio. At the center of the conflict is a bonus payment worth up to $250 million.

Here’s a rundown of how we got here and what in the devil is going on with Subnautica 2, Krafton and Unknown Worlds.

Krafton

Charlie Cleveland accidentally started Unknown Worlds in 2001 while building the popular Half-Life mods Natural Selection and Natural Selection 2, and technical director Max McGuire came on as an official studio co-founder in 2006. Inspired by Minecraft and burned out on mods, Unknown Worlds began working on the undersea, open-world exploration game Subnautica and released it in early access on Steam in 2014. With years of community feedback, the game evolved into a singularly tense and rich survival experience, and version 1.0 officially landed in 2018. This is also when Ted Gill joined the studio’s executive team, freeing up Cleveland to focus on creative direction. Subnautica and its spin-off, Subnautica: Below Zero, attracted millions of players and established Unknown Worlds as a successful independent team.

So, the larger studios came sniffing. PUBG publisher Krafton, which operates with billions of dollars annually, purchased Unknown Worlds in 2021 for $500 million. The acquisition came with the promise of an additional payout worth up to $250 million if Unknown Worlds hit certain performance goals by the end of 2025. This bonus is a critical piece of the chaos today.

We know more about the details of this deal thanks to recent reporting by Bloomberg. In addition to the leadership positions, which were filled by Cleveland, Gill and McGuire, Unknown Worlds had about 40 employees at the time of the Krafton sale, and they received payouts totaling $50 million at closing and over the following two years. This larger group was poised to receive as much as $25 million in the 2025 performance-based earnout, with each person expecting a different amount, but most estimating six or seven figures. The remaining $225 million was reserved for the Unknown Worlds leadership, but they said they intended to share a portion of their windfall with employees who weren’t included in the bonus, covering the full studio headcount of about 100 people.

Krafton

The leadership of Unknown Worlds repeated this promise in a lawsuit filed against Krafton on July 10, 2025. But we’re getting ahead of ourselves.

After the acquisition, Unknown Worlds continued updating Subnautica and Below Zero. In February 2024, the studio released Moonbreaker, a turn-based strategy game that never really took off, partially because of its initial microtransaction system. Since then, the studio has been focused on Subnautica 2. The game was officially announced in October 2024 with a prospective early access launch window of 2025. It’s currently the second-most wishlisted game on Steam, after Hollow Knight: Silksong.

The first public notion that something was rotten between Unknown Worlds and Krafton came on July 2, when Cleveland, Gill and McGuire were fired and replaced by former Callisto Protocol studio head Steve Papoutsis. Krafton didn’t provide a reason for the switch-up in its press release, instead offering the following nearly complete thought: “While Krafton sought to keep the Unknown Worlds’ co-founders and original creators of the Subnautica series involved in the game’s development, the company wishes them well on their next endeavors.”

Krafton didn’t mention delaying the early access launch at this time, but it implemented a review process that it said would be “essential to delivering the right game at the right time.” The publisher suggested the ousted leaders had been uncooperative in this aspect.

“Unknown Worlds’ new leadership fully supports this process and is committed to meeting player expectations,” its press release said.

Cleveland published a blog post on July 4 reflecting on his time in game development, and sharing his disappointment at Krafton’s handling of Unknown Worlds and Subnautica 2. He also referenced Krafton’s intent to delay the launch.

“You can see why for Max, Ted, myself, the Unknown Worlds team, and for our community, the events of this week have been quite a shock,” Cleveland wrote. “We know that the game is ready for early access release and we know you’re ready to play it. And while we thought this was going to be our decision to make, at least for now, that decision is in Krafton’s hands. And after all these years, to find that I’m no longer able to work at the company I started stings.”

On July 9, Krafton officially delayed the early access launch of Subnautica 2 to 2026. That same day, Bloomberg published a report outlining the performance-based bonus agreement and implicitly questioning how the timing of the delay would make it difficult for the studio to hit its goals, putting the payout in jeopardy. This was the first time the details of the bonus became public.

Krafton shared a statement with Engadget — and in a pop-up on its own homepage — on July 10 that straight-up accused the fired leaders of abandoning the studio in favor of personal creative pursuits, specifically calling out Cleveland’s film production company. It also threw shade at Moonbreaker and claimed the former bosses wanted the bonus payment “for themselves.”

Krafton

“Krafton made multiple requests to Charlie and Max to resume their roles as Game Director and Technical Director, respectively, but both declined to do so,” the statement said. “In particular, following the failure of Moonbreaker, Krafton asked Charlie to devote himself to the development of Subnautica 2. However, instead of participating in the game development, he chose to focus on a personal film project. Krafton believes that the absence of core leadership has resulted in repeated confusion in direction and significant delays in the overall project schedule. The current Early Access version also falls short in terms of content volume.”

That same day, Cleveland announced that he and the other ousted studio heads had filed a lawsuit against Krafton.

“Suing a multibillion dollar company in a painful, public and possibly protracted way was certainly not on my bucket list,” Cleveland wrote. “But this needs to be made right. Subnautica has been my life’s work and I would never willingly abandon it or the amazing team that has poured their hearts into it. As for the earnout, the idea that Max, Ted and I wanted to keep it all for ourselves is totally untrue.”

The lawsuit wasn’t unsealed until July 16. But on July 15, Bloomberg reported that Krafton now planned to extend the window for the bonus payment by an additional year, giving the studio more time to hit its goals. The publisher will also reportedly advance a portion of a separate profit-sharing bonus pool to all Unknown Worlds employees in 2025.

These moves seem designed to moot the core issues raised in the breach of contract complaint that Cleveland and other Unknown Worlds leaders filed against Krafton in Delaware Chancery Court. The lawsuit, unsealed on July 16, claims Krafton illegally fired the studio heads and delayed Subnautica 2 in order to avoid the bonus payments. It also provides a timeline of growing tensions between the founders and Krafton this year, accusing the publisher of intentional sabotage.

The lawsuit claims that Krafton and Unknown Worlds had a respectful relationship until April 2025, when Gill presented Krafton executives with the studio’s positive revenue projections, which were made with the assumption that Subnautica 2 would hit early access in 2025. He also outlined the expected bonus payout under the agreement.

“When that happened, everything changed,” the lawsuit reads.

The complaint alleges that at this point, Krafton began looking for ways to force out the leaders of Unknown Worlds and delay the launch of Subnautica 2, with a goal of circumventing the bonus payment. Cleveland, Gill and McGuire argued back and forth with Krafton executives over whether the game was ready for early access, and Krafton eventually pulled all of its resources from the studio. Krafton issued a stop order on Subnautica 2 development, took over Unknown Worlds’ communications channels and in June it started laying an internal paper trail accusing the founders of abandoning their fiduciary duties, according to the complaint.

Cleveland, Gill and McGuire were fired and removed from the Unknown Worlds board of directors on July 1. This is where the rest of us entered the story.

The main conflict here is over whether Subnautica 2 is really ready for an early access launch, and that matters because of a potential $250 million bonus payment that’s jeopardized by a delay. Not only is this a large sum for Krafton to lose, but it’s also a massive amount of money for Cleveland, Gill and McGuire to miss out on, especially now that they’ve lost their studio and tentpole IP. The ousted leaders reiterated in their lawsuit that they “planned to share even more of the earnout with their dedicated team” than they were contractually obligated to. In the complaint, they’re looking for Krafton to pay out the full bonus as projected without a delay, fulfill its obligations as a publisher and reinstate them as the heads of Unknown Worlds.

Every party in this situation claims they want what’s best for Subnautica 2 and its players. It’s possible that they’re all telling the truth and this is a simple disagreement over artistic integrity. It’s also possible that they’re all lying and everyone is looking to make (or keep) a quick buck — but man, that’s bleak. The truth, as usual, likely lies somewhere in between and, chances are, we’ll never know it. At least the court system will eventually be able to determine the second-best thing, which is who’s at fault.

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Have a tip for Jessica? You can reach her by email, Bluesky or send a message to @jesscon.96 to chat confidentially on Signal.

This article originally appeared on Engadget at https://www.engadget.com/gaming/what-the-hell-is-going-on-with-subnautica-2-212928022.html?src=rss

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© Krafton

Welcome to Video Games Weekly on Engadget. Expect a new story every Monday or Tuesday, broken into two parts. The first is a space for short essays and ramblings about video game trends and related topics from me, Jess Conditt, a reporter who's covered the industry for more than 13 years. The second contains the video game stories from the past week that you need to know about, including some headlines from outside of Engadget.

Please enjoy — and I'll see you next week.

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If I end up reading one more story about how fantastic Death Stranding 2 is so long as you skip the cutscenes, I’m gonna hurl. At what point during 10 hours of cinematic interstitials do we collectively put the controller down and say, actually, this isn’t a great game? Not because the game parts aren’t any good — they’re pretty fabulous, in fact — but because a significant portion of the experience isn’t actually interactive at all. When does it become more accurate to describe a Hideo Kojima project as a CGI movie with moments of interactivity, rather than as a video game first?

I’m not actually attempting to solve the “video game of Theseus” riddle right now, but it’s a conversation that’s been on my mind, given recent headlines. Death Stranding 2 reviews are in, Neil Druckmann is out at HBO and returning to Naughty Dog full-time, and Emmy nominations arrived with 18 nods for video game adaptations. Meanwhile, layoffs are rocking the gaming industry yet again, with thousands fired at Xbox this month, alongside multiple studio closures and game cancellations. One of the most surprising titles to get the ax was Project Blackbird, a promising-sounding MMO from Elder Scrolls studio ZeniMax Online. Blackbird was reportedly canceled in favor of allocating resources to the development of Fallout 5, a series with mainstream clout following the success of Amazon’s Fallout TV show in 2024.

The convergence of video games and Hollywood is not a new talking point — even for me — but it’s only grown more relevant with time. Sony in particular is leaning hard into a cross-media strategy with notable investments in television, anime and film adaptations of its video game franchises, and it just published Kojima Productions’ Death Stranding 2, which serves as a lightning rod for this entire conversation.

Kojima is easy to pick on because he’s been so vocal about his desire to make movies, and fittingly, his games have only grown more cinematic over the years. Death Stranding and its sequel are stacked with mainstream Hollywood actors (and Kojima’s favorite directors) across hours of drawn-out, non-interactive cutscenes. His next two projects, OD and Physint, are both described as having A-list casts and “blurring the boundaries between film and games.”

I’m a big fan of experimental horror games, and I deeply appreciate Kojima’s eye for building tension and sneaky action sequences, but I’m hesitant to get excited about OD and Physint. The deeper Kojima dives into the world of Hollywood, the more he loses me. I don’t download, install and boot up a video game to watch a movie instead, and I don’t find it impressive when an interactive product is defined by cinematic terms. The constraints of filmmaking are vastly different than those of video game development, and it sucks to watch a talented creator try to force video games to conform to the boundaries of movies or TV, rather than exploring the mechanics that make interactive art so uniquely powerful. I feel like Kojima sees cinema as the goal, not video games specifically, and this perspective breaks my little pixelated heart.

It’s particularly painful in an era of raging instability for the video game industry. It’s difficult to see so much money and creative talent being thrown at projects that end up feeling more like movies than games, at a time when it’s increasingly difficult for fresh and original AAA projects to make it to market. Video games have not been maxed out as an art form — there’s far more to discover in terms of mechanics, visuals, haptics and immersive interaction systems, and there are more stories that can only be told with these specific tools. Viewing game development through the lens of filmmaking diminishes everything that makes this medium so powerful. The only Hollywood trait the games industry should imitate is its powerful and functional unions.

I enjoy things that exist in the gray space between definitions; in fact, I often prefer them. What I don’t enjoy is misguided emulation that’s sold to an audience as innovation. In the end, I guess what I’m really saying is… I’m still not over PT.

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The news

King developers were the architects of their own demise

One of the most eyebrow-raising details of Microsoft’s sweeping layoffs earlier this month was the fact that King, the studio behind Candy Crush, was included in the firings. King is historically a money-printing machine with high per-employee returns, which tends to insulate it from layoffs, but this time around at least 200 people were let go from the studio. As it turns out, a number of fired developers spent the past few years training AI systems to do their jobs, which just adds a layer of shittiness to an already crappy situation.

Best Buy will have more Switch 2 units on Thursday

Has the FOMO gotten to you yet? After denying that you wanted a Switch 2 for a few noble and self-righteous weeks, have you cracked and admitted that you actually, really want one? Great — then get yourself to Best Buy on Thursday, July 17, when the company will restock its supply of Switch 2 consoles in all stores. This coincides with the release of Donkey Kong Banaza, too.

A small update on Ken Levine’s Judas (sung like Lady Gaga)

I’ve had my eye on Judas, the BioShocky FPS from Ken Levine’s Ghost Story Games, since it was revealed in 2022, and I lowkey love how little we still know about it today. That said, I’m happily devouring every bit of information about Judas, and the latest nugget comes from Levine himself in an interview with classic game publisher Nightdive Studios. With Judas, Ghost Story is focused on "telling the story and transporting the player somewhere," rather than building live-service or microtransaction features, Levine said. As he put it, “You buy the game and you get the whole thing. There's no online component. There's no live service.”

There’s also no release date for Judas yet.

Summer Games Done Quick can’t stop raising millions for charity

The crazy kids at Summer Games Done Quick have done it once again and raised literal millions of dollars for Doctors Without Borders in a single weekend, simply by playing video games in silly ways without stopping. SGDQ 2025 wrapped up on Sunday with a total donation pool of $2,436,614. The organization's next event is another edition of Flame Fatales, a speedrunning showcase featuring women and femmes that runs from September 7 to 14. We’ll see you there.

Ousted Subnautica 2 studio bosses are suing Krafton

The well of Subnautica 2 drama runs deep. Earlier in July the heads of Subnatica 2 studio Unknown Worlds Entertainment — Charlie Cleveland, Ted Gill and Max McGuire — were ousted by the team’s parent company, Krafton, and the game’s early access release was delayed to 2026. What’s more, Bloomberg reported that the studio had been in line for a $250 million bonus if it had met certain financial goals by the end of the year, but those largely hinged on an early access release. Cleveland said on social media that Subnautica 2 was ready for early access, and Krafton responded to the whole shebang by accusing the fired developers of abandoning their responsibilities as studio heads. Cleveland and others are now apparently filing a lawsuit against Krafton. GamesIndustry.biz has a comprehensive timeline of the Subnautica 2 controversy right here.

Additional reading

• Kris Holt’s weekly indie game roundup

• Ghost of Yōtei's lo-fi beats mode sums up the very best and very worst of this very weird series by Chris Tapsell at Eurogamer

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Have a tip for Jessica? You can reach her by email, Bluesky or send a message to @jesscon.96 to chat confidentially on Signal.

This article originally appeared on Engadget at https://www.engadget.com/gaming/video-games-weekly-who-put-all-these-videos-in-my-games-232445265.html?src=rss

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© Sony Interactive Entertainment

At least five employees at Halo Studios have been fired as part of company-wide layoffs at Microsoft on Wednesday, according to a developer with knowledge of the situation. An estimated 200 to 300 people remain at the studio.

Employees across Microsoft's Xbox division received an email from Microsoft Gaming CEO Phil Spencer Wednesday morning addressing "organizational shifts" hitting the team over the coming days. Halo Studios employees who were laid off received an additional invite to a meeting with organization leaders, and two (very long) hours later, the Teams call began. Amid discussions of severance packages, the reasons provided for the firings aligned with Spencer's memo — to "increase agility and effectiveness."

"I'm personally super pissed that Phil's email to us bragged about how this was the most profitable year ever for Xbox in the same breath as pulling the lever" on the layoffs, the developer told Engadget. "I wasn't sure what part of that I was supposed to be proud about."

Halo Studios is currently working on multiple games, including the next mainline Halo installment, and it's the steward of Halo: Infinite, which is quietly spinning down its content cadence. The mood at the studio is tense, especially when it comes to one project that was recently in crisis, according to the developer.

"I don't think anybody is really happy about the quality of the product right now," they said. "There's been a lot of tension and pep talks trying to rally folks to ship." The studio recently teased that it would reveal what it's been working on at this year's Halo World Championship in October.

Halo Studios was rocked by layoffs in 2023, back when it was still called 343 Industries, and that culling mostly affected people on the campaign and narrative teams, including Halo veteran Joe Staten. (This is also the reason Halo: Infinite hasn't had a continuing storyline since that time period). Today, Halo Studios employs a blend of full-time employees and contractors, with junior producers and quality assurance roles generally contracted out. 

343 Industries came under fire from fans for the launch state of Halo: Infinite, and over the years several ex-employees have spoken out about the studio's reliance on contractors, who typically work with the company for a maximum of 18 months. 

The employee I spoke with said that, since 2023, there's been a general shift toward working with contracted studios — rather than individual contractors — in the United States and Europe to speed up Halo production. This mirrors the way other major FPS franchises like Call of Duty and Battlefield are developed. 

"Xbox in general feels years behind the curve in game development, and it leads to a lot of wasted time and effort," the employee said. At the same time, multiple departing team members have spoken warmly about their time at Halo Studios and the people they worked with.

The layoffs at Microsoft on July 2 affected 9,000 employees globally, including 830 in Washington, where Halo Studios is based. The Xbox division endured significant firings, game cancellations and studio closures. A Microsoft spokesperson said the Xbox team did not absorb the majority of the layoffs, but given its relatively small size in the organization, that framing may not accurately reflect the impact. 

Under the Xbox banner, Rare's Everwild and The Initiative's Perfect Dark reboot were cancelled, and The Initiative was fully shut down. Forza Motorsport developer Turn 10 Studios reportedly lost a "vast majority" of its employees, and Rare, ZeniMax Online Studios, King, Raven, Sledgehammer Games and Halo Studios have all reportedly been affected. ZeniMax president Matt Firor is out after 18 years leading the studio, and it's being reported that veteran Rare designer Gregg Mayles is also gone after decades with his team. And to top it all off, Blizzard is sunsetting Warcraft Rumble.

Microsoft has increasingly focused on AI, a shift that's propelled its stock price to new highs. At Meta's Llamacon in April, CEO Satya Nadella said that as much as 30 percent of the company's code is now written by AI. Activision in February admitted to using AI in Black Ops 6. It's unclear how much AI has to do with this latest round of layoffs, but use of Copilot is "no longer optional" within Microsoft. 

The developer I spoke with said, "They're trying their damndest to replace as many jobs as they can with AI agents."

News about specific Xbox teams popped up throughout the day as employees shared their experiences on social media and spoke with various publications. Microsoft laid off 1,900 Xbox employees in January 2024 and 650 more in September, and last year it closed Arkane Austin, Alpha Dog Games and Tango Gameworks (the latter of which was acquired by Krafton). Microsoft reported a net revenue of $25.8 billion in the first three months of 2025, with an eight percent yearly increase in revenue from Xbox content and services.

Microsoft told Engadget that the layoffs will affect less than four percent of the company's global workforce. A statement from a Microsoft spokesperson reads as follows: "We continue to implement organizational and workforce changes that are necessary to position the company and teams for success in a dynamic marketplace."

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Have a tip for Jessica? You can reach her by email, Bluesky or send a message to @jesscon.96 to chat confidentially on Signal.

This article originally appeared on Engadget at https://www.engadget.com/gaming/xbox/even-before-the-xbox-layoffs-there-was-tension-at-halo-studios-002031995.html?src=rss

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