Two and a half months ago, we covered Xbox CEO Asha Sharma’s July memo announcing 3,200 planned job cuts and four studios being cut loose. That story left two threads dangling: Ninja Theory and Undead Labs had both reportedly “entered terms” with new owners, but Microsoft never named who. On September 22, both threads got resolved — one badly, one well — inside a second, even bigger restructuring that also hands the Halo franchise to Activision.

Halo leaves Halo Studios

The headline change: Activision, not Halo Studios, will build the next mainline Halo game. Xbox says the project is going to a newly assembled team inside Activision that operates separately from Call of Duty development, while what remains of Halo Studios shifts into a support role — maintaining existing Halo titles and servicing the community rather than leading new development. Rare, the Sea of Thieves developer, and World’s Edge, the Age of Empires studio, are moving to Activision alongside Halo. It’s a striking reversal for a franchise Microsoft built an entire internal studio, Halo Studios (formerly 343 Industries), around for over a decade.

Obsidian folds into Bethesda, Forza and Fable merge

Obsidian Entertainment — maker of The Outer Worlds and Avowed — is being absorbed into Bethesda, though it keeps working on Grounded and its in-development new Fallout project rather than being redirected. Separately, Turn 10 Studios (Forza) and Playground Games (Fable) are merging into a single studio spanning both franchises, ending years of the two teams operating side by side under the same racing-and-fantasy umbrella. Xbox Game Studios cut 268 more roles as part of the announcement, part of roughly 600 job losses across Microsoft, with about 300 of those in Washington state.

Ninja Theory’s rescue deals collapsed

Here’s where our July story gets an unhappy update. Back then, Xbox said Ninja Theory — the Hellblade studio — had entered terms to join new ownership with funding to finish and grow the Senua series. That fell apart. Xbox chief content officer Matt Booty said two separate agreements to sell Ninja Theory have now failed, and Microsoft has begun a UK-mandated consultation process over a proposed closure. Booty said the company will keep exploring other options during that consultation, so a last-minute buyer isn’t fully ruled out, but the studio’s status has gone from “saved” to “likely closing” in under three months. Senua, the studio’s next game — a bigger action-adventure follow-up to Hellblade announced for 2027 — now has no clear future as a result.

Undead Labs got the outcome Ninja Theory didn’t

The other loose end resolved more cleanly. Undead Labs — the State of Decay studio Microsoft acquired in 2018 — has completed its split from Xbox and is now an independent, employee-owned company, rather than being sold to an outside buyer as July’s language had implied. State of Decay 3 is unaffected: the game is in alpha, the studio is still targeting a closed beta before the end of the year, and it remains on track for a 2027 release on Xbox, Game Pass, PC, and — notably — PlayStation, expanding beyond the Xbox-exclusive positioning the series has always had under Microsoft.

A restructuring that isn’t finished

Two details suggest this isn’t the end of it. Insider Gaming reported Xbox is only “three-quarters” of the way through its planned restructuring, meaning more studio and staffing changes are likely before the process wraps. And the pattern from July is repeating: Microsoft is again choosing to preserve some studios (Undead Labs, Obsidian) while cutting others loose entirely (Ninja Theory), rather than applying one uniform policy across the division. What’s different this time is the scale of the franchise-level shuffling — Halo changing developers is a bigger structural move than any single studio closure, and it signals Microsoft is now willing to treat its most valuable IP, not just its smaller studios, as something to reassign in the name of the reset.

---

For the full account of July’s cuts and spinoffs that set this up, read our earlier coverage of Xbox’s 2026 reset, and for how this fits the industry’s broader trend, see our piece on record profits alongside record layoffs.